Banpu to see limited gains from Mongolian expansion

Banpu Plc is taking a strategic and low risk move by acquiring a 12.4 per cent stake in Hunnu Coal Limited, an Australian-listed cmopany, which has several pre-development coal projects in Mongolia, said DBS Vickers Securities (Thailand).

"This is a strategic and low risk move for BANPU to tap huge potential in the Mongolian coal market. However, we are neutral on this acquisition given that all Hunnu's assets are still in exploration phase and should take at least 2-3 years to develop before production. Acquisition price implies 21 per cent premium to the closing price yesterday. It is difficult to comment whether the price is fair given that we do not yet know resources and reserves. Banpu will likely have to spend huge capital expenditure since these are undeveloped areas," DBS said in its research note.

The house however sees see limited earnings drivers in the next two years due to low contracted coal sales at Centennial Coal (CEY). CEY's earnings should grow 10 per cent this year, but the impact would be offset by higher interest costs and amortisation of mining property rights. Delayed or non renewal of Daning permit could pose downside risk to Banpu's earnings this year," it added.

DBS maintains the target share price at Bt762.

Following the acquisition by Banpu's wholly-owned subsidiary, Banpu Mineral Resources (BMS), Banpu will be the biggest shareholder in Hunnu. The 30 million shares were offered in a private placement at A$1.5 per share or a total of A$45m or Bt1.4 billion.

Hunnu has established a strong position in thermal and coking coal deposits in South Gobi, Mongolia, and is under going extensive exploration for 10 coal projects, 2 of which has a combined coal resources of more than 400m tonnes.

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