SINGAPORE (Aug 18): KGI Securities is maintaining its “buy” call on Golden Energy and Resources (GEAR) with an unchanged target price of 78 cents, and says the mining company is “severely undervalued”.
In a Friday report, analyst Joel Ng notes that the stocks’ current price assumes the long-term coal price of US$34 per tonne, and a US$22 per tonne cash cost – meaning a 20% discount to the 8-year 4200kcal Indonesian coal price average, and a US$22 per tonne cash cost to arrive at the group’s current share price.
“We believe these assumptions seriously undervalue GEAR’s long-term potential given its free cash flow generating capabilities and track record in consistently increasing its coal production every year over the past five years,” says Ng.
The company achieved an average selling price (ASP) of US$42.6 per tonne over the recent quarter, higher than the benchmark ICI4 coal index, which averaged US$40.1 per tonne in the same period, recalls the analyst.
In comparison, the research house’s long-term coal price forecast is US$40 per tonne, which is also at a 10% discount to the 8-year Indonesian coal price average.
Additionally, Ng lauds the 6 million tonnes of coal which GEAR produced in 1H this year as a “commendable effort by its experienced management team”, especially given how its peers’ performances were hampered by the extended monsoon season in contrast.
“GEAR successfully obtained permission to raise coal production at its BIB mine to 12m tonnes in FY17. Adding 2 million tonnes from KIM, the group is on track to meeting its 14 million tonnes target for the year,” he adds.
As at 3.47pm, shares in GEAR are up by 1 cent at 39 cents.
