WHEN Criterion "discovered" this African coal beauty two years ago, the stock was trading at $1.15 and the focus was on its Zululand anthracite coal (ZAC) mine, discarded by BHP for nix a year earlier.
Since then, Riversdale has taken investors -- including 13percent holder Ken Talbot of Macarthur Coal fame -- on a wild ride to a June peak of $11.80.
ZAC (75 per cent Riversdale-owned) is continuing to deliver for Riversdale, churning out 265,400 tonnes (167,000t saleable) in the September quarter. But it is Riversdale's development activities in neighbouring Mozambique that are monopolising investor attention (or what is left of it).
Riversdale has attracted a $100million investment from Tata Steel to further the Mozambique Benga lease, which is slated as a long-term coking coal producer. Despite the expected downturn in steel demand, decent coking coal deposits remain a rarity.
The joint venturers last month upgraded estimated Benga reserves to 2.1 billion tonnes, split roughly evenly between the measured and indicated and inferred categories. They plan to develop a 20mt-a-year facility.
Riversdale posted a $92.4million profit in the year to June 30, mainly reflecting Tata's $100 million purchase of a 35 per cent share of Benga and other unexplored turf around the town of Tete. ZAC contributed a pre-tax $9.1 million.
Riversdale is sitting on $345million of cash, equivalent to $1.85 a share, so is well placed to fund its share of what is probably a $1 billion project.
On Foster Stockbroking's reckoning, Benga would generate $205 million of EBITDA for Riversdale, based on production costs of $US60 a tonne and an average coking coal price of $US100/t. If coking coal holds at the current $US300/t -- which is unlikely -- projected EBITDA rises to $1.232 billion.
Then there are the thermal sales, which would contribute a further $US154 million based on annual output of 6mt.
As we have learned the hard way, it is dangerous to get too excited about vaunted projects on the cusp of a global downturn. But Riversdale is unusually well placed to take the long view, given its cash reserves and its access to more through Tata.
We will rate Riversdale a speculative buy. Foster values $12.50 but don't forget the Africa discount.
