Australia | Jul 28 2011
– Aston continues to develop Maules Creek project
– Recent share price gains see UBS downgrade on valuation grounds
– Macquarie retains Outperform, see Aston as a ripe takeover target
By Chris Shaw
Aston Resources ((AZT)) is developing the Maules Creek coal project in the Gunnedah Basin in New South Wales, the project one of the last undeveloped and significant multi-seam coal deposits in the region.
Maules Creek is expected to start production in the second half of 2012 and hit full production of 10.8 million tonnes in 2014, with output to be a mix of both metallurgical and thermal coal.
With no production at present, the quarterly report from Aston highlighted recent news flow, which included an increase in capex and working capital, an increase in operating costs and an increase in the expected met coal mix to as much as 84%, up from 57% previously.
Despite the lack of production the Aston share price has been strong of late, UBS noting the stock has gained 26% in July alone. At current levels the stock is now at a 7% premium to the broker's estimate of net present value.
While there is some justification for the current valuation given potential value accretive catalysts such as the selling-down of a further stake in Maules Creek, a port allocation deal and NSW government approval for the project, UBS has downgraded to a Neutral rating on valuation grounds.
In contrast, Macquarie has retained an Outperform rating on Aston, seeing the company as a ripe takeover target given the ever diminishing number of opportunities among listed Australian coal producers.
As Macquarie notes, the current M&A activity surrounding Macarthur Coal ((MCC)) suggests bids occur at a premium of around 30% to the underlying stock price. This would imply a trading range for Aston of $11.15 to $12.30.
Assessing the stock in terms of premiums to current commodity price expectations that could be the basis for any corporate move, Macquarie suggests the potential acquisition price for Aston could be anywhere between $14.50 to $15.90.
Whether such a share price eventuates is unknown prior to any bid being tabled, as on Macquarie's numbers and in the current market environment Aston could trade to $12.50-$13.00 before any potential acquirer encountered some valuation challenges.
What makes Aston potentially attractive to an acquirer in Macquarie's view is the stock has an open share register and a clearly set out time-line for the development of the Maules Creek project. As well, Aston has secured a $350 million revolving credit facility, which addresses much of the market's development cost concerns surrounding the project.
Others in the market also sees value, as the FNArena database shows Aston is rated Buy three times and Hold once. The consensus price target according to the database is $11.78. This implies upside from current levels of almost 9%.
Shares in Aston today are weaker and as at 12.00pm the stock was down 24c at $10.81. Over the past year Aston has traded in a range of $5.49 to $11.25.
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