Intersuisse update just out:New Hope Corporation NHC Tuesday, 29...

Intersuisse update just out:

New Hope Corporation NHC Tuesday, 29 July 2008

New Saraji Sold

Recommendation Buy

Well positioned after selling the New Saraji project for $2.45bn
NHC mines thermal coal primarily from Acland, 140km west of Brisbane, a midlow
cost, long life mine. Smaller contributions are from Jeebropilly and Oakleigh
near Ipswich where land redevelopment offers a potential new earnings stream
after closure. Group production is 5Mt a year, 70% export and 30% domestic.
Exports are through a 100% owned port in Brisbane. Near term growth is from
Acland exports. Coal seam gas via Arrow (AOE) and coal to liquids may be
important longer term.
NHC is well positioned to develop those options after selling its New Saraji
project for $2.45bn in July 2008. Management is astute, focused on cashflow,
dividends and sensible long-term investment.
The balance sheet is strong with no debt; although the company is exposed to
single commodity, infrastructure and mining risk.
BHP is buying back something it gave away just six years ago.
• NHC will sell New Saraji to BHP and Mitsubishi for $2.45bn in cash. BHP is
the logical owner, operating an open cut mine next door.
o New Saraji covers the underground extensions to BHP’s mine.
o Settlement is expected in a few months.
• NHC was granted the New Saraji lease in October 2003 after BHP
relinquished its in 2002. BHP is buying back something it gave away just six
years ago.
Recommendation
Risk is low. Over a third of the company is cash. New Saraji’s size would have
brought financial risk with development.
Near term earnings receive a substantial boost thanks to interest on cash. New
Saraji was not to contribute meaningfully until FY12.
We raise our FY09 NPAT forecast $258.3m, assuming 10 months interest on the
proceeds at 8% (less an expected special dividend).
Further growth will come in FY10, mainly through the thermal coal price, but also
some volume growth from Acland.
• We are expecting NPAT of about $330m and earnings of 40¢ a share.
• NHC is not yet receiving market rates for thermal coal.
• Our FY08 NPAT forecast is unchanged at $79.1m.
We have a Buy recommendation. Shareholders can look forward to meaningful
fully franked special dividends. Expect an initial burst of market enthusiasm, but
NHC will need to replenish growth options. It should in time, but the market can
be impatient.
Management style suits long-term investors.