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We reaffirm our $95 price target for Teck,
assigning $62 to conventional mining and $33 to oil sands. In effect, we
reallocated $12 to the conventional mining due to higher coal prices,
faster debt paydowns and a lower discount rate, and assumed that Teck
"partners out" 25% of its oil sands assets to help fund capital spending.
Oil sands assets appear
more valuable, and ultimately we believe the market will come to our $6 per
barrel valuation of oil sands reserves/resources. Further, Teck's 1.57
billion barrels of oils sands resources stem from no more than 8 of the 28
claim blocks, and we estimate 4 billion barrels because we believe all 28
contain economic mineralization.
The March 30th $1.5 billion IPO of
Athabaska Oil Sands Corp. broke the $1 per barrel valuation for “oil sands
resources in the ground,” benefiting the valuations of oil sands shares
including Teck. China Petroleum & Chemical’s April 12th $4.65
billion purchase of 9.03% of Syncrude Canada Ltd. from ConocoPhillips was
equivalent to 26,000 barrels per day or 6.5% of Fort Hills, or $71.5 billion
valuation to 100% of Fort Hills. The February PetroChina $1.89 billion
purchase of a stake in Athabaska Oil Sands Corp.’s project further reinforce
upwards valuations. Further, the recent 21:1 ratio of crude oil-to-natural
gas prices strengthens oil sands production economics since nat gas to make
steam is a key cost input.
We cut Temple-Inland to Underweight from
Overweight because of price appreciation and fundamental risks associated
with containerboard, lumber and gypsum. Box shipment price realizations
fell $2 per ton sequentially in the March quarter, despite record $185 per
ton March OCC prices, due to price competiton among domestic paper, export
paper and domestic corrugated box destinations.
We estimate 500 to 750 million tons of
standing log inventories unharvested in 2007 to 2011 will place future
downward pressure on framing lumber prices, as eventually landowners will
unload those logs before the termites get 'em. Further, sawmill and gypsum
capcities are nearly enough to support 3 mm housing starts. So it is okay
to take profits.
Faithfully,
John C. Tumazos
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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