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Resources Top Picks 2008 by MIRABAUD

Coal of Africa – South Africa; a major coking coal play in the making.

Coal of Africa (CZA LN / CZA AU / CZA SJ) – 85.7p, market cap – £254.9m

First production is targeted for Q3 2008. CZA has a portfolio of coal projects in
South Africa which position the company to exploit both the domestic thermalcoal
market, which is increasingly struggling to supply enough electricity, and the
export thermal-coal market, in which spot prices are currently US$95.85/t
compared with contract prices (year to 31 March 2008) of US$55/t.

Further ahead, the Baobab project offers the prospect of exploiting the lucrative
coking-coal export market, where spot prices are currently well above the current contract prices of US$96/t.

CZA’s first production, scheduled for the third quarter of this year, will be from the
Mooiplaats mine. Mooiplaats is near Ermelo, an existing coal-mining area with
good infrastructure, and contracting and other services readily available. The
main railway to Richards Bay (and the ~70Mtpa coal-export terminal) passes
across the Mooiplaats property, and the recently reopened Camden power station
lies right next-door. CZA plans to wash the coal to produce 4.5Mtpa of exportquality
thermal coal and 1.5Mtpa of domestic product for Camden, with ramp-up to these levels taking about two years.

DCF model of Mooiplaats contributes around 60% of our current valuation for
CZA of 157.4p. The bulk of the balance (~23%) comes from the Baobab project,which offers CZA major ‘blue-sky’.

Baobab is a series of properties in the northern province of Limpopo covering
some 22 farm areas. CZA recently established a resource of 713.1Mt on just two
of the farms – Fripp and Tanga – within which it defined a mineable portion of
156.4Mt based on a conceptual surface mine design. Our valuation is based on transaction-derived valuation multiples for this mineable resource, plus historical
reserves on two other farms.

The share price has performed very strongly in 2007 – rising from 19.5p to 78.0p
at the year-end, a rise of 300%. We believe it has significantly further to go as
production at Mooiplaats draws near and the project is de-risked, and as plans for
mining at Baobab become better-defined and a valuation based on cash-flow can be established.

CZA is well-positioned to exploit a variety of domestic and export markets for
both thermal and coking coal. At current coal prices, cash flows and margins are
highly attractive. At full production from Mooiplaats and using our long-term
assumed export-thermal price of US$55/t (in 2007 money), we forecast EBITDA of
A$115.7m in FY11 (end-June), an EBITDA margin of 28%. At the current export
price of US$95.85/t, FY11 EBITDA would be A$302m and the margin would be 50%.
(Note: these forecasts exclude any early contribution from Baobab).

As with the other bulk commodities, coal prices reflect actual supply/demand, as
there is no derivative market by which speculative money can play them.