I saw this in the West Australian Newspaper last week and grabbed my attention!
Page 1 of 8
Attila Resources Limited
Coal: Developer / Explorer
AYA.asx
Speculative Buy
Share Price
Valuation
Price Target (12 month) $2.00
Brief Business Description:
Hartleys Brief Investment Conclusion
Directors
Top Shareholders
Kingslane Pty Ltd 12.2%
Auscorp Netw ork Pty Ltd 6.5%
Company Address
Issued Capital 57.0m
– fully diluted
Market Cap
– fully diluted
Cash (30 Jun 13e) A$2.8m
Debt (30 Jun 13e)* A$0.0m
EV
Coal (Mt)
Reserves 48
Resources 78
* AYA has $14m (28m @ 50c) in convertible notes
Mike Millikan
Resource Analyst
Ph: +61 8 9268 3045
E: mike_millikan@hartleys.com.au
15 Aug 2013
$0.46
Hard coking coal developer w ith advanced high
quality assets in Alabama, USA
Max Brundson (Exec Director)
Low capex near-term production potential at the
Kodiak Project w ith potential to develop a larger
position in the basin.
Evan Cranston (Exec Director)
$1.96
Subiaco, WA 6008
Suite 23, 513 Hay St,
A$23.4m
A$32.9m
A$26.2m
71.4m
Hartleys has provided corporate advice to Attila
Resources Limited w ithin the past 12 months and
continues to provide corporate advice, for w hich it
w ill earn fees. Hartleys has a benef icial interest in
2 million Attila Resources options w hich w ill vest
subject to certain milestones. The analyst has a
benef icial interest in AYA shares.
ATTILA RESOURCES LIMITED
“Alabama Slammer” – Low Opex & Capex Coking Coal
Attila Resources Ltd (“Attila”, “AYA”, “Company”) recently completed a prefeasibility
study (PFS) on the potential development of the Kodiak Hard
Coking Coal Project (AYA 70%) in Alabama, USA.
The study highlights a robust project development with near-term production
of ~2Mt (saleable) per annum of high-quality coking coal over an initial mine
life of +12 years. Importantly, the PFS has delivered low cash costs of
US$90/t FOB for the LOM, exceeding our preliminary cost estimate of over
US$100/t. The all-in cash costs are expected to position Attila in the lowest
10% for seaborne metallurgical coal producers globally (Wood Mackenzie
data). The project has low start-up capital costs (~US$52m) as existing
infrastructure (preparation plant and rail) can be utilised to wash and then
transport the saleable product to the Port of Mobile (~370km south), where
ample export capacity exists and discussions with terminal operators are
well advanced.
The Company also has staged development options that can reduce upfront
capex through a phased ramp-up in production. The staged development
approach is expected to maintain low production costs while generating
strong early cash flows to support production increases towards 4Mtpa
ROM coal.
Upside in Maximising Yield for Improved Saleable Coal
The PFS assumes mining of the Coke and Atkins coal seams via
underground (room and pillar) mining, accessing workings through the
existing portals. The seams contain a combined reserve of ~48.2Mt, with the
Coke seam contributing 55% of the tonnes. The marketable coal reserves of
~23.4Mt are based on a LOM preparation yield of 48%, which is based on
ash contents of 4-5% ADB. Potential exists to improve the yield (and hence
saleable coal) by producing a higher ash product and potential production of
a middling’s fraction which could be sold for domestic power use. The
optimal yield will be determined during the course of the BFS.
The quality of the coking coals at the Kodiak Project is also excellent with
low ash, low sulphur, and superior fluidity which are expected to attract
premium prices and be highly sought after by potential offtake partners.
Robust Project Economics with Low Barrier for Market Entry
The Kodiak Coal Project has a number of key advantages such as high
quality coal and existing infrastructure which lowers the barrier for market
entry (low start-up capex). The PFS has delivered a robust development
plan, which provides confidence that work can now commence on a BFS.
Next steps include improving the preparation yields and investigating
potential sales of a middlings fraction; which could reduce operating costs
further and improve revenues.
We have used the information from the PFS to update our valuation, which
has added mine life, lowered costs and provided a better estimate on capex.
Our updated NAV for Attila is now $1.96/s (up from $1.71/s).
We continue to recommend the Company as a Speculative Buy with 12-
month price target of $2.00/s. With only a short time frame expected before
the BFS is released (potentially late Q1 CY2014), Attila is well positioned to
be in early production, generating solid cash flows.
Hartleys Limited ABN 33 104 195 057 (AFSL 230052) 141 St Georges Terrace, Perth, Western Australia, 6000
Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
0.00
0.20
0.40
0.60
0.80
1.00
1.20
.
.1
.2
.3
.4
.5
.6
.7
.8
Aug-12 Dec-12 Apr-13 Aug-13
Volume – RHS
AYA Shareprice – LHS
Sector (S&P/ASX SMALL RESOURCES) – LHS
A$ M
Attila Resources Ltd
Source: IRESS
Hartleys Limited Attila Resources Limited 15 August 2013
Page 2 of 8
SUMMARY MODEL
Attila Resources LtdShare PriceAYA$0.460Key Market InformationDirectorsCompany InformationShare Price$0.46Evan Cranston (Exec Director)Suite 23, 513 Hay St,Market Capitalisation – ordinaryA$26mMax Brundson (Exec Director)Subiaco, WA 6008Net Debt (cash)-$3mShaun Day (Non-Exec Director)+61 8 6424 8440Market Capitalisation – fully dilutedA$33mBryn Hardcastle (Non-Exec Director)+61 8 9321 1710EVA$27mAlan Thom (Non-Exec Director)www.attilaresources.com Issued Capital57.0mOptions, performance rights and partly paid shares ITM14.4Top Shareholdersm shares%Issued Capital (fully diluted inc. all options)71.4mKingslane Pty Ltd6.97m12.2%Issued Capital (fully diluted inc. all options and new capital)156.2mAuscorp Network Pty Ltd3.71m6.5%Valuation$1.961Reserves & Resources12month price target$2.002Coal ReserveProvenProbableTotalMarketableYield3Coke SeamMt26.30.326.512.7P&LUnit30 Jun 1330 Jun 1430 Jun 1530 Jun 1630 Jun 174Atkins SeamMt21.10.521.710.7Net RevenueA$m0.08.092.5236.9313.65TotalMt47.40.848.223.448%Total CostsA$m-1.9-11.0-57.7-147.0-187.66EBITDAA$m-1.9-3.034.890.0126.07Coal QualityAshSulphurVol MatF CarbonFluidityCal ValueFSI – margin–38%38%38%40%84-50.6-0.733-3560-6310K-30K+8K-8.4K8-9Depreciation/AmortA$m-0.4-1.9-4.6-7.3-9.79EBITA$m-2.3-4.930.282.7116.3Coal ResourceMeasIndInfTotalNet InterestA$m0.20.21.03.98.9#Mt71.64.82.078.4Pre-Tax ProfitA$m-2.1-4.631.286.6125.2Tax ExpenseA$m0.00.0-5.5-17.3-25.0Production SummaryUnitJun 13Jun 14Jun 15Jun 16Jun 17Normalised NPATA$m-2.1-4.625.769.3100.1ROM Coal producedMt0.00.21.73.84.0Abnormal ItemsA$m0.00.00.00.00.0Yield (inclusive of mining dilution)%48.0%48.0%48.0%48.0%48.0%Reported ProfitA$m-2.1-4.625.769.3100.1Saleable coal producedMt0.00.10.81.81.9Minority A$m0.00.00.00.00.0M&I Resource Conversion%55%55%55%53%50%Profit AttribA$m-2.1-4.625.769.3100.1Mine Lifeyr12.0 12.0 11.0 10.0 9.0 Assumed ReserveMt48.248.246.542.838.8Balance SheetUnit30 Jun 1330 Jun 1430 Jun 1530 Jun 1630 Jun 17CashA$m2.825.242.5108.4194.2CostsUnitJun 13Jun 14Jun 15Jun 16Jun 17Other Current AssetsA$m0.00.11.33.24.3Cost per washed tonne$A/t-82.1 68.2 69.8 64.7 Total Current AssetsA$m2.825.343.8111.6198.5EBITDA / tonne$A/t-20.2- 20.8 24.0 31.5 Property, Plant & Equip.A$m6.139.369.888.0104.0ExplorationA$m11.011.612.212.813.4C1:FOB Mobile Cash Cost = (a)$A/t-82.1 78.9 78.2 79.2 Investments/otherA$m0.00.00.00.00.0(a) + Royalty = (b)$A/t-105.9 92.3 93.7 97.9 Tot Non-Curr. AssetsA$m17.150.882.0100.7117.3CFR Brazil$A/t-126.6 114.9 115.3 113.4 Total AssetsA$m19.976.2125.8212.4315.9CFR China$A/t-144.6 133.3 133.5 132.3 C2: (a) + depreciation & amortisation = (c)$A/t-83.9 83.6 85.5 89.0 Short Term BorrowingsA$m-14.07.0–(a) + actual cash for development = (d)$A/t-117.7 114.7 104.3 105.6 OtherA$m0.20.94.712.115.4C3: (c) + Royalty$A/t-107.8 97.0 101.0 107.6 Total Curr. LiabilitiesA$m0.214.911.712.115.4(d) + Royalty$A/t-141.6 128.1 119.7 124.2 Long Term BorrowingsA$m-16.013.010.0-OtherA$m—–Price AssumptionsUnitJun 13Jun 14Jun 15Jun 16Jun 17Total Non-Curr. Liabil.A$m-16.013.010.0-AUDUSDA$/US$1.010.960.930.940.91Total LiabilitiesA$m0.230.924.722.115.4Coal cokingUS$/t205.8183.1191.4189.8186.3Net AssetsA$m19.745.3101.0190.3300.4Coal steamingUS$/t102.297.6101.3104.5104.1Net DebtA$m-2.84.8-22.5-98.4-194.2Coking coal CFR BrazilUS$/t221.8199.1207.4205.8202.3CashflowUnit30 Jun 1330 Jun 1430 Jun 1530 Jun 1630 Jun 17Sensitivity AnalysisOperating CashflowA$m-1.6-2.437.595.3128.3ValuationFY15 NPATIncome Tax PaidA$m0.00.0-5.5-17.3-25.0Base Case1.9625.7Interest & OtherA$m0.20.21.03.98.9Spot Prices1.64 (-16.5%)13.3 (-48.3%)Operating ActivitiesA$m-1.4-2.133.181.9112.2AUDUSD +/–10%1.73 / 2.25 (-12.0% / 14.6%)21.7 / 30.7 (-15.7% / 19.2%)Coal coking +/–10%2.40 / 1.52 (22.4% / -22.4%)32.4 / 19.1 (25.9% / -25.9%)Property, Plant & Equip.A$m-5.0-35.0-35.2-25.5-25.7CFR Brazil +/–10%1.96 / 1.96 (0.0% / 0.0%)25.7 / 25.7 (0.0% / 0.0%)Exploration and Devel.A$m-1.3-0.6-0.6-0.6-0.60 +/–10%1.96 / 1.96 (0.0% / 0.0%)25.7 / 25.7 (0.0% / 0.0%)OtherA$m0.00.00.00.00.0Production +/–10%2.45 / 1.48 (24.6% / -24.6%)33.0 / 18.4 (28.4% / -28.4%)Investment ActivitiesA$m-6.3-35.6-35.8-26.1-26.3Operating Costs +/–10%1.98 / 1.95 (0.8% / -0.8%)25.7 / 25.7 (0.0% / 0.0%)Net BorrowingsA$m0.030.020.010.00.0Unpaid CapitalEquity or “tbc capital”A$m8.430.20.00.00.0Year ExpiresNo. (m)$mAvg price% ordDividends PaidA$m0.00.00.00.00.030-Jun-120.00.00.000%Financing ActivitiesA$m8.460.220.010.00.030-Jun-130.00.00.000%30-Jun-141.52.11.393%Net CashflowA$m0.722.417.365.985.830-Jun-152.50.90.374%30-Jun-160.00.00.000%SharesUnit30 Jun 1330 Jun 1430 Jun 1530 Jun 1630 Jun 17TOTAL4.03.00.767%Ordinary Shares – Endm69.0115.5115.5115.5115.5Ordinary Shares – Weightedm63.092.3115.5115.5115.5ValuationDiluted Shares – Weightedm63.092.3115.5115.5115.570% Gurnee (pre-tax NAV at disc. rate of 12%)3091.98Ratio AnalysisUnit30 Jun 1330 Jun 1430 Jun 1530 Jun 1630 Jun 1770% Seymour500.32Cashflow Per ShareA$ cps-2.2-2.328.670.997.1Other Assets/Exploration200.13Cashflow Multiplex-21.3-19.81.60.60.5Forwards00.00Earnings Per ShareA$ cps-3.3-5.022.360.086.7Corporate Overheads-23-0.15Price to Earnings Ratiox-13.8-9.12.10.80.5Net Cash (Debt)2.80.02Dividends Per ShareAUD—–Tax (NPV future liability)-54-0.34Dividend Yield%0.0%0.0%0.0%0.0%0.0%Options & Other Equity20.02Net Debt / Net Debt + Equity%-16%10%-29%-107%-183%Total3071.96Interest CoverX11.720.3nananaReturn on Equity%nana25%36%33%Analyst: Mike Millikan+61 8 9268 3052″tbc capital” could be equity or debt. Our valuation is risk-adjusted for how this may be obtained.Sources: IRESS, Company Information, Hartleys ResearchLast Updated: 15/08/201315 August 2013Speculative Buy
Hartleys Limited Attila Resources Limited 15 August 2013
Page 3 of 8
New Coking Coal Mine in the Making
Attila acquired 70% ownership of the Kodiak Project, a high quality hard coking coal (HCC) asset in 2012. The project offers exposure to near-term coal production, in the infrastructure-rich state of Alabama, USA.
Attila recently commissioned Stagg Resource Consultants Inc (Stagg) to complete a PFS on re-commissioning the Coke No.1 Mine at its Gurnee Property, utilising the existing infrastructure and logistics routes to market. The Gurnee Property contains a total resource of some 78.4Mt of HCC, of which 76.4Mt is in the Measured and Indicated resource categories.
The robust PFS confirmed the technical and economic viability of the Kodiak Project which will now transition to a Bankable Feasibility Study (BFS). The PFS assumes mining of the Coke and Atkins coal seams via underground (room and pillar) mining, processing of the coal the Company’s existing wash plant (2Mtpa capacity) and rail to the port of Mobile (which has existing capacity available for rail and port).
Key findings of the PFS include:
● Maiden coal reserve of 48.2Mt (ROM)
● ROM production rate of ~4Mtpa
● Marketable coal reserve of 23.4Mt (yield of 48%)
● Capacity to produce marketable coal of ~2.0Mtpa
● Mine life of over 12 years
● Low quartile all-in costs of US$90/t FOB for LOM
● Staged development/capital spend
● Potential options for a low start-up operation with capex of US$27m
● Total start-up funding requirement of US$52m for full 4Mtpa ROM coal
● Based on a current benchmark coal price of US$140/t, AYA report an after tax NPV8 of US$237.5m for IRR of 48%, which implies pay-back within 2.7 years.
● Based on previous quarterly benchmark coal price of US$172.5/t AYA report an after tax NPV8 of US$493.2m for IRR of 100%, pay-back within 1.6 years.
Fig. 1: Kodiak Project location
Source: Attila Resources Limited
The Kodiak Project covers the Gurnee and Seymour Properties
The PFS covers coal assets on the Gurnee Property
Gurnee has 2 coal seams (Coke and Atkins) under lease, total coal resource of 78.4Mt for maiden coal reserve of 48.2Mt
The coal quality is exceptional offering a premium HCC product for export
The Seymour Property is located ~ 3km from Gurnee, but not included in the current PFS, which provides upside to come
Extensive heavy gauge rail network with spare capacity
Nine extractable seams, four previously
Hartleys Limited Attila Resources Limited 15 August 2013
Page 4 of 8
Existing Infrastructure Already in Place
The Kodiak Project has a significant asset base including an operational Coal
Handling and Preparation Plant (CHPP or wash plant), a rail siding and load-out,
offices, workshops, and warehouse facilities. The Project is fully permitted, but to
recommission the Coke Mine the Company has applied for a new Mine Health and
Safety Administration (MSHA) identification number, which details the updated
control plan, ventilation plan and roof control plan. On current timing it is expected
that a new number will be issued in ~ 3 months (early November).
As part of the PFS mine plan the Coke and Atkins coal seams are expected to be
accessed through the existing portal and underground workings, whereby two sets of
parallel main entries are to be developed to the southeast of the property, from
which sub-mains and development panels will be developed across the seams.
Three shafts are included in the mine plan, two of which are return shafts and the
third is a combined intake and man/material shaft. The shafts will ensure the mine is
adequately ventilated, effectively managing any potential gas (methane) problems.
An area within the mine that was previously found to have unstable roof conditions
has been removed from the development plan, effectively mitigating many potential
technical issues that could have arisen.
Having completed the PFS for the project, and given the historical mining and
existing infrastructure, Attila is well placed to move quickly to a BFS and then to
funding and construction.
Fig. 2: PFS – Coke Mine Plan – Panel sequence over 14 years
Source: Attila Resources Limited
Extensive heavy
gauge rai l network
with spare capaci ty
Two coal seams to be
mined as part of the
PFS
3 shafts proposed to
ensure adequate
vent ilation
Now progressing to
BFS
Hartleys Limited Attila Resources Limited 15 August 2013
Page 5 of 8
Fig. 3: Kodiak assets – (clockwise from top left) CHPP, rail siding & loadout, thickener,
Kodiak siding joining the mainline
Source: Hartleys Research
Fig. 4: Seaborne Metallurgical Coal Cash Costs (All In) 2013
Source: Attila Resources Limited after Wood Mackenzie
The al l in cash costs
are expected to
posi tion Att ila in the
lowest 10% for
seaborne metallurgical
coal producers
globally
Hartleys Limited Attila Resources Limited 15 August 2013
Page 6 of 8
Updated Valuation
Our valuation of AYA is based on a sum-of-parts DCF model of an underground mine producing ~1.9Mtpa of clean coal from the Coke and Atkins seams (Gurnee Property). The assumptions we have used in our model are derived from the PFS and our assessment of information on potential development scenarios and transport options available to AYA. Our model assumes consensus pricing for commodities and under these assumptions we value the Gurnee Property at $309m or $1.98 per share. We model upfront capex of $60m and assume funding 50:50 D:E.
After tax, corporate overheads, options, forwards, equity dilution and ascribing a nominal $50m to the Seymour Property we value Attila Resources Limited at $307m or $1.96 per share. Fig. 5: AYA sum-of-parts valuation Valuation A$m Value/share
70% Gurnee (pre-tax NAV at disc. rate of 12%)
309
1.98
70% Seymour
50
032
Other Assets/Exploration
20
0.13
Forwards
0
0.00
Corporate Overheads
-23
-0.15
Net Cash (Debt)
2.8
0.02
Tax (NPV future liability)
-54
-0.34
Options & Other Equity
2
0.02
Total
307
1.96
Source: Hartleys estimates
Our price target is a weighted average of our valuation under consensus and spot pricing. We have a 12 month price target for AYA of $2.00/share. We note that at current spot hard coking coal prices and exchange rates our AYA valuation is still $1.64/s, implying a current trading discount of some 257%.
Fig. 6: AYA 12 month price target Price Target Methodology Weighting Spot 12 mth out NPV consensus prices 80% $1.96 $2.08 NPV at spot commodity and fx prices 20% $1.64 $1.67
Risk weighted composite
$1.90
12 Months Price Target
$2.00
Shareprice – Last
$0.460
12 mth total return
334%
Source: Hartleys estimates
We value Attila Resources Limited at $307m or $1.96/share
We model upfront capex of $60m and assume funding 50:50 D:E
We have a 12 month price target for AYA of $2.00/share
Hartleys Limited Attila Resources Limited 15 August 2013
Page 7 of 8
Fig. 7: Historic and Consensus Coking Coal Price
Source: Bloomberg, Consensus Economics
Risks
We see the main risks to our valuation of Attila as being:
Fig. 8: Key assumptions and risks for valuation Assumption Risk of not realising assumption Downside risk to valuation if assumption is incorrect Comment
Consensus commodity price
Moderate
Moderate
We assume consensus prices for coking and thermal coal. Our model is sensitive to movements in the coal price.
Timing
Low
Low
Given the near-term production capability we have only modelled small variations in the timing of production at Kodiak. Therefore the impact on our valuation is small. More significant delays would have a more pronounced effect.
Technical risk
Low
High
Thin seam mining is potentially challenging and the previous Coke No.1 mine was forced to close in part due to adverse mining conditions. We believe that AYA has the skill and experience to design and execute a mine plan to mitigate these issues. Consequently we view the risk as low; however should unforeseen issues be encountered that impact the rate of advance our valuation will suffer.
Funding risk
Low
High
Whilst our capex estimates are modest there is a risk that either capex significantly increases or AYA are unable to raise sufficient funds.
Conclusion
While the assumptions we have used are reasonable, we consider some assumptions as moderate to high risk and the consequential reduction to our valuation would be significant if they were not achieved.
Source: Hartleys Research
We use a long run coking coal price of US$156/t or A$172/t on our exchange rate forecasts
Page 8 of 8
Be the first to comment