MIM Holdings (MIM) has announced it will proceed with the development of the 6 million tonnes per annum Rolleston open cut thermal coal mine in Queensland. The company is committing $175m initially and a further $40m in 2007 to increase output to 8 million tonnes per annum. The $200m cost of the 109km rail link from Blackwater is being met by Queensland Rail. This will ultimately be covered through rail charges to MIM and deducted from the security the company is providing. On our assumed long term realised thermal coal price of US$26/t and operating costs of US$19/t, we generate a valuation of A$292m for the project. The Rolleston development adds A15 cents per share to our valuation which now stands at A$1.40. However, the earnings and cashflow impact are two years away and relatively immaterial to the company’s short term outlook. More important in our view has been the improvement in operational consistency and self-imposed exit from the loss making zinc smelting businesses at Avonmouth and Duisburg. Threat of corporate activity continues to support the stock relative to its peers in the Australian resources sector and we retain our Buy recommendation. ASX Code: MIM Share Price: $1.43 Short term: Buy Long term: Buy Volatility index: Medium
