Emerging Australian Coal Producers

Report Date: 24 February 2011

Analyst Details
Company: Knight Capital Asia Limited
Analyst: Will Stephens

Summary

Emerging Australian Coal Producers - Take Advantage of M&A Potential & Development Curve Re‐rating AZT, BND, BTU, GUF, WEC.

Coal Sector Consolidation to Continue – Moving Down the Market Cap Spectrum

We are bullish on the overall coal sector consolidation theme. Over the last 3 years, most of the listed independent larger and medium sized coal companies have been taken out or are already in‐play
We see an emerging theme of strategic investors moving down the market cap spectrum to settle their voracious appetite for off‐take. Given the continuing strength in coal prices and the premium the market applies for converting development projects into production, coal producers also continue to be acquisitive
Given that many of the potential beneficiaries are relatively smaller and have lower liquidity we believe a basket approach to the group makes sense. A basket helps to mitigate some specific risks, gives you multiple “lottery tickets” and can help to benefit from companies at different stages of the development life‐cycle J‐curve
Our preferred plays span a range of sizes and development stage, but all are independent and could be potential acquisition targets. Our preferred names are: Aston Resources (AZT AU), White Energy (WEC AU), Bandanna Energy (BND AU), Bathurst Resources (BTU AU) and Guildford Coal (GUF AU). We also highlight ResGen (RES AU), Nucoal (NCR AU) and Stanmore (SMR AU) as other interesting small caps.