09:48 AM EDT, 05/12/2023 (MT Newswires) -- According to Shane Nagle over at National Bank, today's announcement is a "positive" for Teck's long-term copper growth initiatives. He said while a relatively smaller project, Zafranal adds to Teck's pipeline of development projects, including Nueva Union, Galore Creek, San Nicholas and the Newrange Copper Nickel JV with PolyMet.

Nagle noted one "potential challenge" for Teck will be advancing all these projects simultaneously, which could lead to further inflationary pressures. Given Zafranal is a shorter mine life operation and production is front-end loaded, Teck could always look to sell/monetize its interest in the project, he said.

National's Sector Perform rating stems from recent appreciation in the share price and uncertainty about the pathway to separate the company's coal/base metal's business units in a tax-effective manner, a deteriorated near-term outlook for coking coal prices given macroeconomic headwinds and questions related to regulatory approval for any opportunistic acquisition proposals (including an increased hostile offer from Glencore).

National said Teck's balance sheet is "capable of weathering a volatile commodity price environment without sacrificing near-term growth objectives and supporting supplemental shareholder distributions". A doubling of copper production with QB2 online and divestiture of Fort Hills is a step in transitioning the portfolio away from carbon-intensive commodities, National noted. Additionally, it said, the elimination of the dual-class share structure will make Teck Metal's portfolio more attractive to potential acquirers, supporting an elevated valuation multiple following any potential separation of the coal assets.

National noted TECK.B is trading at 1.28x P/NAV compared to NBF intermediate peers at 0.98x and 4.9x EV/2024E CF compared with Global Diversified Peers at 5.3x. National's target price is based on a multiple of 1.35x NAV (50%) + 6.5x EV/2024 CF (50%).