mte holders pay day soon, page-3

Metrocoal Limited (MTE) - Buy

Upgrade to resources definition, upgrade to BUY

MetroCoal (MTE) has been developing its underground coal projects, Bundi/Juandah and Columboola, in the Surat Basin. The latest development was the resource upgrade from Inferred to Indicated of 175Mt on the Bundi/Juandah project. At times MTE has looked undervalued on an in-situ basis and after the recent announcements this is especially true. It is trading at $0.11/t of total resource compared with the market average of around $1/t. Furthermore, with the better definition, we have begun DCF modelling MTE, which has resulted in a valuation of $1.06/share up from our previous target of $0.50. Accordingly we have upgraded our recommendation of MTE from a HOLD to a BUY recommendation with a price target of $1.05 per share.

Bundi Resource Upgrade - MTE completed 61 holes from its planned 70 hole program in the Bundi Project area. The holes were cored, providing both structural and coal quality information. The greater certainty from the infill drilling has allowed for the reclassification of the resources. Total resources on a 100% basis are 1.6Bt of which 1.3Bt are attributed to MTE.

More news expected - Coal quality analysis and testing is still progressing on the remainder of the core samples obtained during the infill drilling campaign. Drilling is also continuing in the areas outside the immediate Bundi project area and 11 holes are planned for completion this quarter. This is expected to significantly expand the Bundi Inferred Resource area and it will help management to deliver on its ambitions for MTE to delineate 2.5-3.5Bt of resources by the end of 2011.

Infrastructure and conceptual study – MTE has progressed its infrastructure solutions along several fronts. It is an equity contributor to Wiggins 2 for 12Mtpa and it is also a 20% owner of the new 3TL terminal proposal. In total MTE is aiming for 23.5Mtpa of capacity even though we have only modelled up to 10Mtpa at this stage. Additionally, MTE has begun the conceptual mining study for Bundi seeking to identify the optimal mining method for an underground operation in excess of 5Mtpa. It will generate initial mine plans and it will be followed by the mining prefeasibility study.

http://www.psl.com.au/research/your-market-daily#MTE