BRL (ASX) Stockton

Originally posted by Sammyjh: ↑

Stockton is a very high quality asset. It printed money for a very bloated Solid Energy for years on end and it operated continuously for over 100 years. It produced almost all the current $145m cash in the bank for BRL and paid off around $35m in debt over the past few years. Yes the mine life is running down but there is still 5 years left and and they will likely be able to drill it out and convert more into reserves for a number of years after that with lots of prospective areas.

The Talleys JV is not ideal and they are witholding cash, however at some point they will want the money themselves and they also own a significant stake in brl, they will be unlikely to trash their own investment.

The equity in the mine is being valued at an enterprise value of $23m. For $23m, you are buying assets that produced $90m of net profit in FY23 and probably $40m or more for FY24. On an EV/PE basis it's trading at a PE of about 0.5 of current year NPAT. Earnings for FY24 will be down from last year in line with HCC prices. However even at the low point in the met coal pricing cycle, Stockton will probably produce some cash and the domestic business has been declining mostly due to the difficult political environment which should improve now given the change in government. Apart from the structure/terms of the BT deal as a JV, overall management have done a pretty good job. The Solid Energy deal, profitably mining the NZ operations to get into a position to buy the SE assets, I guess we wait and see how they track with getting the canadian assets into production - starting with the lower cost, smaller and simpler project makes sense and so far the track record around operations has been pretty good.

I think the board have lost some credibility as it looks like they are trying to hide that Talley's are witholding dividends from the JV rather than just be up front about the problem. Also, it's kind of more than a minor annoyance to shareholders to state that you want to be a growth company and don't plan to pay any dividends when the company trades at an equity value of half of the ANNUAL net profit of the assets. At the current share price, any additional growth investments they make need to return 200% per annum net vs simply returning capital to equity holders. This is a significant problem for the company and the CEO and the board have not been proactive about trying to solve it. Not paying any dividends is also highly tax inefficient as they are retaining tens of million dollars worth of imputation credits that have no value to the company but a lot of value to shareholders.

Transparency in presentation around the true all in costs of running the mines would be helpful, I don't know why they don't provide this as it's clear that overall the mines are profitable including capitalised items - there is no need to report only at EBITDA level. Pabrai and other value investors have been buying into met coal as it's essential in the steel that will be required to decarbonise industry and transport. This looks like a downside limited cash backed entry into a met coal asset with strong and demonstrated earning power at a very attractive price. Although there is some overhang from questionable capital management decisions around capital and transaction structuring and the cash sitting in BT, I think this is being more than compensated for, at current levels it trades at the enterprise value of a middling explorer when they have substantial operations with demonstrated cash flows and reasonably strong returns on capital employed. Eventually the money will have to come out of BT and they may need to either be patient or offer concessions to Talleys to achieve this, that's probably not the end of the world. I think the current share price offers enough value to compensate for that eventuality. Bit of buying pressure late in the day today - it was a strong quarter with hopefully many more to follow. GLTAH.

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Let's wait on the final litigation outcome before we worry too much about the BT cash. if positive then the rest will fall into place. Dividends are then likely. imo

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(20min delay)
Last 80.0¢		Change -0.010(1.23%)		Mkt cap ! $153.0M

Open	High	Low	Value	Volume
82.0¢	82.0¢	80.0¢	$6.078K	7.597K

Stockton, page-4

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