Market Update

General - Paringa

Good afternoon

Consumer Confidence and Housing Prices in the US very strong...

Base meatls are finding a floor today, as the gold price is toying again with key-resistance at 1260 US$. I would be surprised, if we went through that straight away...but any break would be pretty bullish, especially in the short term.

Cyclone Debbie in Queensland has been pretty bad, but we will need at least another day to assess the damage. For the mining operations in the area ( mainly coal, some gold ), the amount of rain might be even more important.

A few interesting deals today: Tencent buying 5% of Tesla for 1.8 bill US$ / Agnico Eagle placing more than 200 mill US$ with a single fund / Goldcorp getting in bed with barrick to develope resource in Chile

Paringa - came out with a very strong feasibility study today for their Poplar Grove coal mine in Illinois. 2.8 millt at 29.24 US$/t Opex to barge, average annual EBITDA of 67 Mill US$, NPV 310 mill US$ and only 44.7 mill US$ capex - I guess all in all about 53-55 mill US$ incl working capital needed. That´s less than 1 year´s EBITDA...for a mine with 25 years mine life! The mine will go into production by mid-2018, followed by the second mine close by, called Cypress, which should be in production by early 2012. The combined NPV8 for both mines is 655 Mill A$ or 850 mill A$...

I am assuming a capital raising of approx 40 mill A$, followed by a bank financing of approx 25 mill US$...hopefully, the placement will happen soon, because all institutional investors will just wait for that to happen - rather than bidding up a reasonable illiquid stock. 

The risk of this development is quite small for a mining venture, as teh coal seam is very very cloase to surface. All infrastructure is in place...all approvals are in place.

By doing some numbers, I arrive at a valuation of at least 1.80 A$/share ....that´s 3x upside. By the time both mines are producing, numbers could be larger, esepcially, as the discount rate should come down...4x EBITDA are very close to the NPV8 of 850 mill A$...and assuming another 50 mill shares on issue, the valuation would be closer to 3$ than 2 $....In my opinion, this is a no-brainer. I declare my substantial interest in PNL.

Have a nice evening


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