Ann: GAS DESORPTION TESTING AT KODIAK DELIVERS PO, page-3

re: Ann: GAS DESORPTION TESTING AT KODIAK DEL... Attila flies under the radar
Published 20 November 2013 09:14

Despite its low profile, Attila is rated by Hartleys as one of the most promising emerging coal plays.
The release of favourable gas desorption test results by Attila Resources on Thursday provided only brief share price momentum, and appears to have gone unnoticed by the broader investment community. The company tends to fly under the radar, but the news wasn’t lost on analysts at Hartleys who rate the company as one of the most promising emerging coal plays.

The broker values Attila’s assets at $1.91 per share and it has a 12-month target price of $2.10 on the company. This compares with Tuesday’s closing price of 54 cents.

Completion of a pre-feasibility study (PFS) in August confirmed the technical and economic merits of Attila’s Gurnee tenement, part of the larger Kodiak coking coal project in Alabama. The PFS demonstrated the capacity to produce about 2 million tonnes per annum of high-quality coking coal, and Hartleys has modelled its projections on production of 800,000 tonnes in 2014-15, ramping up to 1.8 million tonnes in 2015-16.

The significance of gas desorption testing is that it measures the level of methane gas that will need to be managed in an underground mining environment. The results revealed average gas yields of 5.1 and 6.5 cubic meters per tonne across 32 samples of the two main seams, which compares favourably with the company’s US peers that currently operate mines with average gas yields in excess of 10 cubic meters per tonne.

The fact that these gas levels can be safely and economically managed paves the way for further advancement for Attila without the possible impost of excessive capital expenditure in terms of installing comprehensive gas drainage management systems.

Hartleys sees Attila as well placed to be in early production now, with the existing infrastructure established and low operating costs required to generate robust cashflows.

Attila conducted a small capital raising of $7 million at 60 cents per share in October and its current cash position is estimated to be in the order of $8 million. Hartleys highlighted that the all-in cash costs for the Kodiak project (US$90 per tonne) should place the operation once fully developed in the lowest 10 per cent of all metallurgical coal producers worldwide.

The company also stands to benefit from premium prices for its product. The hard coking coal that exists at the Kodiak deposit is ultra-low ash with low sulphur and other qualities that will make it highly sought-after for use in the manufacture of steel products.

Based on Hartleys’ forward estimates, Attila is expected to deliver a net profit of 19.4 million in 2014-15, representing earnings per share of 15.2 cents, implying a price-earnings multiple of less than 4 relative to its current share price. However, when the project ramps up in 2015-16, net profit is expected to swell to $51.7 million, translating into earnings per share of 40.7 cents, implying a price-earnings multiple of 1.3.