Stand by for a market re-rating of Queensland coal producer...

Stand by for a market re-rating of Queensland coal producer Cockatoo Coal (ASX: COK). The stock closed at 40 on Friday, continuing its sideways trading pattern despite two key events for the group which are now being promoted to investors in an eastern-state roadshow.

The first was the conversion in the December quarter of the group's 62.5 per cent-owned Baralaba coal mine in the Bowen Basin from loss maker to money earner. Acquired from US coal producer Peabody in late 2008, the PCI/thermal coal mine generated its first positive cash flow, of $2.67 million, in the December quarter.

Cockatoo has knocked the operation's cost structure into shape and is now comfortable in forecasting production costs of $100 a tonne on a predicted 2010 production of 550,000 tonnes (60 per cent PCI, 40 per cent thermal).

It's not the world's biggest mine. But the plan is for a 50 per cent low-cost expansion to 750,000 tonnes within two years ahead of an eventual push in the Bowen Basin to 3 million tonnes a year over the next three to five years. Then there is the longer-term plan to be a 3-4 million tonne (thermal) producer from the Surat Basin.

The longer-term ambitions are dependent on Cockatoo getting the required allocations of rail and port infrastructure. Competition is hot. But unlike a lot of would-be producers, Cockatoo has got the kudos and street cred that comes from having turned a loss-making mine in to a profitable show.

If there was nothing else at play, the market could be excused for leaving Cockatoo shares to trade sideways because of the uncertainty on just what infrastructure allocations the company will secure in support of its plans to become a 6 million tonne-a-year producer, if not 9 million tonnes a year.

But there is something else at play - the strong expectation that that PCI (a lower cost alternative to coking coal) prices are about to take off while thermal prices at least remain at historically high levels. Last year's contract price for PCI was $US85-$US90 a tonne. Consensus is that this year's contract price should come in about $US140 a tonne. Once that becomes a reality, analyst valuations of the stock could be interesting reading.


http://www.theage.com.au/business/cockatoo-looking-good-after-mine-turnaround-20100221-onxq.html