| Singapore-listed Golden Energy & Resources, as a holding company, has a key subsidiary, 64%-owned Stanmore Resources (SMR) which is listed on the Australian Exchange. A$3.4 billion-market cap Stanmore produces coking coal used in steel production. |
Excerpts from Morgans report
Analyst: Tom SARTOR
Resilience pays
• 4Q sales beat our expectations despite 2022 wet weather.
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Stanmore
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Share price:
A$3.73
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Target:
A$4.45
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• End-CY22net debtmateriallybeat ourforecasts, and we forecaststrongde-gearing to a netcash position in 2HCY23.
• TheJanuarydelugeimpacting port operations is a short-term risk to CY23 sales/costs although HCC (hard coking coal) prices/ realisationsagainprove to bea strong net offset.
•SMR enjoysM&Aadvantages in the Bowen Basin and we think positioning for further acquisitionsin 2023will out-rank dividends in the near term.
•SMR looks too cheapto ustrading on a +25% free cash flow yield and with near 30% capital upsidepotential. |
Events
▪4Qproduction,pricing upgrades, QLD wet weatherimpacts.
Analysis
▪Impressive4Q:4Q sales(3.47Mt)were 300kt (~10%) above our forecasts despite ongoingwetweather.HighROM/productstocks,additionalminingcapacity/flexibility and opportunistic use of available logistics explained theresilience.
Strong volume and the lower AUD helped SMR to beat cost guidance atSWCand Poitrel;however,bothtailwinds are now abating.
▪Rain impacts:Mackay received ~650mmof rain (nearly 2.4x the January average) in the 7 days from Jan-12. While the mines and rail network have fared better, the trade press suggests port operations at DBCT may take up to 3-4 weeks to fully recover (coal dewatering) significantly slowing exports for all users.
We reduce our CY23 sales forecasts butdo seefurtherpossibledownside.Importantly,lostsales area basin-widephenomenon contributing to significant HCC tightness/ pricing.
▪De-gearing ontrack:End CY22 net debt of $182m(cash$433m,debt ex-leases $615m) was $179m better than our forecast.The higher volume at better than forecast realisations(PCI tracking close to PHCC)likelyexplains much of the delta, along with higher tax accruals as the business re-bases toahigher NPAT.
▪CY22result preview late February: We expect wider-than-usual CY23 guidance and with some risk to volumes/costs versus market expectations (wet weather
uncertainty).
 "SMR looks far too cheapto us offering ~30%upsidepotential to our base case valuation."
-- Tom Sartor |
We don’t expect a final dividend as we expect SMR to preference de-gearing(senior debt cash sweep due in February, possibly +$300m)andto build fundingcapacity forpotentialM&A.
▪M&A focus:Thetrade press reports that BHP’s Dauniaand Blackwater mines may soon come to market. Operating synergies with Daunia are obvious(adjoining leases, shared infrastructure) and we expect SMR tobe a keybidder.
Peabody appears to be a logical rival forQLDassets (recent appetite, strategic imperative, ~3Mtpa of unused DBCT capacity).
Forecast and valuation update
▪We lower forecast CY23 sales by 4% (to 12.6Mt).We also adjust for:
1) materially higher CY24-25 PHCC assumptions (+20%);
2) higher CY23 PCI realisations (to 84% with ongoing upside); and
3) higher cost assumptions. Price more than offsets short-term weather.
▪Our base case valuation/targetadjusts to $4.45ps (from $3.90).
Investment view
▪SMR looks far too cheapto usoffering ~30%upsidepotentialto our base case valuation.We’reattractedto:
1)highercapitalupsidevspeers;
2)strong cashflow/valuation leverage,
3) low-cost “BHP-like” cost structures at SWC and ED, and
4) clear M&A advantages/ opportunities in QLD met coal. |
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Price catalysts
▪Potential external M&A.
Risks
▪Production disruption, cost inflation, logistics interruption/ availability.
▪Macro-economicweakness.
Full report here.
