broker report and forward earnings value, page-6

As someone who has had a bit to do with broker research it is understandable why the valuation is 12 cents. Which I think is close to fair, if not a bit conservative.

While the stock is too cheap presently, it is a real stretch to extrapolate earnings which do not yet exist and put them on a multiple of 20 times (to justify a 40 cent valuation). There is a lot of water to go under the bridge before we even see free cash flow and record a profit. Brokers are also reluctant to factor in the present high coal prices into their DCF models. If prices do stay up they will upgrade their valuation then. There is just too much career risk for an analyst to assume everything goes right in his valuation.

I personally doubt if CCC will ever trade on 20 times earnings (though I wouldn't complain if it did!) and here are my reasons:

Remember the premier Coal Company in Australia CNA doesn't trade on 20 times earnings and we are in the midst of a resources boom.

To trade on 20 times the asset needs to be appealing (not to big and not too small) to a major who sees clear synergies with its existing operations.

CCC does have a few things against it which I believe is why as yet we don't have a big institution on the register. Remember the assets are a collection of mines that the majors have sold off, none of which is large enough in its own right to be attractive to a Peabody or the like to swoop on.

It is also all thermal coal which is much lower margin than coking coal and its in South Africa not Newcastle. Their is policital risk here in institutional eyes as SA is now contemplating limiting exports of thermal coal. Not good as the price of thermal coal sold locally is much lower than the export price. So CCC is unlikely to have the margins & profitability of some of the bigger players unless there is some joy from Botswana, but how can an analyst value that?

I'm not trying to be negative as I am a shareholder and am hopeful to make a return in multiples of the current share price, but 40 cents? Well you will need a lot of luck to see that (without consolidation of course).

Good Luck to all shareholders.