patersons initiate coverage, page-23

http://www.proactiveinvestors.com.au/companies/news/30760/universal-coal-patersons-initiates-coverage-with-buy-recommendation-and-a030-price-target-30760.html

Universal Coal: Patersons initiates coverage with BUY recommendation and A$0.30 price target
Monday, July 02, 2012 by Proactive Investors

Universal Coal’s (ASX: UNV) potential for near term production from its Kangala Thermal Coal Project in South Africa has attracted broker coverage from Patersons, which has placed a BUY recommendation and $0.30 per share price target on the company.

The following is an extract from the report.


One step from production

Investment highlights

Universal Coal (UNV) is a South African coal company with strong management and a pipeline of domestic and export coal projects.

UNV is currently managing 5 projects that are at various stages of development. All have resources totalling 1.9Bt, of which 741Mt are attributable to UNV.

Off-take agreements, rail and port allocation and partnerships are being negotiated. We are initiating coverage of UNV with a BUY recommendation and a price target of $0.30/share.

- Near term production – The Kangala thermal coal project will be UNV’s first project into production. The optimised Bankable Feasibility Study (BFS) was released in April 2012.

UNV has all the required permitting including water and it has executed a binding term sheet and MOU for a Coal Supply Agreement with the major South African power utility, Eskom.

Development is scheduled for later this year with first saleable coal to be delivered in 2H CY2013.

- The BFS – Evaluated that the optimal production of 2.1Mtpa of saleable coal tonnages is achievable from a planned 2.4Mtpa run-of-mine (ROM) production.

It will be an open cut operation, with a 1.7:1 stripping ratio, low operating cost of $13.5/ROM tonne and a total capital required to bring this project into production of $50M, including working capital and contingencies.

The current pit is adjacent to additional resources and it is highly likely the projected life of mine for Kangala will be in excess of 16 years.

- The big metallurgical project - Berenice/Cygnus Coking Coal Project is located in the Limpopo coalfield.

The project is outside environmentally sensitive areas, including the Mapungupwe World Heritage Site and the proposed buffer zone.

A Concept Study confirmed that the project is viable and can support a 10Mtpa open cut operation well in excess of 25 years, producing both primary soft coking and secondary thermal coal products.

- Catalysts – 1) Kangala funding 2) Kangala resource upgrade 3) Berenice drilling update 4) The Brakfontein feasibility studies