[买入评级]METALS & MINING：INDUSTRIAL METALS 1Q17 PREVIEW：STRONG FREE CASH CONTINUES FOR NOW
We forecast aggregate Industrial EBITDA falling $0.6bn QoQ to $7.6bn for our 5 companies under coverage. Freeport's setback at Grasberg and some seasonality with Vale's sales will likely offset positive iron ore and copper price moves. We expect sector Net Debt to decline 7% to $44bn, mainly a result of strong operational cash flow. Key discussion likely around the outlook for commodities following the large recent fall in the iron ore price, the impact of recent coal volume outages and progress at Grasberg. We maintain a Buy on Teck （cash flow, valuation）， Vale （valuation, improving Balance Sheet） and First Quantum （copper production growth）。
Balance Sheet repair now largely complete, options improving
We expect an update on Grasberg to be the central discussion point for Freeport including exports, progress with a long-term agreement and the underground development. Teck’s 2Q17 coal realized price and any update on QB2 as well as potential higher dividends are also likely to be topical. Vale’s progress at S11D and its blending strategy remain focus areas for the market. First Quantum’s progress at Cobre Panama, Balance Sheet and a Zambia update could all be discussed. SQM’s realized price for lithium is likely to improve the next few quarters in our view but could be nearing the top.
Positive quarterly pricing with improvements in most commodities
During 1Q17, coking coal prices declined 36% QoQ to average $171/t. The Iron ore price increased 21% QoQ to average $86/t. The average price for copper, zinc and lead rose to $2.67/lb （+11% QoQ）， $1.26/lb （+10%） and $1.03/lb （+6%）， respectively. As a result, we estimate a positive Quotational Period （QP） pricing adjustment of C$50m for Teck and $65m for Freeport.
Maintain Buy on Teck, Vale and First Quantum and Hold on Freeport and SQMOur Price Targets （PTs） are predominantly based on ~1.0x NPV. Risks include: Equity dilution, asset sales, commodity prices and FX. Please refer p. 6-10 for further details.
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