As holders know we have an interesting couple of months ahead of us with the release of BFS and possibly off-take/financing arrangements. Such announcements re off takes and funding will be telling in that we should get an indication as to which way the board is going with CPL -either sell or grow. Whilst I note all the talk has centred on selling CPL and that many believe a takeover is somewhat imminently inevitable I can’t help but think that maybe with the appointment of Colin Steyn as Chairman, replacing Ian Middlemas, Highland Park maybe looking to grow this into a major coal player. When one looks at the scope for growth it is clearly evident that upside value is significant.
CPL is currently looking at approx 11.2 mil tonnes p/a as they advised recently. We also know that they have scope to reduce calorific value kcal/kg to 5700 (GAR) for an increase in yield to 63%. This by my calculations sees saleable production at approx 12.6 mil tonnes p/a. CPL have mentioned that at 56% the coal processing plant is only operating at 77% efficiency so it appears that they may already be catering for this likely 7% increase to 12.6 in processing through the CHPP design. If we throw Vista South into the equation for say 4 mil tonnes p/a we are up to approx 16 mil tonnes p/a. Then in recent presentations there has been mention of more regional consolidation and opportunity to acquire additional coal exploration leases and consolidate land position in the area. There are plenty of idle leases containing coal around in the area.
In addition in the Feb 2011 BMO presentation available at
Gene mentions that 31 year mine life is too long. If this is the case then further production increases for reduced mine life maybe on the cards down the track. With underground potential thrown into the mix it is not inconceivable that management may view CPL’s potential as being the thermal coal version of Teck who currently export some 23 mil tonnes p/a of met coal.
To achieve this, infrastructure in my view, is CPL’s true driver of growth. CN Rail appears to have presently approx 28 mil tonnes of spare capacity give or take. According to CN’s recent fact book available on their website Port Ridley has annual capacity of 12 million tonnes and ongoing expansion to increase capacity to 24 million tonnes, with potential to increase to 40 million tonnes. I was certainly unaware of Ridley’s potential to expand further to 40 million tonnes.
Given the above, I can’t help but wonder if this clear potential for growth may be the vision of the new CPL board and that selling CPL may not be their immediate goal. If it is their goal to sell then at the very least we should expect any takeover should incorporate significant premium for the clear and achievable growth synergies detailed above. Time will tell.
Having said the above and certainly not wanting to blow my above synopisis out of the water so soon, I do note with interest that in the recent Management Discussion and Analysis CPL has stated that
“ Napier Capital Pty Ltd (“Napier”) a company of which Mark Rodda is a director received a A$10,000 for the provision of electronic data room services. The fee was negotiated at arm’s length prior to Mr Rodda becoming a director of Coalspur”.
It appears that CPL have established an electronic data room in the past 4 months. While data rooms are associated with M&A activity CPL may have also established it for off-take and financing purposes. An interesting point none the less and one to ponder.
On a separate point I am not sure how the AGM will work next week given we have only one of seven directors residing in Perth and no management either. Should be interesting and would appreciate a run down from any readers that may be in attendance.
Anyway these are only my thoughts as we deal with the day to day frustrations presented by the current market. Either way exciting times ahead and would welcome others views as to whether we should grow or sell.
DYOR
Regards Danash
CPL Price at posting:
$1.71 Sentiment: Buy Disclosure: Held
(20min delay)