time to buy the coal stocks

IKW looks very attractive: "Cash production cost for Australian thermal coal is around US$74/ton, including royalty and carbon tax."

http://www.saham.kedaitrader.com/2012/07/cc-time-to-buy-coal-stocks.html

Time to buy the coal stocks
Kedai Trader Monday, July 2, 2012

We met with Mr. Scott Merrillees and Mr. John Ramos of Berau Coal yesterday. Two key take-aways that gave us the feeling that Indonesia coal stocks are near bottom.

(1) Cash production cost for Australian thermal coal is around US$74/ton, including royalty and carbon tax. NEWC coal price of below US$80 may bring-in enormous harm to the Australian coal industry, triggering strong supply response. Stronger AUD of late has made the situation worse.

(2) BRAU has locked-in 86% of its targeted sales volume for FY12 at a price range of US$76.5-78.5, versus FY11A ASP of US$80. If the company were to hedge the FY13 ASP today based on current swap curve, Mr. Ramos is estimating an FY13F ASP of between US$72-75, only US$3-4 lower than what's already locked-in for FY12. But no Indonesia companies, to our knowledge, are willing to lock-in FY13 prices in anticipation of a rebound. Arguably, the 30-40% share price fall in Indo coal stocks looks excessive compared to the US$3-4/ton price reduction potential in FY13.

Separately, we met with the CFO of one of the leading coal bed methane (CBM) company in Indonesia, to exchange views on the natural gas price outlook in Indonesia. The key take-aways:
(1) We can forget about shale gas in Indonesia for now. The first CBM licence was awarded in 2008. Four years later in 2012, we have not seen much CBM gas flowing just yet. But it is picking-up speed and drilling has been more active. Indonesia will see CBM gas first, long before shale gas hitting this market.

(2) Coal companies have positive exposure to CBM gas (not all, but company like BUMI and HRUM are positively exposed). No one has factored-in the potential value attribution from CBM gas into coal stocks' valuation in Indonesia.

The higher beta bets on Indo coal names when thermal coal prices are rebounding would be ADRO, BUMI, HRUM, and BRAU.

Source : Citra