From Proactive investors 29/08AnalysisToday’s Resource upgrade...

From Proactive investors 29/08

Analysis

Today’s Resource upgrade marks a milestone on the road to development of Mbila and anthracite production for ZYL, reinforcing yet again the potential of the company’s South African anthracite projects.

Demand for anthracite is still robust providing a strong foundation for development of the projects.

The near term anthracite producer has concluded a phase one infill drilling program, and is also working towards the completion of a Bankable Feasibility Study which could be completed in the September quarter 2012.

Investors will be aware that anthracite offers end users significant cost savings as opposed to metallurgical coke, as anthracite does not require a coke battery, saving them around US$140/tonne.

ZYL is well placed to service increasing anthracite demand, with the estimated global shortfall expected to be around 21.7 million tonnes by 2015.

Initial combined production from the Mbila and Kangwane projects is targeting 2.5 million tonnes per annum, with first coal from Mbila expected in the September quarter 2013.

A Feasibility Study completed earlier this year demonstrates the Mbila project exhibits strong forecast projected returns with a project internal rate of return of 41%.

Mbila has the potential to produce a forecast phase one production rate of 580,000 saleable tonnes annually, increasing to full production of 840,000 tonnes per annum run of mine in the June quarter 2014.

Significantly, ZYL has already received numerous non-binding expressions of interest (EOIs) for offtake in respect of production from both Mbila and Kangwane. The EOI offtake volumes now exceed the full saleable production of both Mbila and Kangwane.

Add to that ZYL is taking steps in attaining the majority ownership in the Mbila project with the binding heads of agreement to acquire York Energy’s interests in the Mbila, Kangwane North and Marble projects.

The deal adds an additional 30% of Mbila increasing ZYL's interest to 74%.

The re-tracement of ZYL's share price is at odds with the demand/supply equation for anthracite and milestones that ZYL has reached and value that has been added. Yet the current valuation is lower than it was in November 2011. Clearly, this mis-pricing will realign providing a current opportunity for investors at around $0.12.