mcc vs cey

Just a contrast between the two.

Some have suggested CEY may be looking in MCC direction.

It is ludicrous with MCC valued by the market at 1.2 times the value of CEY.

Here it is anyway ....

Hi Wolverine,

Agree they won't take them over.
MCC seems to have a bright future as well.
Yep I have maybe low balled the profit numbers for MCC in regards to their future.

MCC is expected to double production into 2008 and profit numbers are expected to increase dramatically.

CEY also is the same.
For some reason CEY never seems to get a fair break from the analyst who cover it.

Have had a financial interest off and on since 2000.
Back in 2000 you could buy CEY for 50 cents.
Since June 2000, CEY has paid 48.5 cents in dividends.
With the share price at $4.00, its a total return of 797%.
Now since 2000, CEY was rated as a reduce for a long time by analysts.
Some had it as a buy but only for short periods.
CEY in terms of profits has had virtually a one way march forward.
In terms of share price it has been a slow and steady rise.
CEY stands at around 30% up on last years price.

MCC on the other hand, well its up around 400% since last year.
So whilst I like coal companies in general, its not hard for me to be more enthused by CEY in terms of value.

One development coming on line in 2008 for CEY seems to have been ignored by most analysts. Nothing new for CEY. Anvil Hill which is massive in terms of resource with well
what appears to be one of the largest reserve/resource sizes of any mine in Australia.
Anvil hill also seems to have already a contract for 1.5 million tonnes per year and is planned for export at 3.5 million tons in 2008.

Just to shine a spot light and contrast the two companies.
CEY actually divested a coal mine in 2004 and stated they are going to concentrate on the new production from the Mandalong and Anvil Hill projects.
Both these projects are massive.
CEY in 2004 had production somewhere in the region of 14 million tons.
In 2005 Mandalong will add another 1.5 million tons to production.
In 2006 Mandalong will add yet another 1.8 million tons to production.
In 2008 Anvil hill will come on line with 1.5 million for domestic and 3.5 million for export.

Just in summary
Coal production for CEY
2004 ... 14 million
2005 ... 17 million
2006 ... 18 million
2008 ... 23 million

that's what we know just now.

Reserves and resource at
Mandaolong 497.1 million tons
Anvil Hill 680 million tons

So in 2008 I presume Mandalong will be producing around 4 million per year.
Anvil Hill will be producing around 5 million per year.
The life of the mines at this rate of production would appear to be well over 50 years.
As more is seen recoverable, possibly a lot longer.

Now the attraction of MCC to some is its ability to hit the PCI market and with the massive increases in coking coal shoved down consumers necks this year it seems to be in the driving seat. Coking coal prices are nearly 80% over the current thermal coal price.
CEY has most of its coal used by domestic power companies. However an increasing proportion has been freed up for export and notably some of the soft coal is suitable for coking purposes and attracts very similar prices. As usual every analyst seems to have overlooked this little fact. By 2008 CEY will have around 8 million tons also available for export into this market. Anvil Hill alone has been earmarked for 3.5 million in export all by itself. Suggest one has a look at CEY's 4/10/04 announcement regarding their proposed expansion of the semi soft coking coal business.

Now MCC contrast.
The 700 MT resource and reserve number I placed on them may have been somewhat generous. Have allowed for some of their exploration to actually find something.
I think Coppabella is their largest deposit .... reserves/resource at 198 million tons.
Bit of a contrast to CEY's Anvil Hill at 680 million tons.

The total contrast is CEY 3,880 Million tons reserve/resouce to my generous 700 million tons reserve/resource for MCC. In other words it seems to stand at 18% !

Now MCC is being pushed on the value of its proposed expansion in production and export earnings IF coking coal stays where it is.

Current production in total for MCC in 2004 was 4.5 million tons.

By 2007/8 they propose to be producing 8.5 million tons.

Now looking back at CEY.
Just rough numbers but 68% of current production is used to power domestic power plants.
The rest is export. A lot is thermal as opposed to Coking/PCI coal.
Changes announced late 2004 will change this mix.
But anyhow, CEY domestic 9.5 million tons and 4.5 million export that's 2004.
By 2008
CEY total 23 million tons. Roughly 14 million domestic. Around 9 million export.
So in fact CEY is going to actually increase export size by more than MCC between 2004 and 2008.
Furthermore the mix of what they already export is going to change, the Coking and soft coking alternatives will be replacing the thermal exports to take advantage of the price differential. I suspect as more and more comes on line this gap will narrow.

As you can see I have had a very hard look at MCC. Maybe I am being harsh, but if the market is valuing the 18% of reserves it has at 120 % of the current market cap of CEY you can see my enthusiasm for CEY as opposed to MCC.

On top of this, the proposed expansion of CEY by around 9 million tons in the next 3 years is underwritten by 3 large contracts to supply coal to power utilities in total around 5 million out of the 9 million expansion is tied down so it is less exposed.

If coking/PCI stays up here, CEY in fact will have around the same total production of MCC available for export into the same market.

As you can see CEY has its hands full at the moment. Market is not enthused by CEY its seen as a plodder, well maybe it is. The price of it only 30% higher than last year as compared to MCC with a 400% advance, or say GCL with a 300% advance.

CEY has been divesting non core mines as opposed to any suggestion of being interested in buying any other coal company especially at some interesting price.

Now the analysts pushing MCC and EXL have interesting assumptions as to prices that will be received. MCC I note has a pegged in number of 200 mio for 2008 as profit by one.
In contrast even with the expansion of CEY both domestic and export it has used a number of 90 mio for 2008. I would suggest both are utter bulldust.
CEY personally think
2005 70 mio
2006 80 mio
2007 95 mio
2008 135 mio.

If and only if coking coal numbers stay up here ... well maybe MCC will get there but if it reaches the pie in the sky number of 211 mio .... add another 125 mio to CEY's 2008 number at least. CEY will after all be producing nearly as much as MCC.

CEY whilst boring at this stage is the safer option. The expansion is underpinned by domestic contracts.

One other big point about CEY is the prices it receives for domestic production .... analysts always seem to forget ..... they have very long term contracts to power stations and receive a long term average price for the coal they produce. The average is lagged over a long period sometimes as long as 10 years for the 20 plus year contracts, gives the consumer and producer better economics and protects against price spikes as we have seen at present. CEY will slowly be receiving the 150% increasing in thermal coal prices we are seeing over the next few years in the profit numbers as they work their way into the averages. My profit numbers have assumed the coal price falls, not stays here. The longer we remain up here the bigger the bottom line for CEY. How much, well I would add 20% for every year we stay up here. The 2005 number with contracts being negotiated at present may already even be around 20% too low. If coal stays in this region 2006/07 ... well Centennial's profit I would expect to be 150/160 mio 2007 and possibly over 200 mio in 2008. That's for thermal coal. If coking stays up here which I doubt personally, well the number for 2008 ... 300 plus maybe.

They are big maybes.
Use the conservative ones and be surprised.
Possible downturn in economies will have a vast impact on things and suspect maybe we see some sort of slowdown at some stage in the future.

CEY ... just buy on dips
MCC at 120% the market cap of CEY ...well really .