shortfall, page-5

This is the broker note on BTU from BGF. Formal research will be out soon. Basically - NPV under current management case = $1.63 and conservative BGF case = $1.10. Detail below.

SALES DESK NOTE: BATHURST RESOURCES LIMITED (BTU) Valuation Scenarios

A valuation of the Buller coal project including the Galilee assets

Further to my comments about how the acquisition of Galilee?s New Zealand coal assets has revalued Bathurst resources, I have provided some indicative NPV?s for the planned Buller project based on a number of scenarios. This excludes the existing operations at Cascade and Takitimu acquired from Galilee.

Scenario 1 ? Bathurst Management Case - The case presented by the company based on their feasibility study cash cost estimates and CAPEX and including the Galilee assets:

Combined JORC resource of 76Mt
Initial Project at the Escarpment/West Whareatea/Deep Creek prospects ramping up to 2Mtpa ROM
A second mine commencing in 2015 based on the North Buller/Blackburn/Millerton North prospects ramping up to 2Mtpa ROM.
A 90/10 coking coal/ thermal coal product split
The blending high fluidity coking coal product selling at a 10% premium to benchmark premium hard coking coal price (HCC=US$209/t.)
Export thermal coal achieves Newcastle benchmark price (US$98/t)
NPV = $1.63/share


Scenario 2 ? BGF Base Case - The case using the companies feasibility study cash costs estimates and including the Galilee assets and the same production ramp-up but assuming the following:

A 70/30 coking coal/ thermal coal product split (to be conservative until higher split can be confirmed).
The coking coal product selling at parity to benchmark premium hard coking coal price.
Export thermal coal achieves Newcastle benchmark price.
NPV = $1.10/share.
Common Assumptions:
NPV modelled using a long term exchange rate assumption of A$/US$ = 1 (parity).
A discount rate of 10%

Run for life of mine cashflows
Exploration upside ignored ? current resources assumed to be upgradable to mineable reserves

Comment: Bathurst appears fundamentally cheap, trading at a 50% discount to BGF Base Case NPV of $1.10 per share and a 66% discount to the Bathurst Management Case NPV of $1.63 per share. While we believe the more conservative assumptions adopted in the BGF Base Case are relevant at this point in time, further confirmation of coal quality, offtake agreements and further information on cash costs could move the BGF Base Case assumptions closer to the Bathurst Management Case. In addition to this, exploration upside may provide significant extension to the life of mine and increase these valuations.



Needless to say that under either scenario, the stock looks compelling value at these levels.