hartleys initiate with $1.80 price target!, page-2

ATTILA RESOURCES LIMITED

Sweet home Alabama! – US hard coking coal

Attila Resources Ltd (“Attila”, “AYA”, “Company”) has a 70% stake in a high quality hard coking coal asset, with near-term production capability in the state of Alabama, USA. The Kodiak Project is located in the Cahaba Basin; some 40km south of the city of Birmingham and 350km by rail to the Port of Mobile. The Cahaba Basin is a satellite basin of the Warrior Basin and part of the coal producing Appalachia Region which has produced high ranking coals for over 150 years. The sharp rise in the use of unconventional gas for power generation has created a new paradigm in US domestic thermal coal demand. As a result, spare capacity now exists on the Country’s extensive rail and port network, in turn presenting an opportunity to get high quality US coking coal, such as Attila’s, into the seaborne market. In our view the US also offers significant cost advantages over other jurisdictions and has a large pool of skilled labour.
Coking coal production in <18 months for $30m-$40m

The Kodiak Project (“Project”) currently has a JORC Inferred resource of 81Mt of premium quality hard coking coal in two coal seams on the Gurnee Property. AYA also has an option on four seams on the nearby Seymour Property. Drilling recently started on the Seymour Property and we expect a resource to be declared once completed. There has been extensive surface and underground mining at Kodiak and the Project has a significant operational asset base including a wash plant, rail siding and load-out. Importantly the Project is also fully permitted. Development on AYA’s seams is limited to surface highwalls and the small Coke No.1 mine which produced coal between 2006 and 2008. The mine closed due to poor mine management and low domestic coal prices at the time. AYA intends to recapitalise the Project and develop an initial 1.8 - 2Mtpa export operation. There is potential for early expansion on the Seymour Property if AYA can define additional coal reserves. A Scoping Study is underway and, given the history of mining and existing infrastructure, this should move quickly to a BFS. We believe first production could be achieved in late-2014.

DCF valuation $248m or $1.71 per share

We have modelled the staged development of a 1.8Mtpa operation and estimate that the Project could achieve close to ~$30m EBIT in 2016. The Project has a number of key advantages due to its high quality coal, advanced nature and infrastructure rich environment. Naturally, there are challenges that will need to be overcome, including the management of methane gas and roofing conditions, which contributed to the closure of the previous mine. In our view, having travelled to the Project, we do not believe that there are any technical issues that cannot be mitigated with the appropriate engineering and investment. In recent years many ASX listed companies have travelled to high risk jurisdictions in search of quality assets. We believe that AYA offers a high quality asset with near term production, in a cost competitive and low risk jurisdiction. We have a DCF valuation for AYA of 248m or $1.71 cents per share. Our 12 month price target of $1.80 is a weighted average of consensus and spot prices. We initiate coverage of AYA with a Speculative Buy recommendation.