on the radar and undervalued

ORD has been the subject of increased interest lately on HC and for some very good reasons.With all the recent developments happening at ORD river I think it is neccessary to highlight one particular project that may have some ramifications for shareholders in the not too distant future.

For those unware of not familiar with ORD, they have the option of securing a 10% stake in a producing coal mine in the Bowen basin in Queensland. The company is currently trading as Caledon resources.

For information on this takeover please look here:
http://www.asx.com.au/asxpdf/20110615/pdf/41z7gd46357t94.pdf
The takeover is for $410m aud

Direct from this announcement ORD shareholders are waiting for 2 things to occur: 1) The method of GRAM payment to be presented to Caledon. and 2) The directors supporting the offer via an announcement to the ASX.

On the above 2 points some things stand out. Firstly in the announcement titled "intention to make takeover bid" Mr Trevan is quoted with some very positive words regarding the takeover something along the lines of very positive for shareholders and pleased with the progress the 2 are making. Secondly how may the Directors recommend a takeover before GRAM has presented their offer. My feeling is that the Offer will be cash given the 2 different exchanges.

For those unaware of the suitor, please look here
http://www.gdrising.com.cn/english/?subid=242&dataid=242

You will notice that on the CCD latest price sensitive release "Peter Shou" was a person to direct "enquiries" toward regarding information about GRAM or BIDCO. I think we all know who Peter Shou is wrt ORD river.

Now moving onto what this means for ORD. Currently the Caledon operations revolve around the Cook mine and the Minyango deposit predominatly producing coking and thermal with more of the former. Minyango is in a feasability stage currently but has most recently had a massive resource upgrade. Please look here:

http://www.proactiveinvestors.com.au/companies/news/12529/caledon-resources-upgrades-minyango-coal-resource-to-12-bln-tonnes-12529.html

According to the 2010 financial report the revenue was 93m. However due to floods and one off expenses such as a tailings dam the operation struggled to break even.

However the future is looking bright for Caledon and ORD river as in 2014 things are set for a major facelift. Not only does Caledon have well over 1B tonnes of the best quality coal in the country there is huge scope to export large amounts moving forward. It seems obvious to me that this is what GRAM are interested in:
http://www.wicet.com.au/assets/docs/101202_WICET%20Factsheet.pdf

The Wiggens Island Coal Export Terminal due to export in 2014 is going to be massive for ORD shareholders moving forward and for those with a longer term vision. See this page for the export tonnage to be attributed by Caledon.

http://www.caledonresources.com/WebForms/NewsDetails.aspx?newsID=1348

4mt is the amount that they have access to. Now running some numbers. According ti their 2010 annual report their average coal price was about $170 Tonne for a split of Export and coking. Going into the future I will assume that this remains the same and Coking coal remains the predominant material extracted, for those quering this please see this government paper on the Bowen Basin http://www.dme.qld.gov.au/zone_files/coal_files_pdf/wcc_nov_07_1.pdf


4mt @ $170/T will see annual revenue @ about $650m. Currently coking is worth well over $300/T but to be conservative in my valuation i will use a much lower $170/T figure.
http://www.theaustralian.com.au/business/coking-coal-prices-to-skyrocket-as-stockpiles-dry-up/story-e6frg8zx-1225993253543

Given the above numbers GRAM's asset will be worth in the multiples of billions. Revenue will be well in excess of half a billion and I would expect the combined enterprise value to be worth between 2 and 4b. These figures are well within comparable limits to other coal producers. Calculating the value for ORD river is not difficult and comes in at 200 - 400 million.

This may seem like a large valuation to some but remember that GRAM are spending $1B just to get this stuff to port. Indeed my numbers are very realistic.

The risk factors going forward are for me: 1) The ability of GRAM to successfully introduce an underground mine
2) Method of payment or possible dilution to ORD holders.
3) GRAM indeed taking over CCD.

Analysing these points results in ORD being a compelling buy for me currently at these levels. For those unaware ORD has an option at ANY time in the future to exercise this right to buy into caledon. There is no risk attached to ORD. Management have mentioned that the value must clearly outweigh the cost before they would consider such an investment.

As a strategic partner I cannot see anyone who I would be more comfortable with developing this project. I see very minimal construction risk with GRAM. Essentially we are partnered with a blue chip and they are building the mine.

Essentially for me it takes away the speculative nature that haggles this end of the market in some instances to a stocks death. ORD will have a stake in a producing asset that will be worth a lot more in 2014, only 3 years away. Therefore I feel ORD has a very solid platform to work off and that starts now. I think we will be seeing the last of the penny dreadful days under 10c very shortly.

This imo is ORD's 2nd best project. They have an alumina one also. But that is another ball game completely. Psyber has done some good valuations for those interested.

I expect a 2-3 bagger by the end of the year.

Do your own research folks. I have done mine.