quality over quantity, page-2

Let's do a basic quick valuation. Trying to look at pros and cons here.

It must be stressed yet again, that this is ONLY Kangwane, and we do have other assets in the pipeline which come on board assuming the York transaction is finalised. The company has said recently they believe there will be "favourable" outcomes from the York renegotiation, so even leaving alone the cloud hanging over Mbila, we have plenty more upside with the assets we are receiving as part of the York deal.

Production

50% of 700Ktpa Kangwane Central profit $14m

71% of 1Mtpa Kangwane South $28m
71% of 1Mtpa Kangwane Nth $28m (this assumes York deal goes as expected)

(These are based on similar metrics as the Kangwane Central BFS, they share the same coal seams so it doesn't seem unreasonable?)

Total $70m. Put that on a pe of 3 gives a mkt cap of $210m or 42cents.

Don't forget that the one variable in the model that can influence the valuation one way or another if we assume the costs are locked down in the anthracite price.

The price used was worked on a conservative historical av.

Let's look at the market by the time that Kangwane comes into production. Vietnam, which accounts for the bulk of seaborne production, will effectively be out of that market. The independant consultants suggest that the deficit will be 60Mtpa. On that basis it's reasonable to assume some price tension will develop. Let's assume a price of $160 that adds an extra $20 to the margin.

That would increase the valuation to 63 cents.

Of course this is highly theoretical on the basis that they are a long way from announcing production on either the Nth or Sth however I believe it's a reasonable assumption.

But it also ignores all the other good stuff we have on the cooker such as Marble, Msebe etc.

Patersons can stick that in their pipe.

Yes I know there are plenty of doomsday scenarios about fiscal cliffs and China never making another tonne of steel but seriously if that occurs you can kiss all your assets goodbye.