The general malaise in the mining sector – so we need to be either looking for long-term benefit or exceptional stories that break the mold. 3. The low commodity prices across the board. Therefore, the relevant question is – where to start. Well, the first stock which includes appeal to us is Bandanna Energy (BND.ASX). As of today, they have fallen to a stock price of 10c; which is within 3% of their all-time low of 9.7c. This makes this ‘psychological level’ a solid support, today we bought a lot of them so. 52million at 10c. The implication is that their cash holdings are well worth 20c/share, or that they are trading half of their cash backing.
That’s just crazy since it also ignores the value of their project; it creates them a persuasive takeover focus on, or starts the prospect of a capital return or talk about buy-back. Any of them outcomes would at least push the business’s share price to 15-20c range, so depending on the option, it certainly makes you wonder why it has not happened.
Not, you do not usually issue shares and then have a special capital return, nevertheless, you might have a talk about the buy-back to raise the price. The relevant question is if the executive team considers the existing low price will be sustained. Certainly the cash is needed given how big is investment. 2. Project in Qld – They have a pretty decent coal task in Qld near Emerald encircled by other coal mines, and close to rail infrastructure.
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3. Prospective buyers – They have a Korean power utility on their share register. Typically Asian power resources have taken stakes in coal companies in order to secure the marketing rights to coal. In the forex market, there is absolutely no reason to expect a task to move forward, or a power shortage to can be found.
Any advancements here however offers long-term upside. 4. Low coal prices – they’ll eventually recover. The appeal of Australia is the usage of capesize shiploading facilities, proximity to Asia, good quality coal, and the reliability of its law. It has been called into question lately with the Rudd-Gillard governments introducing huge tax imposts on the sector; making Australia appear to be a pretty sordid ‘graft overall economy’. Anyway, they have gone, but coal prices stay low.
For some perspective here, have a look at this chart, and think about this a contrarian buy opportunity. 5. Demand aspect – There is certainly destined to be a strong demand still for coal given that security of source considerations remain. Actually, you might question if Germany is pressured to re-open old coal-fired power stations given that it might struggle for gas supplies from Russia. I’m uncertain if these plant life have been mothballed. It is more probable that nothing at all will become of the pressing issue.
The more reliable outcome is merely more coal demand from China, India, Korea. I’m anticipating China to keep investing in domestic infrastructure, to expand how big is its domestic economy. This will increase domestic demand, and that will mean more coal and gas. Some of this should come from Mongolia. Indonesia is progressively attempting to provide more export-grade coal to Asia, so Australia is well-placed, but it requires competitive cost structures. 6. Problems to be resolved.
The coal industry is attempting in Queensland from a number of problems which I would expect to be resolved in due course. These hurdles shall permit a number of tasks to continue; foremost those with cash, who can sustain exploration, or which are at a sophisticated stage. 35-40/hour because people don’t want to work in the outback. 18/hr’ lifestyle wage on the coast means they aren’t so keen to work in the bush. Queensland Rail Rates – a monopoly is kept by Queensland Federal government over railways in their state.
The problem is that existing rail rates were negotiated at far higher levels. The problem is markedly that coal prices have fell. Now, maybe QR considers itself as a small business, whether a monopoly, or not, but the implication is that contract prices are very high. The relevant question is – do rail shippers sell more coal at these prices, or do they try to work out lower rates for incremental increases in production when they finally get some good more customers.
Certainly high rail rates are an impediment to further investment, so I’m anticipating a concession by the Queensland government when they realize they are competing with the Chinese Federal government, which is prepared to subsidize coal deliveries from Mongolia. This would of course be very good news for new projects as well.