07.06
Canadian Pacific Railway Limited
Teck Coal Arbitration Complete
The CP and Teck arbitration has been completed. It is a one-year deal
expiring April 7, 2010 with the rate structure no longer tied to the price of
coal. CP expects to move 17.5-19.5Mt of coal during the contact and is
guiding towards $360M in revenue at the top end of the volume range.
Teck and CN have also negotiated an agreement to move coal to Neptune
Terminals with the contract expiring March 1, 2010. CN can move up to
3.5Mt (~15% of CP’s historical annual volume with Teck). It is the first time
Teck has a choice of rail carriers for coal exports from W. Canadian mines.
For the 2010 negotiations, with CN now a viable option to ship westbound
coal, we believe Teck is in a position to derive more competitive shipping
rates. We estimate Neptune could receive an additional 1-2Mt. Given its
leverage to Teck coal volumes, we would view this negatively for CP.
setting our 12-18 month price target at $48
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