WHAT THE BROKERS SAY: Sarah-Jane Tasker | November 17, 2008...

WHAT THE BROKERS SAY: Sarah-Jane Tasker | November 17, 2008
Article from: The Australian
Macarthur Coal (MCC) Fat Prophets Hold recommendation No price target Last traded at $4.10

WITH the majority of miners suffering in the global downturn, Fat Prophets has tipped coal producers as offering the lowest risk exposure compared with other commodities but has stopped short of recommending any buys in that space.

Still, Macarthur Coal has been one of the few bulk commodity exposures to make it into its portfolio.

"Unlike most of its bulk commodity peers, it possesses all of the essentials to be a medium to long-term coal success story, namely quality, long-life assets, quality off-take partners, access to transport infrastructure and a strong balance sheet with low gearing levels," Fat Prophets said in a client note.

The broker initially recommended buying Macarthur Coal at $1.25 in September 2002. Then, following a month of encouraging consolidation above the October low of $5.21, prices broke lower last week.

"As visible on the weekly chart, prices are now close to testing support indicated by the lows of 2005 through to 2007, between $4.54 and $4.07. In our opinion, the reaction of prices in this region will determine the direction of the stock over the coming months," the broker said.

Last week, Macarthur Coal warned it was bracing for a downturn in demand in the next two to three months, and major shareholder ArcelorMittal had reportedly lowered its requirement for Macarthur's pulverised coal product.

But Fat Prophets believes the market downturn could provide an opportunity for Macarthur, given its unique PCI coal can be utilised in the steel-making process in blast furnaces, making it attractive to those steel producers looking for a cheaper alternative to coking coal. And Macarthur is the largest producer of PCI coal in Australia.

"Nevertheless, despite the extraordinary value in the stock and its apparent cheapness, we are extremely guarded about making any near-term buying recommendation, given the current volatility in equity markets," Fat Prophets concluded.