Straits Asia Resources: Obtained Borrow and Use License for the Northern Lease at Sebuku, which will allow mining activity and exploration work in the area.
Macquarie reiterates at Outperform with TP$3.40. Believes this devt is positive and transformational to the co, especially given i) potential reserves upgrades, ii) increasing long-term production and coal quality, and iii) lower aggregate production cost…
Says upon successful exploration, current reserve base of 130mt could be boosted by an additional 50-60mt. Expects SAR to achieve higher aggregate coal quality (6,200-6,300Kcal GAD at Sebuku vs. 5,950-6,200Kcal GAD at Jembayan). In the medium-term, tips production out of Sebuku to grow from 1.1mt in 2010 to about 4.5-5.0mt, leading SAR’s aggregate production to rise from 10.6mt in 2010 to 17-18mt longer-term. Also notes Sebuku is a lower cost mine (US$38/t) vs Jembayan (US$47/t), due to lower strip ratio of 4x at Sebuku vs. Jembayan’s 9-10x. Transportation distance is also significant lower at Sebuku (25-30km) than Jembayan at +/- 170km.
Goldman Sachs however, says issue of License is in line with co’s guidance and already baked into forecasts. Note market may react positively to news, but keeps Sell rating as believes that all the positives have already been priced in after SAR’s recent outperformance, and significant earnings risks going forward.
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