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Credit Suisse on Canada Metals: Likes Teck, First Quantum, Capstone, Inmet and Quadra

In this, our inaugural edition of 'North American Metals & Mining Matters', we provide an overview of the key takeaways from the 'Commodities Day' of our London Mining Conference, Credit Suisse said.

It said: "The theme of the day was the sentiment-driven decoupling between equity markets and physical commodity markets. On one hand, equities and our risk appetite model are suggesting an outlook worse than 2008. Meanwhile commodity markets remain generally robust and the Glencore traders painted a picture of business as usual.

"One of the only certainties to come out of the day was that the current spread between equities and commodities is unsustainable - but the question of which one is correct remains an unanswered question. As they did in 2008, will equity prices again prove to be the lead indicator, or are we due a risk appetite recovery and equity re-rating?"

Arbitrage trading opportunities exist. "We are advocates of a short commodities, long equities trade, on the basis that implied commodity prices in the equities are a fraction of the spot reality, with equities trading at 0.3-0.5x of NAV based on spot prices, versus 0.5-0.7x NAV based on our current price forecast. For those with a long only strategy, copper remains the consensus favourite with 47% of conference participants expecting it to be the best performing base metal over the next 12 months. Thermal coal is the consensus favourite among the bulks."

Our top Canadian copper exposure picks remain Teck Resources Ltd. (TCK-B.TO, Outperform, Target $70), First Quantum Minerals (FM.TO, Outperform, TP$31) and Capstone Mining Corp. (CS.TO, Outperform, TP$5) for the best combination of value, growth, asset quality and balance sheet strength. We also favour Inmet Mining Corp (IMN.TO, OP, TP$90) and Quadra FNX Mining Ltd. (QUX.TO, OP, TP$22) for catalysts and strategic M&A possibilities."

Credit Suisse added: "China has adopted a wait-and-see approach. China is currently providing demand stability, with demand variability originating in the troubled economies of the US and Europe. Inventory levels in China are light, but comfortable, with no imminent urgency to restock to higher levels given the concerns over potential slowdowns in the Western world."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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