Here are two Canadian metals and mining stocks that we rate ‘buy’. One is a recovery play based on the entrepreneurial skills of its 37.5-per-cent owner and its current price being well below book value. The other is a well-managed integrated mining company whose activities include exploration, development, processing, smelting, refining and reclamation in Canada, United States, Chile and Peru.

Shares of Vancouver-based Imperial Metals Corporation (TSX—III) have plunged almost 44 per cent since May, and the downward momentum could make them fall further. Imperial is an exploration, mine development and operating company. It owns the Red Chris, Mount Polley and Huckleberry copper mines in British Columbia. It also owns half of the Ruddock Creek lead and zinc mining property in BC.

Imperial is expected to lose 51 cents a share in 2017. This beats last year’s loss of 69 cents a share. The 2017 loss is confirmed by negative cash flow. We calculate that it bled cash of $14.7 million over the last four quarters.

In 2018, Imperial is expected to earn 48 cents a share. Based on this estimate, the shares trade at an attractive price-to-earnings ratio of 7.1 times. But next year’s better outlook has done little for its share price. Then, too, price-to-earnings ratios are less useful in valuing cyclical stocks.

We’ve considered downgrading Imperial to a hold—the consensus recommendation of five analysts. But we’re hesitant to do so for the reasons given below. As a result, the company remains a buy. But only if you need no dividends and you can accept buying a volatile stock.

Imperial seems cheap by a standard yardstick of value: it trades 22 per cent below its book value of $4.37 a share. That is, it has room to move up.

Murray Edwards owns 35,064,898 of Imperial’s shares, 37.5 per cent of the 93,576,710 shares outstanding. Mr. Edwards is an experienced entrepreneur, and with his money on the line, we expect him to turn things around.

There are also, however, some strikes against Imperial. With negative cash flow over the latest four quarters, we can’t calculate its net debt-to-cash-flow ratio, of course. Instead, we calculate its net debt-to-equity ratio. Subtract cash and short-term investments of $60.118 million from total debt of $207.184 million, and the company’s net debt is $147.066 million. Divide this by the shareholders’ equity of $408.613 million and you get a ratio of 0.36 to one. That’s like 36 cents of debt for every dollar of equity. This ratio seems safe.

With negative cash flow over the last four quarters, we can’t calculate its price-to-cash-flow ratio. This deprives us of a yardstick of value.

Imperial has paid no dividends in the past five years, and we don’t expect it to do so anytime soon, if ever. Its erratic earnings per share would make it difficult to maintain a dividend during downturns. The company would likely rather use any extra cash to service and, hopefully, reduce its total debt.

On balance, we rate Imperial a buy for a share price recovery. But only if you don’t need dividends and can accept buying a volatile stock.

A conservative stock with P/E of 7.8 and P/CF of 3.5

Vancouver-based Canadian metals and mining stock Teck Resources (TSX—TECK.B; NYSE—TECK) is a diversified resource company with major business units focused on copper, steel-making coal, zinc and lead.

Shares of Teck have fallen by 9.3 per cent since May. This gives them downwards price momentum, which may surprise you. However, this year, the company’s earnings are expected to jump by 130 per cent, to $3.29 a share. Based on this estimate, it trades at an attractive price-to-earnings, or P/E, ratio of only 7.8 times. Similarly, its price-to-cash-flow, or P/CF, ratio is only 3.5 times. This is within a ratio of the five times or less that can indicate a buy.

But the forward-looking market is reflecting how stocks are expected to do in 2018. We think this is the case with Teck. In 2018, its earnings are expected to fall by over 31 per cent, to $2.26 a share. Based on this estimate, its P/E ratio is a still-attractive 11.4 times. But P/E ratios are less useful in valuing cyclical resource stocks. As lower earnings usually lead to lower cash flow, Teck’s P/CF ratio is likely to deteriorate in 2018.

Teck is well diversified. A setback in the price of one commodity need not drag down others. A glut of steel, for instance, only hurts steel-making coal.

Teck is managing its businesses. On June 29, it acquired Goldcorp’s (TSX—G) 21 per cent stake that it didn’t already own in a Mexican copper and zinc mine. It paid Goldcorp US$50 million for its interest. When the transaction is completed, Teck will own all of the mine.

On May 12, Teck sold its two-thirds interest in the Waneta Dam and related assets to Fortis Inc. (TSX—FTS). BC Hydro owns the other third. Fortis agreed to pay Teck $1.2 billion cash, and it expects to book a tax-free net gain of $800 million on this sale.

Teck president and chief executive officer Don Lindsay said: “This agreement will further strengthen Teck’s balance sheet and provide significant new capital that can be reinvested to grow our overall business. We have secured a long-term power supply for Trail [industrial] operations at competitive, below-market pricing and will reinvest in innovative projects to further enhance and modernize this facility.” Teck’s net debt-to-cash-flow ratio is a safe 1.3 times.

Fortis president and chief executive officer Barry Perry said: “Waneta is a high-quality, renewable energy facility located in an area central to our BC operations, making this acquisition a natural fit with our strategy to increase our investment in sustainable energy. Waneta will be a stable long-term asset that will generate strong cash flows secured by a 20-year lease with Teck. The transaction is expected to be immediately accretive to earnings per share.” This will assist Fortis in raising its dividend.

We wish that Teck would resume paying dividends of 90 cents a share, as it did in 2014 and 2015. Its current dividend of a dime a share yields less than 0.4 per cent.

The consensus recommendation of eight analysts is a ‘strong buy’. We rate it a ‘buy’ for long-term share price gains and small dividends.

The MoneyLetter, MPL Communications Inc.