I recently sent some fairly confrontational questions to Don Turvey. I was bit surprised when he called me back. His response resolved the residual issues I had with CCC. Mr Turvey comes across as extremely straight forward and honest. He sounds more like an operations guy than investor relations oriented CEO. I guess his job will remain to focus on getting the mines developed. However, as I said to him, he is well respected and I hope his profile will lift a bit to improve CCC sentiment.
Most importantly for me, he confirmed that the balance of the convertible is still available and the settlement of Vanmag still expected around middle of this year. (The Vanmag settlement should hopefully clear up the qualified audit opinion as well as providing cash). As I've posted before, I believe that should leave CCC sufficient cash to continue moving forward with their development plans this year. Provided that most of the settlement of Mashala can be met in shares as CCC have said. If they raise a further say $30m at the Aim listing, that will provide further comfort. (I didn't discuss the Aim listing with Mr Turvey but would be surprised if they didn't raise cash).
Given that EDF has the security package, I would hope that they would make more funds available once Penumbra is underway. Mr Turvey said that that the EDF relationship was developing well. Aside from that, presumably CCC could announce project financing facilities at any time as they have indicated earlier.
I had been concerned that the market would be again disappointed with the upcoming results, both quarterly and half yearly. I think that simplistic analysis based on the FOB costs given by CCC can cause unrealistic expectations. Obviously I didn't ask Mr Turvey to comment on the upcoming quarterly results. However, he did suggest that much of the costs in the previous quarters were one off, associated with cap raising etc. I think that's right and its possible the level of corporate overhead comes in a little less than people expect this time. Of course CCC may choose to provide very limited information in the quarterly but recent communications have been much more detailed and precise. Therefore I'm hoping that the quarterly report will include additional information this time around.
In terms of valuation, I've always thought that the analyst valuations were about right at around 12-14 cents per share. They discount CCC's own business plan using a variety of methods. Using my own approach below, with a 8x multiple of 2012 EBT, I get to 10.5 cents using $100 coal or 15.9 cents using $125 coal. That factoring in the BEE minority, 30% up front costs of financing, dilution from options and the settlement of Mashala in equity.
I'm assuming Dewitt up and running at 2.7m tonnes by the beginning of 2012. Likely some slippage there but doesn't make a lot of difference to valuation as long as doesn't fall yrs behind! I've not allowed for Dewitt complex to move to full production (6mt)which is supposed to happen by mid 2012. For that reason I've included only $40m of the $40-$70m capital cost, which I think is for the broad Dewitt complex. Therefore, I've not included any value for Vaalbank. It is possible that could be in production in 2012. The Old Park Lane report said there were ongoing discussions with Total regarding merging with the adjacent Forzando colliery, which could lead to production there by the end of 2011. (Apparently Forzando and Vaalbank are part of the same seam).
The biggest question is over the FOB costs given for Penumbra and Dewitt. Both coincidentally $61. The former is based on the BFS done some time ago, and adjusted for inflation by CCC I think. I think the latter is based on prefeasibilty done for Dewitt in 2009 and again adjusted for inflation I assume. I suggested to Mr Turvey that they provide footnoted detail on these numbers when they are provided. In reality we'll be finding out shortly with the BFS on Dewitt due by June. That will obviously be very important.
I've not really discounted the valuation much for execution risk etc. To balance though, I have ignored a fair bit of upside with the broader Dewitts complex moving to full production.
I've randomly valued the Botswanna leases at $20m. Some people probably think there's more value there and CCC seem very confident based on the work that has been done post the Mashala acquisition. However, its appears to be at least 5 yrs before rail lines and other infrastructure could be in place and with no holes yet drilled, I'm sticking with that. Of course, keeping in mind upside to somewhere around the c$424m where CIC was sold if things go very well.
VALUATION BASED ON 2012 EARNINGS
Assumptions
Coal Price 100 EBT Multiple 8
Debt EDF 15,000,000 Cvt 5,900,000 Penumbra Dev 36,000,000 Dewitt Dev 40,000,000 Less Cash 9,000,000 Net Debt 2012 87,900,000
Ferreira Export Sales Tonnes 500,000 Sales Revenue 50,000,000 Costs 35,000,000 EBIT 15,000,000 EBIT *2 30,000,000 Less Clean Up Provision 6,000,000 Net Value Ferreira 24,000,000
Value of Vlakplaats 19,142,857 Based on paid by BEE and Kores -zar134m for 50pc)
Vanmag 9,000,000
Adjusted Equity Value 536,222,857
CCC Share 74% 396,804,914 BEE Mashala Loans 14,300,000 BEE Loans Dev 19,760,000 Value of Botswanna Leases 20,000,000 Option exercise 50,813,648 Net CCC value 501,678,562
