Australia | Jun 20 2011
– Kangaroo Resources emerging as a significant Indonesian coal play
– Pakar transaction transforms company and de-risks outlook
– DJ Carmichael upgrades to Buy from Speculative Buy
By Chris Shaw
Until late last year, Kangaroo Resources ((KRL)) had been a small scale coal producer operating in Indonesia, but the announcement of the acquisition of the Pakar Thermal Coal Project last December and completion of the deal last week has substantially transformed the company.
Perth-based stockbroker DJ Carmichael notes the transaction was accompanied by a partial takeover of Kangaroo Resources by PT Pakar Bayan Resources, which has taken a 57% stake. Together, these two deals significantly de-risk the outlook for Kangaroo Resources in DJ Carmichael's view.
As the stockbroker points out, the Pakar Thermal Coal deal transforms Kangaroo Resources into a producer with more than three billion tonnes of JORC resources via a portfolio of up to eight projects. Kangaroo is also now backed by a successful and dominant producer in the Asian region.
The other advantage of the deal, according to the broker, is Bayan will assume full operational responsibilities at Kangaroo's coal assets. This adds operational and logistics expertise to the projects along with balance sheet strength. This should allow for a ramping-up of production and provides an immediate off-take for output.
The Pakar project is a large scale, low ranking thermal coal project adjacent to Kangaroo's existing Tanur Jaya project. DJCnotes Pakar has total coal resources of 3.019 billion tonnes, with reserves at present of 442 million tonnes.
Significant development work has already been undertaken, which means infrastructure is in place to allow for a rapid start to a large scale mining operation.
To reflect this, DJ Carmichael has updated its valuation model for Kangaroo Resources, generating a DCF (discounted cash flow) valuation of $0.36. This is a significant premium relative to the current share price.
Given the value on offer, and allowing for the fact the Bayan deal significantly de-risks the outlook for Kangaroo Resources, DJC has upgraded to a Buy rating, from a Speculative Buy recommendation previously.
Despite a market capitalisation of a little more than $600 million there is little coverage of Kangaroo Resources in the broader market, with no brokers in the FNArena database currently providing research on the company.
Shares in Kangaroo Resources today are stronger and as at 10.40am the stock was up 0.5c at 18.5c. This compares to a trading range over the past year of $0.082 to $0.245.
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