soon the report will be available on smr website i guess anyway, i got a copy emailed to me today
Stanmore Coal - A solid long-term growth story
[23 pages, Initiation]
Initiating coverage on OUTPERFORM and $1.25/sh target price: In our view SMR is significantly undervalued trading at a 40% discount to our $1.27/sh risked DCF valuation. We discount life of mine cashflows using an 11% WACC and apply a 35% risk factor to The Range project and 25% to Mackenzie project reflecting development and funding risks. SMR also screens well on an EV/total resource multiple of A$0.19/t versus junior coal sector peers on $0.26/t. We believe the stock offers significant upside as SMR upgrades its resources and progresses towards first production in 2015.
Who is Stanmore Coal? SMR is a junior coal exploration company with 94Mt of reserves and 467Mt of resources. The company holds a 100% interest in seven projects in the Bowen and Surat basins and is targeting 7Mtpa production from 2015. In November 2011, SMR completed the PFS for The Range project, which is expected to produce 5Mtpa of high energy thermal coal from 2015 at FOB cash costs of A$81.7/t (contract mining). SMR intends to rail coal from The Range on Surat Basin Rail due for completion in 2015 and export through WICET Stage 2 where SMR has secured 7Mt of priority port capacity rights.
Catalysts in 2012: include port capacity allocations at WICET Stage 2 expected early 2012, a sell down in The Range project to a strategic partner during 1H12 and further resource upgrades through exploration drilling.
Funding requirements still to be resolved: SMR has approximately $25mn in cash to fund its current drilling campaign, The Range definitive feasibility study and working capital. However, in the event SMR receives a 5Mtpa allocation at WICET Stage 2, we estimate SMR may have a $100mn funding obligation late 2012 which could be met through a sell down in The Range project to a strategic partner and/or a further equity placeme
SMR Price at posting:
77.5¢ Sentiment: Buy Disclosure: Held
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