Continental Coal reported its FQ3/12 operating results this morning with ROM production of 479Kt vs GMPe of 480Kt. At the Ferreira mine export coal production was 3% higher than our expectation and at the Vlakvarkfontein operation domestic coal production was 5% ahead of our forecasts. However overall sales were weaker than expected due to lower available railings and we also expected some inventory sales which did not occur.
Other key developments during the quarter:
The company has acquired prospecting rights adjacent to its Ferreira mine with 350-400Kt of ROM coal. It has also commenced direct deliveries to Eskom from its Vlakvarkfontein mine from 1 March 2012.
CCC highlighted that the development of the Penumbra mine is on track for production start in September 2012. It has made significant progress in the twin decline and key underground mining equipment is now ordered.
Changes to our model:
We have updated our model for the operating results and the cash balance, which has fallen to A$6.6m from A$11m. We have also included the 350Kt ROM coal to be processed by Ferreira in 2014 which has increased its valuation to A$8m from A$5m. Following these changes our overall valuation has remained unchanged at A$227m.
PT unchanged at A¢45; maintaining BUY rating
We value Continental Coal using a SotP valuation based on DCFs for its operations and the Penumbra and De Wittekrans projects and EV/resource multiples for its other development projects. Changes to our model have left our per share value materially unchanged at A¢45.20 and we leave our price target unchanged at A¢45 (GBp29). We maintain our Buy rating.
CCC Price at posting:
18.5¢ Sentiment: None Disclosure: Held
