Macquarie released a research report this morning on RES....

Macquarie released a research report this morning on RES. Basically just repeated the announcement and retained their 70c price target. They main theme was that the due-diligence is quite stringent so formal approval of the debt will provide a lot of credibility. Full text below:

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Resource Generation
Expecting to finalise funding swiftly

? Resource Generation’s (RES) BEE subsidiary, Ledjadja Coal, has mandated six banks and other financiers to provide project finance for the development of its Boikarabelo mine in South Africa’s Waterberg coalfield.

Impact
? A mix of local and offshore banks. The financing syndicate includes three local banks (ABSA Capital, FirstRand Bank and Nedbank Capital), two offshore banks (HSBC and Standard Chartered) and Caterpillar Financial SARL (likely funding the equipment requirements of the project).

? Securing majority of the funds required for construction. The financing syndicate will provide ~60% (~US$400m) of the funds required for the construction of Boikarabelo. The remaining ~US$250m is expected to be raised through an equity capital raise. The project finance will be subject to
final credit approval and execution of the necessary documents.

The proposed terms of the facility are:

Term: 9 years including mine construction;
Senior debt facility of US$400m plus associated facilities; and The facility will be denominated in a mix of US$ and ZAR and be on normal commercial terms.

? Credit approval will lead into the equity raise. Credit approval is targeted for early November. Management expect this to allow for the completion of the equity raise by mid-December 2012. If this timeline is met, RES will begin
mine construction in January 2013. This would allow sufficient time for mine construction before production which we forecast to begin towards mid CY15.

Earnings and target price revision
? No change.
Price catalyst
? 12-month price target: A$0.70 based on a DCF methodology.
? Catalyst: Formal credit approval from the financiers.
Action and recommendation
? Maintain Outperform, target price of A$0.70. Bank due diligence is particularly stringent so receipt of formal credit approval should represent a significant
vote of confidence in the project’s economics and value.