TD Raises Miners' Price Targets on Rising Base Metal Prices

Soaring capital costs on base metal projects can only mean one thing, according to TD Newcrest analyst Greg Barnes: higher prices to support them.

He is raising his targets on a number of the metals to reflect the new cost reality. His new long-term prices are $1.75/lb for copper (up 25%), $0.75/lb for zinc (up 7%), and $7.00/lb for nickel (up 27%).

In a note to clients Mr. Barnes wrote:

We believe that a significant portion of the capital cost increases that have occurred over the past several years reflect increased environmental costs, the requirement to mine lower grade ore (which in turn necessitates larger, more expensive equipment) and the fact that new projects are being developed in more remote areas that are either politically risky or lack infrastructure," Mr. Barnes wrote in a note to clients.

He is also increasing short-term price forecasts for copper and coking coal because of the supply constraints in both markets.

Higher price assumptions means higher targets on the base metal stocks, and TD has lifted them for all the big names, including Fording Canadian Coal Trust (FDG)[from C$44 to C$52 a share] and Teck Cominco Ltd. (TCK)[from C$40 to C$46 a share].

Comments

[Brian in Mo...:]

Funny, I had seen it from the other direction, especially for Gold stocks I've been watching.


Here's why I have a problem with that analysis, and I like TD...

Higher Costs, Lower Profits, Lower stock prices, maybe I'm just too old fashion.

Since when did Teck Cominco start setting the price of cooper ?

If so they should have done this a long time ago. Right ?

My point is, Be Careful, if these commodities take a breather those profits might just start looking like a mirage.

2008 Mar 08 11:53 AM

[OJO Zafado:]

I was Careful and sold my FDG in three partial lots up to $54.37. I was not so fortunate in GACHF where I took it off for a 40% gain at less than 1/2 of the $3.79 it ultimately hit. Both stocks have quieted down. Met coal is where money will be made. A BDF went out on GACHF last Aug at $1.35. Basically GACHF has over reacted to the move in coal. At some point I would be a buyer again around$1.60. The two US companies Massey Energy MEE and Alpha Nat Resources ANR are both big Met coal producers. The Canadian shares are more susceptble to price volatility as the Gov'ts both in Otawa and in each province have been taking advantage of their nation's strong resources demand. Taxes are being increased and are sceduled to increase for trusts like FDG in 2011. This will put some trusts in play for acqusition or conversion to MLP or even REITS for some. An interesting speculation is a BC miner known as Hillsborough Resources. They own a 20% stake in the BC Peace River coal project that is under developement. HLB-TSX is partnered with Anglo American so they "probably" have good capitalization. I like the shares if they retrench ~ $0.50. No coal being produced as yet but when they get the mine started up and start deliveries it should get to $1.25. While I don't see the kind of a move like GACHF had that put it on the radar of institutions it could make you a nice gain. This Met coal thing will go on for years and these stocks should be bought on SIGNIFICANT retracements. Alot can happen to Canadian coal stocks in terms of tax politics, and extremely bad winter weather that can not just hamper mining but the transportation system as well. These kinds of events will provide the buyer with good buying opportunities. I currently own no individual coal stocks except through some Nat Res mutual funds and ETFs.

2008 Mar 12 03:28 AM