UBS Investment ResearchMacarthur Coal LimitedCodrilla anointed...

UBS Investment Research

Macarthur Coal Limited

Codrilla anointed as 4th mine project

􀂄 MCC selects Codrilla as 4th mine and sells down 13.76% of its interest MCC announced it has selected Codrilla to be the 4th mine (inline with our expectations). In addition, MCC announced that Codrilla (MCC 85% interest) will be sold to the Coppabella Moorvale JV (MCC 73.3%). MCC will receive $74.88m for the dilution of their interest from 85% to 73.3%, valuing 100% of Codrilla at $640m in staged payments (we estimate $490m NPV). We believe the sale makes a lot of sense as the 3 mines (Coppabella, Moorvale and Codrilla) can be managed as 1 entity, ensuring synergies are unlocked.

􀂄 NPAT guidance increased by $55m profit on sale
As a result of the selldown, MCC have revised upwards their FY11 NPAT guidance from $185-205m to $240-260m, implying a $55m profit on the sale. Operationally, MCC's profit guidance is unchanged from that released to the market on May 4, ($143-163m).

􀂄 Neutral. Declining coking coal price may be a headwind in 2H 2011
Including the selldown of equity in Codrilla for $76m increases our NPV by 1% to $12.33ps. We have a Neutral rating on MCC. The prospect of declining spot metallurgical coal prices as the Australian coal industry recovers post the wet season and the potential for near-term volume impacts from the Japanese steel industry as it recovers post the earthquake suggests to us that the stock is fairly valued at current levels.

􀂄 Valuation: $12.33 (DCF, 10% d.r.)
Our price target of $12.30 is based on our NPV.