Investing.com -- RBC (TSX:RY) Capital Markets has upgraded Westshore Terminals Investment Corp (TSX:WTE) to Outperform from Sector Perform following a surprise decision to restart the approval process for Alberta’s Grassy Mountain Coal Project. The firm raised its price target to C$30 from C$23, citing upside not yet reflected in current trading levels.
“The Alberta Energy Regulator made an unexpected announcement last week — approving the Grassy Mountain Coal Project,” analyst Walter Spracklin wrote in a note to clients. “We do not see this upside as priced into shares at current levels and this is the driver of our upgrade today to OP.”
Although the regulatory change does not guarantee the project will move forward, RBC views it as a meaningful step for Westshore due to its previously contracted volume of 4.5 million tonnes per year. Spracklin noted the terminal is already operating near capacity, with a throughput run rate of 26.5Mt versus its nameplate capacity of 35Mt.
The project’s focus on metallurgical coal also supports RBC’s re-rating outlook, as demand fundamentals remain stronger than for thermal coal. “We expect a material re-rate higher in WTE shares if the project is approved,” Spracklin added.
Westshore management confirmed there have been no renewed discussions regarding future throughput from Grassy Mountain. However, RBC believes the terminal will secure the volume if production resumes and has adjusted its valuation model accordingly.
“We value Westshore shares off a discounted cash flow methodology and today lower our cost of capital assumption to 8% (from 10%), reflecting the upside Grassy Mountain represents,” Spracklin said. RBC sees Westshore continuing to benefit from robust free cash flow and zero debt, offering downside protection even if the project does not go ahead.