Placing Kuro shares in a 12mth escrow? Thats a great way to kill an IPO! … there is a price for liquidity
What Tarzan has stated is factually correct
Forget Kuro for the moment and move on … the AFR certainly has …
NOTE - "makes it near impossible to extrapolate a share price cap at this point"
Atrum shares set to rocket 06 May 2014
Whichever way you look at Atrum Coal’s Groundhog prefeasibility study (PFS) released on Tuesday, it is simply outstanding, and when the company emerges from a trading halt its shares will surge.
It is difficult to peg where the share price will finish given the PFS indicates the project has a net present value $2.1 billion, but perhaps Atrum’s managing director, Eric Lilford, said it best when he spoke exclusively with Smart Investor on Tuesday.
In highlighting the key features of the prefeasibility result, Lilford said the project, located in British Columbia, Canada, can deliver a rare and valuable product at low cost that will generate tremendous revenue streams for Atrum with a relatively low capital investment.
With a 1.5 billion tonnes resource, Lilford said the sky is the limit in terms of expansion possibilities. That limitless potential is the factor which makes it near impossible to extrapolate a share price cap at this point.
Atrum has established a record of outperforming, evidenced by the fact its share price is trading at a premium of 800 per cent to the IPO price after having listed on the ASX less than two years ago.
Institutional and retail investors like the fact management wants to get in and generate cash at the earliest possible stage.
In the PFS report management highlighted the company is well funded for 2014 with sufficient cash at bank to deliver first anthracite on ship through trial mining later this year.
Indeed, it is in the management of Atrum’s best interest to maximise returns, given it has a stake of more than 50 per cent in the company.
But it is the underlying economic fundamentals contained in the report highlighting the phenomenal amount of cash this will spin off which will grab the attention of investors.
What needs to be kept in mind is that the study, which confirms robust economics for peak 5.4 million tonnes per annum production covers less than 5 per cent of the Groundhog area and only two out of more than 20 anthracite seams.
Even factoring in a discount rate of 8 per cent, the net present value attributed to the Groundhog project is $2.1 billion. The pre-tax internal rate of return of 68 per cent is outstanding in an industry where anything above 30 per cent is considered strong.
Preproduction capital expenditure for the project is estimated at $US10 million ($10.7 million) in 2014 with ramp-up capital of $US67.1 million required in 2015. Development will be funded through strategic offtake financing and debt.
Mining, processing and transportation costs are expected to be $US88 per tonne. Given the global high-grade anthracite price is currently trading at $US187 per tonne, this implies margins of about $US100 per tonne. That’s well above those being achieved by coking coal producers, a commodity that is currently fetching in the order of $US120 per tonne.
Comparisons with broker reports make for interesting reading. Analysts at Bell Potter said last week that positive PFS numbers from Atrum that could embolden market confidence in the stock would include a life of mine duration of circa 10+ years, margins of $75 per tonne and a net present value (NPV) figure of more than $750 million.
With a 16 year mine life, margins 30 per cent higher than what Bell Potter perceived as robust and an NPV representing a premium of nearly 200 per cent to that cited by the broker, it won’t be long before analysts and institutional investors are all over Atrum.
Bell Potter said last week if planned objectives are achieved, Atrum could have a market valuation north of $500 million or $2.88 per share, representing a premium of about 60 per cent to the closing price prior to entering a trading halt.
Given the company has more than met ‘planned objectives” which revolved around annual production of about half that indicated by the PFS, Atrum could trade at these levels sooner rather than later.
Bell Potter noted some interesting numbers in its report, highlighting less than 15 per cent of anthracite used in the steel industry is at grades as high as those identified at Groundhog.
It is extremely rare to find the commodity in any quantity, particularly in a location that has the transport, infrastructure and proximity to port facilities open to Atrum.
The Vietnam government has even placed a trade embargo on anthracite exports in favour of keeping the commodity for internal consumption.
Atrum is well served by the deep sea port of Stewart, which provides ready access to key markets in Japan, Korea and China.
ATU Price at posting:
$1.90 Sentiment: Buy Disclosure: Held
(20min delay)