research note

My first time posting on SMR thread. Received this research note today from an analyst at Shaw Stockbroking, though brief, i thought it is worth posting.

Stanmore Coal (SMR) - Currently Not Rated

We met with MD Nick Jorss yesterday to go over SMR's projects
in Queensland, particularly in light of the massive amount of
attention the sector has enjoyed recently, further highlighted by Thai
power company Banpu's bid for Centennial (A$6.20ps) struck at
a 390% premium to the base GFC price of CEY.

Comment: BHP reportedly see high coking price for longer
due to tight supply, do not see Mongolia as a threat due to
quality issues. QLD should maintain market share.

SMR appears to have a lot going for them, and we expect a great
deal of news flow in coming months:
Tight register, low liquidity for a A$65m company,
Management and Board hold about 45%;
Quality Board includes Stephen Bizzell (Founder of Arrow, AOE), Neville Sneddon
(chaiman of DBCT, QLD coal terminal, previous MD of Anglocoal Australia);
No offtake/other partners on the register (rare in this space for pre-development);
Existing 208Mt JORC thermal coal resource (Range) adjacent to Xstrata's
Wandoan mine (now re-ignited with RSPT cancellation);
Cash of around A$3.5m estimated, hence may need to raise money soon(?)
Planning a 5Mtpa operation at Range from 2014 to coincide with new
Surat basin rail link. Starts at 3:1 strip ratio, <7:1 average?
Yield 84%, lower ash than Wandoan coal. Also other thermal projects
such as Emerald (UG) which includes deeper coking potential;
Second main project Mackenzie River. Drilling underway, targeting
maiden JORC coking coal resource in coming months (110-170Mt). Open-cut coking coal,
though need further washing tests to see if CSN of 9 achievable (grade);
Coal quality believed to be similar to Aquila's Washpool project to the north same formation.
We believe it may make sense to share Aquila's infrastructure (wash plant, transport).
Other coking coal projects include: New Cambria: PCI coal target, indications of low ash (6-7%),
high enery value semi-anthracite. Also Belview (hard coking project) and Kerlong;
Medium term (4-6yrs) plans to be a 10Mtpa exporter (compares to CEY's 5Mt of exports)
with 50% coking, 50% thermal production.
Average transaction multiples in the thermal coal space have been about
A$2/t for producers (see graph below, RBS), and SMR trades around A$0.34/t for Range alone.
Assuming total open cut resources of +300Mt in coming months, then implied value would
be A$0.22/t.

SMR have a large number of projects with coking coal potential in the order
of several hundred million tonnes. Projects are located adjacent to
existing or planned rail lines, and mostly open cut. SMR do not have port access yet. Having the
port chairman on the Board surely helps, and with expansion plans for the ports,
should be available capacity in 2014/15.


s.loeb