White Energy (WEC) on track to complete modifications by end November

Report Date: 31 October 2011

Analyst Details
Company: Bell Potter Securities Limited
Analyst: Fleur Grose

Summary

White Energy (WEC) on track to complete modifications by end November

Modifications progressing to plan. WEC has built its first commercial 1Mpta facility in a JV with Bayan Resources (KSC) in Tabang Indonesia. The plant is not yet producing at full capacity. However, the core process works, and modifications to allow greater capacity are underway.
Modifications were made in the June quarter to allow briquettes to be produced in spec at 6-7% moisture. In the September quarter two additional bag houses were installed and the conveyors were extended. The final tie-ins will take place in November, allowing ramp-up to full production capacity thereafter, and enabling further investment decisions in the new calendar year.

The KSC joint venture is still awaiting the issue of a special IUP licence from the local government, but is hopeful of receiving this by the end of November so that KSC branded coal can be sold.

Other opportunities also progressing. The next priorities are to expand to 5Mpta with KSC, obtain the permits necessary to build plants in the US, initially one at the Buckskin mine and one in a JV with Peabody, progress a coal fines project in Africa, and conduct a feasibility study on the SACL project. The US plants now require further permits which could delay this process, but otherwise these projects remain on track.

Investment view – Maintain Buy. We have maintained our Buy rating and price target of $3.50. We expect the stock to re-rate once the first plant in Tabang is proven at the end of the year, and subsequently further investment decisions are made.

Disclosure: Bell Potter Securities (as Southern Cross Equities) has raised $155m for White Energy for which it received a fee. It also acted in an advisory capacity on the deal involving the acquisition of Cascade Coal Pty Ltd by White Energy for which it received fees.

Recommendation: BUY Previous Close: $1.68 Price Target: $3.50

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