six coal stocks to watch

There is an interesting article in todays edition of The Bull regarding the import ban in China that may help Aussie coalers. It can be found here;

http://www.thebull.com.au/premium/a/38632-6-coal-stocks-to-watch-from-china-move.html

But the interesting part was their assessment of Bandanna. It is refreshing to see some positivity coming through now.

At first glance the Price to Book ratio for all stocks looks attractive. However, the ASX Energy Sector P/B is 0.68 which leaves only the smallest company, Bandana Energy (BND) with a market cap of only $55m, as a possible bargain pick. BND’s outsized profit margin is an artifact of calculating extreme values. The fact is Bandana is still in the exploration phase with no revenue expected from producing coal mines until mid-2015. Yet the company went from an NPAT of -$4.4m in FY2011 to +$3.1m in FY2012 due to income from financing and other non-operational activities.

Bandana is one to watch with a host of coal projects and five tenements for oil shale with 100% interest. The company’s flagship thermal coal prospect is Springsure Creek located in the Queensland coal fields. On 19 June 2013 management released a project update for Springsure Creek in which they pointed out the low sulphur higher energy content of Springsure Creek is well above the energy and sulphur content standards under consideration in the Chinese ban.

Springsure is an underground mine with a companion agricultural project to demonstrate the compatibility of mining and agriculture interests. This is a long life mine of 40 years with an anticipated annual production of 11 million tonnes per annum (Mtpa). Bandana has no debt with approximately $132 million cash on hand as of the most recent quarter. The company is actively pursuing joint ventures with potential Chinese and Korean investors.

What makes Bandana stand apart goes beyond the quality of the coal and the life and production output of the mine. Springsure is close to rail and port transport and is in the advanced stages of the regulatory approval process. Following the latest update UBS reiterated its NEUTRAL rating with a $0.20 price target; progress towards the mid-2015 production target seems to be “on track,” although some concern surrounded funding in an uncertain pricing environment. CIMB Securities maintained its OUTPERFORM recommendation in May but cut the target price from $0.50 to $0.35.

The 73% year over year share price drop reflects the lagging coal price as the stock was outperforming going into 2011. Here is a five year price chart: