More coal resources adding value ?h Cockatoo Coal has reported lower production and sales in its latest quarterly. ROM coal production at Baralaba was 99kt for the quarter, down 9% compared to same period last year, and 399kt for the nine months ended March 2010. This is also a 37% fall on the record production of 156kt achieved in the December quarter. ?h The decline is due to the very heavy rain in the Bowen Basin which restricted access to the mine for several weeks in March. There was no serious damage to the pit but production and shipments to port were disrupted. As COK states, however, Baralaba does not have stand-by penalties for production and no roll-overs in prices for its coal supply contracts, meaning that sales forgone in March will be more than compensated by the higher PCI prices beginning in 1 April. ?h Cockatoo relays that PCI contract pricing struck by major suppliers have increased substantially to around US$170/t. COK is still in negotiations with its customers regarding pricing for JFY10. We have assumed $175/t for this year??s prices. ?h Meanwhile cash costs for Baralaba that have been declining steadily through the past 12 months increased slightly from A$96 to A$104 per tonne. This still lower than the A$125 of earlier in 2009. ?h The improvement on prices and in costs means that COK is now making gross profits from Baralaba, and we expect that if the current situation continues COK could achieve gross profits of between $10- 20m per year and is now a self-funded explorer. ?h The company has achieved resource increases in its several deposits in the Surat Basin, taking resources to a total of 330Mt and increasing our valuation by 3 cents per share. Significantly, the concerted drilling campaign at Baralaba has confirmed a 7km strike length north of the existing mine. ?h Our valuation has increased to $0.69 following from increased prices and higher resources. Note that COK will be the only listed PCI producer left if MCC is taken over. Accordingly we retain our BUY recommendation with a price target of $0.70 per share.
COK Price at posting:
40.7¢ Sentiment: Buy Disclosure: Held
