Ann: Colton Project Update, page-3

Interesting update from Goldman Sachs today guys: Goldman Sachs reckons New Hope is a "fundamentally undervalued" high margin thermal coal business with both strong organic growth options and the ability to grow through mergers and acquisitions.The upbeat outlook underpinned the broker's decision to initiate coverage of the coal miner with a 'buy' rating and a price target of $2 a share.The broker said New Hope's Bengalla mine is one of the loser cost thermal coal mines globally with unit costs of $US35 a tonne compared to the seaborne marginal costs of around $US65 a tonne.Goldman Sachs is bullish on New Hope. Glenn HuntNew Hope is calculated to trade on a free cash flow yield of 19 per cent in the 2020 and 2021 financial years.This is expected to fall to between 4 per cent and 9 per cent in the 2022 and 2023 financial years due to spending on New Acland 3, before rising to around 20 per cent the 2023 financial year with the ramp-up of New Acland.Goldman Sachs sees the potential for production growth of between 30 per cent and 40 per cent because Bengalla is one of the largest and longest life thermal coal mines in Australia.The mine operates at a run-of-mine rate of 12.5 million tonnes a year but is permitted to increase to 15 million tonnes a year.The broker says New Hope is seeking creep production to 10.5 million tonnes a year - or 13 million tonnes on a run-of-mine basis - and lift New Acland beyond five million tonnes, which would result in a 35 per cent increase in group production to 15 million tonnes a year.