too much negativity + article

Huntley says "We do not believe a decade of hard earned management credibility gets flushed down the toilet in one bad quarter."

Weathering Negative Sentiment


CEY's Annual General Meeting can be split into two parts, the short term and the future. In the short term, it's easy to follow the herd and be negative. Lost Newstan production will significantly affect this year's profit after the mine encountered the worst mining conditions in the company's history. Short term sentiment towards coal stocks has turned negative with next year's price expectations pulling back from record levels. Despite an impressive long term record, the market is questioning CEY's ability to deliver.


Our recommendation is couched towards long term investors and the positive long term view was reinforced. We do not believe a decade of hard earned management credibility gets flushed down the toilet in one bad quarter. Output continues to move to larger, more productive, lower cost and higher margin mines. Anvil Hill will be the group's lowest cost mine, increasing production from nearly 20Mtpa to 30Mtpa by the turn of the decade. Maintainable long term profits are forecast to grow to around $200m a year despite prices moderating to long term averages. While prices look to be moderating, the long term outlook remains positive with India and China set to underpin export thermal and coking coal demand.


Following the poorer than expected first quarter, we moderate our production and price forecasts. Our FY06 forecast is downgraded by 28% to $94.6m based on an average realised US$89/t coking coal price and a US$49/t thermal coal. Our FY07 estimate is similarly downgraded by 31% to $148.1m based on a US$105/t realised coking coal price and a US$45/t thermal price. The $4.40ps valuation assumes long term US$60/t for coking coal, US$40/t for thermal coal and an exchange rate of A$1.00 = US$0.76.