Merrill Lynch report:Macarthur Coal (MCC)Consolidating Codrilla...

Merrill Lynch report:

Macarthur Coal (MCC)

Consolidating Codrilla into CMJV

Macarthur have announced their 4th operating mine ? Codrilla. Alongside this although, they have also scaled back their equity stake in the project from 85% to equalise with its other projects Moorvale and Coppabella at 73.3%, for $74.88m.

The see-through value implied is $640m on a 100% basis. By selling in the CMJV, MCC would accelerate the Codrilla development through the shared use of current operating infrastructure, resources, enhanced blending opportunities and marketing synergies.

See-through value higher than our estimates of Codrilla
The consideration received by Macarthur for their 11.7% stake in Codrilla is $74.88m, reflecting a see-through valuation of around $640mn on a 100% basis.

This compares to our current Codrilla NPV of ~$560m ? or around $80m higher.

However, here?s a small caveat. The payments for the sell-down will be received by Macarthur in three instalments over a period between now and 1Q 2015 - 20% upon the transaction becoming unconditional, 40% by 31 March 2013 and 40% by 31 March 2015.

Construction to commence 2012?first production in 2013
3.2mtpa of low volatile PCI (LV-PCI) is expected to be produced from the Codrilla project and is located ~30km east of Moorvale. The Codrilla project is estimated to yield around 4mtpa ROM. A coal handling and processing plant (CHPP) will be built at Codrilla itself and processed coal is set to be export through existing contracted port capacity at Dalrymple Bay Coal Terminal (DBCT).

Revised profit guidance

The transaction will net some income for Macarthur in FY11 of ~A$55m.

Macarthur has therefore increased its profit guidance (pending FIRB approval) to between $240-$260m. Although reported profit would take a spike, in our analysis, underlying profit would remain steady at ~$150m for the full year.

We adjust our NPV lower by 0.7% (to A$12.42/share) to account for the deferred payment pattern of the $75m consideration received by Macarthur. No changes to underlying EPS for FY11e or FY12e