first broker coverage

Patersons have commenced coverage of CXY and have a 20 cent target price over twelve months. Bearing in mind they put NO value on international projects and NO value on LaTrobe . . . with minimal value on Wandoan it seems to me that they are significantly understating the likely price when we eventually get there ina years time.

I've got a copy of the entire report and it reads very well. Extract below:-


RESEARCH NOTE ATTACHED
Cougar Energy (CXY) $0.10
Recommendation: BUY
________________________________________
Pouncing on cheap electricity from ignored resource
Investment Highlights
• We are initiating coverage on Cougar Energy with a BUY recommendation and price target of $0.20. CXY is an underground coal gasification (UCG) company, whose first project in Kingaroy Queensland will use the gas produced to fuel a 400MW power station on site. The main market for Cougar will be the domestic electricity pool in Queensland with the option of selling by-product nitrogen and hydrogen to the chemicals, fertiliser, and dynamite industries. This is early stage development but looks like a very attractive proposition for cheap power generation that is easily scalable and that will have good margins.
• UCG is a new industry for Australia but there have been UCG projects established for a long time in the former Soviet Union and Cougar’s technology partners Ergo Exergy are the leaders in the field. UCG has many benefits over other methods of exploiting coal resources, not least of which is the fact that it releases the energy from what would otherwise be an ignored resource. Additionally, UCG is cheap, has a minimal footprint on the surface, and has lower CO2 emissions than power from traditional coal burning.
• Our NPV of $0.19 per share is based on cashflows from the power project. The power station will have an installed capacity of 186MW in the first phase by 2013 and a total capacity of 400MW by 2015 for a total capex of $500m. Electricity generated is expected to be low cost, at below $30/MWh compared to power prices forecast to be over $50/MWh from 2013 and beyond.
• The commissioning (ignition of coal) of the pre-production burn is targeted for November/December 2009 and the gas burned at this phase will be flared. While the Queensland Government is processing the permit to allow the pre-production plant to be constructed and commissioned, Cougar has already received and let tenders for plant and equipment.
• Over the past 12 months CXY and the rest of the UCG sector, within which we include CNX, REY, LBY and LNC, have performed poorly, in line with the market and the oildsector. Cougar’s shareprice has bounced from its lows but it is stlill trading at about half of our valuation. Further we see significant upside in our valuation as more resources are booked and more project milestones are achieve.

Research Analyst

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