The vastly improved financial condition of Teck Resources Ltd. suggests the company could reinstate its dividend, according to RBC Capital Markets analyst Fraser Phillips.
Teck dropped the payout (worth nearly $500-million a year) in late 2008, when its debt load from the acquisition of Fording Canadian Coal Trust looked unmanageable. But since then, the Vancouver-based miner has repaired its balance sheet through asset sales, debt payment deferrals and a huge bond sale.
"[First quarter] proceeds from asset sales, together with free cash flow in 2010, should allow the repayment of the remainder of the [Fording] bridge loan, the key condition Teck has set for the resumption of the dividend," Mr. Phillips wrote in a note to clients.
Mr. Phillips hiked his price target on Teck to $45.00 a share, up from $40.00. He expects that metallurgical coal markets will remain tight throughout 2010, with recovering demand in the developed world adding on to strong demand from China and India. His coal price forecast for 2010 is US$185 a tonne.
TD Newcrest analyst Greg Barnes pointed out another piece of good news for Teck: its new two-year coal shipping contract with Westshore Terminals LP. The deal includes fixed shipping rates that do not fluctuate with prices, something that Mr. Barnes believes Teck has wanted.
"The fixed rate should provide the company with more upside to coal prices over the next several years, a time during which we are expecting robust metallurgical coal prices," he wrote.
Mr. Barnes rates Teck stock an "action list buy", with a price target of $51.00 a share.