White Energy in early stages of value creation

Report Date: 15 June 2010

Analyst Details
Company: Madison Williams
Analyst: Asit Sen

Summary

White Energy shares have performed well so far this year (+54%, versus ASX200 -7% and S&P 500 -2%). We believe investors have begun to realize the embedded long-term value in this franchise.

White Energy is a Sydney, Australia-based (market cap = A$875 million / US$725 million) provider of clean coal BCB technology with a complementary and growing sub-bituminous coal resource base. Following the close of the recent SACL (South Australia Coal Limited) acquisition, WEC will have more than A$200 million in cash reserves. More important, new chairman Travers Duncan and CEO Brian Flannery have a demonstrated track record of creating value for shareholders, having sold Felix Resources to Chinese mining company Yanzhou Coal for over A$3 billion in 2009.

We are reiterating our Buy rating and 12-month price target of A$4.25/US$20. We expect the stock’s outperformance to continue based on the following near- to intermediate-term catalysts: 1) continuing high operating rates at the first 1 mtpa BCB plant in Indonesia; 2) upgraded coal shipments in coming months; 3) further success in North America initiatives with Peabody, Buckskin, and the State of Kentucky; 4) continuing expansion in Indonesia to 15 mtpa capacity over time; 5) meaningful success in other markets, such as Africa and Australia; and 6) positive news flow and operating updates following acquisition of SACL coal assets.