Bathurst Resources Ltd (BTU) is an ASX-listed coal company focused on the
development of the Buller Coking Coal Project in the West Coast region of
South Island, New Zealand. The terms of the project acquisition were
payments of US$40m before the end of December 2010 (completed), a further
US$40m after initial production and US$40m, plus the issue of 5% of Bathurst
shares and a 1.75% royalty, after 1Mt of production.
Total resources for the Buller Project, including the Eastern Resources asset,
are currently 72.8Mt of coal. The company has now completed a definitive
feasibility study on the Project, including Escarpment, Deep Creek, a coal
processing plant, slurry pipeline and related infrastructure. The production rate
is expected to start at 1Mtpa from Escarpment increasing to 2Mtpa when Deep
Creek is operating at nameplate capacity, currently expected to be in FY15.
Commissioning is expected in late 2011/early 2012.
Mining will be by open pit, with an average strip ratio of 9.5:1 and 5.6:1 for
Escarpment and Deep Creek respectively. Where appropriate, the coal will be
washed and transported to the nearby rail head by slurry pipeline. The coal will
either be railed to the loading facility at Westport to be shipped to a deep water
port (Taranaki, Nelson) for shipment to overseas destinations or railed to the
deep water port of Lyttelton near Christchurch. The estimated capital cost of
the project is around US$69m, including contingencies, with an initial FOB cost
of about US$103/t, decreasing to less than US$90/t at the 2Mtpa production
level. At the current benchmark settlement price of around US$225/tonne for
coking coal, cash margin is substantial.
We currently value the company at $1.30 per share, the bulk of the valuation
attributable to the Escarpment, Deep Creek and Whareatea projects. At the
current share price of $0.675 per share, the stock is trading at a 48% discount
to our valuation.
Lonsec believes that, subject to environmental approvals, the Buller Project
should be in production in early 2012. The shares have retreated from the
recent all time high of $0.70. The share price could track sideways until
environmental approvals are received. We believe this offers an excellent
buying opportunity, as the company still offers considerable upside, and would
therefore accumulate on any price weakness.
Key Risks
The development timetable relies on environmental approval by February
2011. Whilst fabrication of the washing plant could continue in Newcastle
and Nelson, a delay of more than 2-3 months would have an adverse
impact on project development. In general, mining and conservation in the
Buller Coalfield have tended to become more harmonious in recent years.
Final environmental approval is the key risk to the project.
Open pit mining, coal processing and coal transport are conducted amid
environmentally and culturally sensitive areas. The proposed mining sites
are a likely habitat for endangered snail and kiwi species. High rainfall
rates, acid-generating overburden and historical acid mine drainage are
also issues that will need to be addressed.
Basil Burmeister
Senior Investment Analyst - Resources
+613-9623-6367
[email protected]
Company Data
ASX Code BTU
Shares on Issue (m) 608.2
Share Price ($) 0.675
Market Cap ($m) 410.5
Valuation $m $/share
Valuation at Forecast Coal/FX
Escarpment, Deep Creek 4 83.1 0.79
Eastern 2 56.9 0.42
Resources 4 6.6 0.08
Cash (Nov 2010) 78.0 0.13
Debt (Nov 2010) (81.2) (0.13)
Hedging - -
Investments/Other - -
Exploration 6 .3 0.01
Total Valuation 789.6 1.30
Share Premium/(Discount) to valuation -48.0%
Valuation at Spot Coal/FX*
Total Valuation 1,066 1.75
Share Premium/(Discount) to valuation -61.5%
* Current Benchmark Coking Coal Price (US$/t) 225
Spot A$/US$ Xrate 0.9960
Current Benchmark Coking Coal Price (A$/t) 226
Board
Craig Munro (Non-Executive Chairman)
Hamish Bohannan (Managing Director)
Gerald Cooper (Executive Director)
Rob Lord (Non-Executive Director)
$0.05
$0.15
$0.25
$0.35
$0.45
$0.55
$0.65
$0.75
Feb-10 Apr-10 Jun-10 Aug-10
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