valuation and reality, page-5

I thought one of the most interesting bits of news in the announcement was slide 23 that confirmed the break-up of the Mashala projects. The ASX listed companies used for peer comparision by GN have zero ability to scale up to anywhere near 18.5mt p.a.

This is a critical point the market* will eventually digest IMO. Moreover, it's not the usual "pie the sky" targets and timelines that you tend to see but immediate scaling up to this massive volume by CY2014. Huge is an underestimate!!! Give it a 50% discount for risk of achieving this production volume & you still get +20c.

My base case NPV with following production profiles that also assumes effective tax rate 30%, weighted average margin $24, pro rate share of project, Masawu share 24% = $0.451

CY11 870K tpa
CY12 3.4M tpa
CY13 7.5M tpa
CY14 10.0M tpa
CY15 15.0M tpa

Once again I'd caution investors with the fact that the market isn't valuing companies like this on traditional PE's of 10 by multiples of EBIT alone. To illustrate producers like MCC are on NPV X 1.8


* market in this context = investors as direct holders and coal trader & suppliers