🕐02.10.12 - 12:27 Uhr

INVESTEC: COAL OF AFRICA - OPERATING ASSETS NOW A FRACTION OF OVERALL VALUE - BUY




We have adjusted our earnings, valuation and target price for CZA to reflect the swathe of recent news, including its FY12A result, the recent and likely future equity raisings and our adjusted forward production profiles, for Vele in particular.

CZA’s attraction is not in its near-term earnings profile but in its longer-term asset base, which underpins most of its value.

Its potential strategic partnership with Haohua should facilitate realising this value. ¢ CZA reported a FY12A loss of $138.9m (FY11A loss of $219.0m), including substantial, non-cash charges of US$115.9m.

EBIT (excluding non-cash items) was negative $32.8m (Investec negative $26.1m), with the result impacted by high labour costs and a weak market (22% drop in coal prices through FY12A).

¢ Our target price of 36p per share is underpinned by a diluted, risked NPV valuation.

This NPV is underpinned to a great extent by CZA’s immature assets and by cash, with the thermal operations, which represent the assets actually in production, now constituting only 5% of the overall value.

That being said, the current share price appears to indicate that the market is only paying limited value for the development assets.

Certainly, the potential for Makhado to be developed now appears to be increased, assuming the partnership with HEI goes ahead.

Maintain Buy for high risk coal exposure.

¢ CZA yesterday announced that a new strategic partner, Chinese state-owned enterprise, Haohua Energy International (HEI), is to invest an additional US$100m into the company.

This funding should carry CZA through its cash requirements, until Vele becomes the cash flow contributor that can support CZA, together with strategic partner(s), in the development of its flagship Makhado asset.


To access the full note please click here Analysts: Europe: Hunter Hillcoat +44 (0)20 7597 5182 South Africa: Albert Minassian +27 11 291 6176 Australia: Tim Gerrard +61 2 9293 2168
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