G’day all.Have been having a quick look at GUF given it fits my...

G’day all.

Have been having a quick look at GUF given it fits my criteria of being a highly derisked, near term producer. My thoughts below re value.

Using data from the presentation given by the company in Aug 13, it looks like GUF’s margin expectation is USD 5-15/t of coal from its Mongolian project:

Expected sales price USD 55-60/t
Expected operating costs USD 35-40/t
Marketing/royalties USD 5/t
Corporate overheads USD 5/t
Forecast profit margin USD 5-15/t

If the company hits its production guidance of 3mt p.a, I calculate the (undiscounted) annual margin, NPV (10 year mine life, 10% discount rate) and NPV/share (based on current 650m shares) to be as follows:

Margin Annual Margin NPV NPV/share
USD 5/t USD 15m USD 96m 0.14 AUD
USD 10/t USD 30m USD 191m 0.27 AUD
USD 15/t USD 45m USD 287m 0.41 AUD

What concerns me a bit is that the profitability seems quite ‘thin’ at the bottom end of the forecast profit margin. For eg, the current share price is pretty close to the NPV/share at a $5/t margin.

I’m also concerned about the proposed additional capital raising of USD 45m-55m forecast for December 2013. Not always sure how a CR might play out, but if 45m was raised at the current share price, that would be an additional 450m shares – which would severely dilute the expected values above (read almost half). I haven’t ascribed any value to GUF’s other projects at this point.

Comments welcome – it’s entirely possible I’ve stuffed up somewhere or left something out.