##{"id":59256,"date":"2011-12-05T10:13:44","date_gmt":"2011-12-04T23:13:44","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/12\/05\/several-reasons-to-like-bathurst-resources\/"},"modified":"2011-12-05T10:13:44","modified_gmt":"2011-12-04T23:13:44","slug":"several-reasons-to-like-bathurst-resources","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/12\/05\/several-reasons-to-like-bathurst-resources\/","title":{"rendered":"Several Reasons To Like Bathurst Resources"},"content":{"rendered":"

\n\t– Citi<\/span> initiates with Buy Rating on Bathurst Resources
\n\t– High quality output an attraction
\n\t– Bathurst also a potential M&A target
\n\t– Permit approvals the main issue in Citi's<\/span> view<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tBathurst Resources ((BTU)) is a developing coal play with a coking<\/span> coal operation at South Buller<\/span> in New Zealand. Production is expected to commence in FY12<\/span> via an underground mine at the Escarpment project, with output of around two million tonnes<\/span> per annum the initial target.<\/p>\n

\n\tStockbroker Citi<\/span> has picked up coverage on Bathurst, rating the stock as Buy, High Risk. The risky part of the recommendation is while Bathurst lacks scale at its individual operations, the company has a number of high quality smaller assets.<\/p>\n

\n\tThis leads Citi<\/span> to suggest regulatory permits will be of great significance to Bathurst, as plans to develop the Escarpment project have met with some opposition. This may mean another nine months of court hearings and determinations before construction at the project can commence.<\/p>\n

\n\tInitial production at Escarpment is expected to be around one million tonnes<\/span> per year. As part of a staged development process, Citi<\/span> notes management's longer-term goal is production of around four million tonnes<\/span> per year.<\/p>\n

\n\tMaking up for the small and short-life nature of Bathurst's assets, in Citi's<\/span> view, is the fact output will be a very clean coking<\/span> coal that is low in ash and phosphorous. This makes the output from Bathurst ideal for blending, something Citi<\/span> expects could deliver a premium to benchmark prices of 5-15%.<\/p>\n

\n\tAt present the plan is for Bathurst to produce all hard coking<\/span> coal over the first five years, which should see strong margins initially. Other assets will add semi-soft coking<\/span> coal and possibly thermal coal to the mix in the future.<\/p>\n

\n\tWith high quality output to come, Bathurst is something of a target for M&A activity in Citi's<\/span> view given the quality of its coal provides the company with a different strategic attraction. Citi<\/span> notes metallurgical coal company transactions average US$240-$350 per tonne<\/span> of annual production, which would imply a value of US$550-$800 million for Bathurst. This compares to a current market capitalisation<\/span> of around US$480 million.<\/p>\n

\n\tThe permit issue for Bathurst continues to impact on what was an aggressive project development timetable. As Citi<\/span> notes, initially Bathurst had expected to commence production at Escarpment late this year and ramp-up to one million tonnes<\/span> per annum by 2013 and two million tonnes<\/span> per year by 2014.<\/p>\n

\n\tGiven the delays to approvals at Escarpment, first production will now come from the Cascade and Coalbrookdale<\/span> projects, while Citi<\/span> sees the purchase of Whareatea<\/span> West as offering Bathurst some additional flexibility until Escarpment can start. The Deep Creek project is now likely to be pushed out to the end of this decade.<\/p>\n

\n\tOne further issue stemming from the delays at Escarpment relates to Citi's<\/span> view that commodity prices have now peaked. This means the delays to start-up will have a greater impact on earnings for Bathurst the longer output is delayed.<\/p>\n

\n\tFactoring in both the risks and rewards for Bathurst, Citi<\/span> sees value at current levels. This is reflected in the broker's $0.90 price target. Others in the market agree, as the consensus price target according to the FNArena<\/span> database now stands at $0.97. Targets range from Citi<\/span> at $0.90 to UBS and Credit Suisse at $1.00.<\/p>\n

\n\tCiti<\/span> points out a positive for investors is Bathurst has solid daily turnover in its shares of around $5 million per day. This is well above all peers with a similar market cap and compares favourably<\/span> to larger cap plays in the sector.<\/p>\n

\n\tWhile current resources of 85 million tonnes<\/span> and reserves of 17 million tonnes<\/span> are small, Citi<\/span> notes management has targeted an increase of 55-94 million tonnes<\/span> of resources as Bathurst continues with its exploration program. <\/p>\n

\n\tUBS agrees Bathurst shares offer solid upside potential at current levels as new projects come into production, so UBS also rates the stock as a Buy. Credit Suisse is more cautious given the risk of project delays stemming from the approval process and so rates Bathurst as Neutral.<\/p>\n

\n\tShares in Bathurst Resources have traded in a range over the past year between $0.545 to $1.30. The current share price implies upside of around 40% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"