gaining coverage, page-3

$200m with how many shares on issue? No mention of their new project announced in December either. A great start.

Attila Resources Ltd (AYA) $0.75
Recommendation: BUY (upgrade)
Analyst: Andrew Harrington ________________________________________
Play for the coking coal turn around.
• We have upgraded our coverage of AYA, now having modelled its key Kodiak coking coal project in Alabama. Using conservative assumptions for capex, opex, and coal prices, we value Kodiak at $200m for AYA’s 70% share of the project. Our per share valuation includes a large dilution for options on issue and any capex gap, that we assume will have to be filled via equity, and it still results in a valuation of $1.19 per share for Kodiak.
• We are pre-empting the Company’s BFS but in our modelling we have assumed an upfront capital cost of $60m to build a 1Mtpa RoM mine, with the addition of a further $20m to increase production to 1.4Mtpa over a 20-year LoM starting in FY15. Even though AYA only owns 70% it is free carrying its 30% JV partners TBL and KC Coal and so pays for 100% of the capex. We have used the high end of earlier estimates for re-opening the mine, which ranged from $25m to $60m.
• For operating costs we have used $101/t FOB on average over the first 10 years of mining with rail and port consisting of $30/t. Our pricing is also conservative, with our forecasts falling over the next two years from $200/t in FY13 to $177/t in FY15 and then growing going forward. Further, we have included a 10% discount to Pacific benchmark pricing for Kodiak coal. (See the attached for more details on Kodiak, risks, and commentary on coal prices.)
• Our coal price forecasts may well be too conservative, but despite this Kodiak is still forecast to make $22m of EBITDA in its first year of production in FY15 and $55m on average over the first 10 years. In terms of NPAT the amounts are $18m and $35m respectively.
• The share price has fallen by about 25% since we first wrote research about AYA and it is now showing good value, even after including the potential for dilution in order to fund the project. With mining permits and surface infrastructure already in place AYA has an attractive asset in Kodiak. Our valuation for the whole company is $1.13 per share and accordingly we upgrade our recommendation to a BUY with a price target of $1.10 per share.