Ann: 30 June 2022 results announcement, page-10

Took a bit of time to look at the 30 June 2022 result and financial statements this morning.

The Good

• Net Assets of $193m is greater than current market cap of $180m.
• Consolidated cash in bank is $76m and will likely be in excess of $100m at the end of this current quarter
• Other than the $19.2m of finance leases for mining equipment the group has not debt
• Forecast operating profit next year in my opinion will be about $45-$50m again.
• It looks like the current forward book is hedged above current market pricing and coking coal remains at a very healthy level around US$300/t
• I personally think the Crown Mountain has a massive potential upside with very minimal further investment required. This however is a longer term play and it may well be another 2 years before there is resolution of the consenting/permitting risk and another 2-3 after that before any coal is produced.

Given the aboveBathurst looks like a bargain and with continued profitable trading on thesurface it just doesn't make any sense as to why the current market value isbelow net assets and we should expect a rapid rise in share price at some point,however….

The Bad

• There was a consolidated $58.6m realised FX and coal hedging loss. That is a mind blowing number. If you gross it up from 65% to 100% that is $90m. I appreciate this past 12 months have been exceptional but in this case if management had done nothing (i.e. not hedged) the consolidated there would have been another $90m profit before tax in BT Mining last year! Per the interim report I get the impression that management do not intend to change their strategy/have not taken on board any lessons learned…
• The ongoing litigation with L&M Coal - although we are told it is low risk, the shareholders have been told before that the Board are very confident in a positive outcome when in fact there was much more risk than we were led to believe.
• Poor communication by management. - see notes below on 'capital management' issue as an prime example
• The parent entity is loss making and relies on dividends from BT Mining for cashflow. BT Mining made $53m of the $45.5m Bathurst operating profit in FY22. Note BT Mining owns the extremely profitable Stockton (Export) and profitable North Island Mines

This last point isworth exploring further. Even though Talley's only own 35% of BT Mining, theyexercise joint control and no dividends can be paid from BT Mining to Bathurstwithout their approval. At 30 June the Bathurst parent entity only had $9.3m incash, the remaining $66.7m is in BT Mining. As others have picked up, buried on the last page of the year endresults announcement is the comment 'Bathurst is currently working throughcapital management matters for BT Mining with the joint venture partner…'

Hopefully this isroutine and the issues with Talley's can be worked through quickly, allowingthe cash to be released from BT Mining to Bathurst and a dividend paid. However given the leverage that Talley's have over Bathurst, I can'thelp wonder what Talley's might be negotiating for.....

Overall I believethere is upside in the share price and the potential for some healthy dividends/share buybacks for shareholders but BRL definitely still has afew risks.