Aquila Resources Ltd (AQAASX, $2.85, Mkt Cap $1.2b) Ongoing dispute grinds West Pilbara to a halt. Switch to FMG, BCI and WDR.
•Given the ongoing dispute between Aquila and its JV partner AMCI at the West Pilbara Iron Ore Project we believe the project will remain in limbo until a resolution is reached. Consequently we see no near term catalysts for share price appreciation and recommend clients switch to established producers for exposure to the iron ore price
•The dispute, which was first flagged in August, is in relation to the proposed budget for the project for FY13, with AMCI seeking to conserve funds until the timeline for approvals was more certain. However, no agreement has been reached and the dispute has been referred to an arbitration hearing which is scheduled to commence on 18 February 2013.
•While progress has been made at its flagship West Pilbara Iron Ore Project with the recent environmental approval for the development of Anketell Port, the dispute with its JV partner AMCI has ground the project to a halt. This is the second major dispute for AQA and its partners in the past 12 months.
•AQA’s flagship project has effectively been shelved with operations winding down and the project director tendering his resignation. We believe the company remains in limbo until a resolution has been reached with its JV partner AMCI and as result do not see any near term catalyst for share price appreciation.
•On a positive note, the dispute over the sale of its 24.5% stake in an Australian coal project to Vale has recently been settled which will see Vale pay $150m for the stake in the Belvedere coal mine project, located in Queensland, as well as $20m to settle all legal proceedings.
•While the company retains a cash balance of $658m (includes the $170m payment from Vale) representing $1.56/sh cash backing, AQA remains short on its share of the proposed $7b West Pilbara project.
•We recommend clients that have exposure to AQA switch to nearer-term and established iron ore producers to gain exposure to the recovery in iron ore prices.
