First look at this one so may have missed a few things, .
The vendor agreement payment is odd, move to 75% then the next 25% will actually cost them $0.4/t in percentage terms as they are paying for 100% including the 75% they have earned via cash payment and exploration expense. Then another 8c on top of that for additional resources. Usually these payment are linked to the BFS or production to "free carry" the vendors (see BTU vendor payments), if HDG dont exercise this then the vendors need to cough up 25% of the capex?
Compared HDG to AFR, so far HDG losses on strip ratio, ash content and seam width. Assuming these stay the same after drilling it out (and development if likely) would expect if all things stay the same HDG would end up trading at a discount to AFR. Rail (for export) is also an issue for both but steadily changing. One big advantage for HDG is being located next door to a wash plant. No guarantee but gaining access to this via an expansion using HDG's coal could be a significant cost/time saving to enable early cash flow to domestic coal sales.
Will need onging finance for exploration but risk reward at these levels looks very good as an exploration/thermal coal price proxy, and also would not discount their gold project next door to ADU.
HDG Price at posting:
30.0¢ Sentiment: None Disclosure: Not Held
