? HDG?s Moruple South Coal Prospect is an option to acquire majority interest (99%) in the project, predicated on due diligence conducted prior to finalising the agreement (by 2 May 2011) and followed by the completion of certain exploration activities up to 2 years beyond this (with a necessity for further funding). The company is targeting a 1.4bt thermal coal resource in SE Botswana.
? We like the story because: there is an adjacent coal fired power station to the site using coal with similar characteristics; international interest has seen a bid on a similar project (CIC Energy); and, a comparable company with similar prospects has seen its market value increase ten-fold (AFR). In addition we regard Botswana as a country with low to moderate sovereign risk and a favourable investment climate.
? Relevant project comparables include:
- India?s JSW Energy has extended an offer of C$450m for CIC Energy, which is developing a 16mtpa similar thermal coal project from a 1.9bt resource in eastern Botswana; and,
- African Energy Resources (AFR.ASX, market cap A$294m) has a comparable 1.5bt resource in the country and is working on releasing a maiden JORC-compliant resource by mid-2011. AFR shares have increased from ~A$0.10/share to ~A$0.94/share over the past year.
? HDG will be looking to supply the domestic market which is suitable for its high-ash coal. Plans to export internationally will rely on a wash-plant to further process its product as well as an expanded infrastructure solution either west to the Mozambican port of Maputo or east to Namibia?s Walvis Bay.
? HDG?s share register remains open with one substantial holder being Non-Executive Director Nathan McMahon with 5.7m shares (12.1%).
? Capped at just ~A$17m, HDG appears to be an attractive SPEC BUY.
HDG Price at posting:
30.0¢ Sentiment: Buy Disclosure: Held
