afr street talk rinehart taking stake in aqc, page-21

ASX Release � AQC Quarterly

Highlights
� 107 Mt Inferred Resource (JORC) at Cooroorah, Qld, 17 km N of Blackwater
o depths of 225-400m
o thickness averages 8.6m
o low volatile PCI coal with potential for coking coal in the Aries seam
� strategically located next to Macarthur�s Stanwell project, Jellinbah Mine, with good road and rail infrastructure
� 14 coal exploration permits now held in Qld (Bowen and Surat Basins)
� 19 applications for permits in Qld (Bowen and Surat Basins)
� prospectivity for both metallurgical and thermal coal, open pit and underground
Corporate Strategy
� assess licences and prioritise work programmes
� consider production where it can work off neighbouring infrastructure
� drill to upgrade resources and consider selling in-situ resources to more established coal producers
Further Notes
� AQC is still coming to grips with what it has been granted. It is progressively going through historical data and prioritising its work program
� it views open pit resources of 5 Mt or better as being potentially economic, to depths of 150m, and underground resources of 50 Mt or better, with minimum thickness of 2m, as offering potential
� it has a short term objective of becoming a junior coal producer from open pittable coal
� cash levels are low at $1.4m, but the company is not amenable to share issues at these low prices
Valuation Notes
� the valuation exercise is in its infancy as AQC has only just started to scratch the surface, so we have restricted ourselves to two licences; Cooroorah and Mt Hillalong
1. Cooroorah ( AQC 100%)
o look at the sale of Sienna by Norton, for comparison;
 $30m sale for 57 Mt of coal
 potential for 10 Mt of open pittable coal at a strip ratio of 20:1
 poor quality coal at best � maybe PCI
 13 degree dip, igneous intrusion
 but it still sold for 50� pt,
o Coororah is underground but has a number of better features;
 much larger at 107 Mt
 medium hard coking coal for 80% of product, 20% thermal
 shallow dipping at 3 degrees
 adjacent to Stanwell, which Macarthur paid $400m for 230 Mt of open pit coal i.e. $2 pt
 a range of 30-60� per tonne valuation would be in the ballpark i.e. $32-$64m i.e. 6�-12� a share
2. Mt Hillalong (AQC 100%)
o adjacent to RIO�s Hail Creek Mine
o depths of 300-500m
o potential for 100-200 Mt
o at 50� a tonne, this could be worth $50-100m to AQC, or 9-18� a share

Comment and Opinion: AQC has been a quiet junior spec stock based in Brisbane, that decided to re-invent itself as a coal stock in 2010. It has successfully applied for a number of strategic licences in known productive coal basins, with a number of additional applications pending.

With a market capitalisation of less than $30m, AQC is one of the cheapest entries into the Qld coal market. There is an expanding information curve here as it starts to come to grips with what it owns. Combine this with some drilling, to add to confidence levels, and we are likely to see progressive upgrading of the value as 2011 progresses. There doesn�t seem to be any downside from these levels with the Company about to go on its first marketing campaign since it changed direction.

Conclusion: It is not hard to come up with rough valuations of 15-30� a share based on the two leading projects. What else is there? It remains to be seen. This is a deep in-the-money situation that hasn�t yet been recognised by the market. It is speculative, but it is worth backing at these prices for a move much closer to 20�.


BGF Equities Team
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