This is a very important good news for Straits Asia Resources which I think the market has overlook today.
The upgrade is significant in view that they have just 2 mines: Jembayan and Sebuku mines.
The following text is quoted from DBS Group Research which has provided quick and insightful update on the latest development.
Story:
Straits Asia Resources (SAR) announced an upgrade in its Jembayan coal reserves and resources. Total reserves were increased by 152% to 92 million tonnes (mt) from 36.5mt previously while total resources was upgraded by 203% to 138mt from 45.5mt previously. This upgrade is the first stage of an ongoing drilling program at Jembayan mine.
Point:
The upgrade announcement at Jembayan mine reserves is positive for SAR as it will ensure continuing production capability from the mine area. Noted as well that the intensive exploration program will continue for at least another 18 months as current exploration only covers 15% of the total concession area.
Relevance:
We reiterate our BUY recommendation on the counter and maintain our target price of S$4.77,
implying 20.2x and 7.7x FY08-09 PEs. Addition of reserves and resources will further solidify our optimistic view on the counter as it will extend the company’s capability to conduct its operations. Recent pressure on prices of coal companies stocks is over-done in our view
as coal price benchmark are still well above our estimates of US$120/t for 2008 and decline in oil price will actually help reduce production cash costs.
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