Looking Good

Resource Rising stars picks this to go up 400%

Balamara set to soar as it develops low-cost Polish coal mines

Beer & Co equity research values emerging ASX-listed miner at 27c-a-share as it closes in on development of advanced Polish coal portfolio


Emerging European coal miner Balamara Resources (ASX: BMB) has been rated as a BUY and valued at a 400 per cent premium to its current share price of 6.5c in an in-depth research report on its portfolio of three Polish coal assets.
Beer & Co equities research values Balamara at an eye-catching 27c-a-share, saying it is poised to cash in on potentially fat margins from the low-cost development of these projects in the low operating cost environment in Poland.
“Balamara has acquired three Polish coal projects,” says Beer & Co’s experienced analyst Pieter Bruinstroop. “First coal, at 2Mtpa at a cash cost of just $37/tonne from $50 million CAPEX is expected in 2016.”
Bruinstroop is referring to the Mariola thermal coal project in southern Poland, which he says is likely to be the first into production due to the infrastructure in place.
Balamara recently acquired a 15% stake in Mariola for cash plus shares, but can soon move to 100% once it completes a maiden JORC resource, which Bruinstroop suggests could be imminent.
“It is an advanced project that it expected to have a JORC resource in October and a feasibility study early in 2015, for first coal late 2016,” he says.
He estimated CAPEX of $50 million for production of 2Mtpa of saleable coal at an all-in cost of under $40/tonne with first sales in 2016. This compares with a benchmark thermal coal price of $70-80/tonne. These impressive metrics underpin an estimated NPV, using a 10% rate, of US$500 million for this asset alone.
“Nowa Ruda will be next,” he continues. “This project contains both hard and semi-soft coking coal, with CAPEX of about $150 million for 1Mtpa of saleable coal at an all-in cost of under $70/tonne.
“Balamara acquired NowaRuda via an exploration lease in July 2013. As a previously operating mine, it is largely developed. Much of the steel-work and machinery has since been removed, but the development is still in place,” Bruinstroop says.
“A re-developed mine is expected to have a capital cost of about $150 million to produce 1Mtpa of saleable coal at an all-in cash cost of under $70/tonne, despite first coal being 600m below surface. Our estimated NPV, using a 10% rate, is US$230 million.”
Beer & Co estimates an average sale price of $125/tonne for coking coal from Nowa Ruda.
The report goes on to note that the projected capital and operating costs of all three of these projects are low, due to low average wages in Poland and availability of skilled labour.
“Capital and operating costs are low in Poland; average wages are €681/month, or A$1,000, compared with A$6,550 in Australia. Skilled labour is available.”
“Despite current low coal prices, Beer & Co’s analysis shows that each project is a valuable project even at current prices,” it says.
“In our analysis, Beer & Co showed that each project would be viable using Australian wage rates only with our base case coal prices and not viable at current prices.
“Despite the fact that BMB will need to raise equity to develop each project, Beer & Co initiates research on BMB with a BUY, high risk recommendation.
“Over time, the projects should be progressively de-risked and the valuation rise accordingly.”
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