Ferret's Stock to Watch: EXCEL COAL LIMITED 08:33, Thursday, 11 November 2004
A COAL MINER WITH SOLID PROSPECTS AS PRICES SOAR
Sydney - Thursday - November 11: (RWE)
OVERVIEW ********
Excel Coal which only listed in May has been a big market winner for investors and looks highly prospective with coal prices ready to soar.
Shareholders who were lucky enough to receive an allocation of shares have more than doubled their money.
As chairman Roger Massy-Greene pointed out at the annual meeting Excel is not your average company.
He drew shareholders attention to one of the things that distinguishes Excel from others - it is that all of the directors have significant investments in the company.
"Most of Excel's management team and many of our employees and contractors' employees are also shareholders.
"Their investments speak well of the company and its future, " Mr Massy-Greene declared.
Another feature is that the climate for the sale of coal world wide couldn't be better with demand continually on the rise and producers asking more for their product.
Two Australian majors in the coking coal market have been negotiating a price well over $US130 a tonne for hard coking coal for JFY2005/06 shipment.
Industry expects higher prices ******************************
Companies have already raised prices to $US95 tonne from the previous level of $US57 tonne.
Market optimism is centred around Indian and Brazilian steelmakers keen to lock in supplies for for 2005 at prices well above $US100 tonne.
At the annual meeting managing director Tony Haggarty has reiterated that the company's first earnings guidance in the prospectus will be exceeded for the year ended 30 June 2005.
Chairman Roger Massy-Greene also talked to shareholders about expectations and performance.
The chairman said he proposed to focus on three things that are absolutely fundamental to Excel and its shareholders – sales volumes, sales prices and cost of sales.
"Other things also affect our profitability and our share price, but these are the key drivers.
"The company's share price has risen from $2 on listing in May this year to above $4 recently.
"This of course has been the result of rising coal prices and expectations for further rises, and perhaps some expectations of prices in future at average levels higher than in the past.
"Perhaps the rise in Excel's share price also reflects some growing confidence that we will successfully manage the other two key drivers of our share price; costs and the forecast increase in production and sales," Mr Massy-Greene suggested.
On sales, the company has been working on a substantial increase in Excel's coal production and sales.
The prospectus forecast sales from Excel's operations for the current financial year (FY 2005) similar to those of last year.
"We have recently announced two moves that will increase Excel's shareholders' equity interest in managed sales above the levels forecast in the prospectus.
"Firstly, we have completed the acquisition of the 25 per cent minority interest in Wambo and now own 100 per cent of that operation (subject to Sumitomo's net profits interest).
"Secondly, we have announced a doubling of our 90 per cent owned Chain Valley operations to 700,000 tonnes per year, commencing at that rate for the second half of this financial year.
The chairman told shareholders the company has been busy working on the expansion plans outlined in the prospectus.
At Wambo Excel is working on a new rail spur, expansion of the open cut mine and construction of a new underground operation.
Newcastle port capacity has been constrained but we expect that PWCS, the coal terminal manager, will be able to continue to increase throughput above the terminal's current capacity.
The prospectus also forecast production and sales from the Wilpinjong project will commence by FY 2007.
Work on the Wilpinjong project is progressing satisfactorily, and the company expects to produce coal from this mine during FY 2007 to supply Macquarie Generation.
The chairman also disclosed the reorganisation in the ownership of Excel's Cosila project in Venezuela.
Excel has recently taken full management control of this project and we expect it to commence production during FY 2007, subject to obtaining satisfactory financing for the development.
The company has also acquired a 51 per cent stakein Millennium Coal Pty Ltd.
SHARE PRICE MOVEMENTS *********************
Shares of Excel yesterday rose 12 to $4. 78. Rolling high for the year has been $4.84 and low $1.88. Dividend is 6 cents a share to yield 1.26 per cent.
In its quarterly report to September 30, Excel outlined the following highlights.
* Coal sales and saleable production for the quarter ending September 30, 2004 (Q1 FY 2005) were above Plan and above the Q1 FY 2004 level.
* Sales revenue for Q1 was ahead of Plan and Prospectus forecasts. Cost of sales for Q1 was in line with plan and, except for NSW Government royalty, consistent with the Prospectus. Excel Coal - Managed Mines Q1 (Thousand tonnes) FY 2005 FY 2004 Percentage variation up 14.2 per cent to 1,682 (1,473 prev); Coal Saleable Coal Production 1,267 1,044 +21.4 per cent; coal sold Coal Sold 1,152 v 953 +20.9 per cent.
* Excel acquired the remaining 25% of HunterCoal Pty Ltd, Excel’s subsidiary that controls the Wambo mine located in the Hunter Valley, taking Excel’s ownership of HunterCoal to 100 per cent.
* Through its 51 per cent owned subsidiary, Excelven Pty Ltd, Excel acquired control of the Cosila coal project in Venezuela and TCSV, the operator of the Palmarejo export port facility on Venezuela's Lake Maracaibo. AMCI and Alpha Natural Resources became Excel's partner by acquiring 49 per cent of Excelven.
* Excel agreed to acquire 51 per cent of Millennium Coal Pty Ltd by acquiring 21 per cent from existing shareholders and by investing $34 million in new Millennium shares. Millennium will use these funds to develop the Moranbah opencut coking coal project in Queensland’s Bowen Basin.
* Work continued on schedule for expansion of the Wambo mine and the development of the Wilpinjong Project.
* Additional currency hedging was put in place to fully protect expected FY 2005 USD income and to protect approximately 64 per cent of expected FY 2006 US$ income. The average rate now in place for FY 2005 is US$/A$ 0.6560 and the average rate for the 64% FY 2006 position is 0.6877.
OUTLOOK ********
Strong global demand for metallurgical coal, thermal coal and metallurgical coke continues with spot prices for NSW export thermal coal are currently around US$52 per tonne FOB compared to the current contract price of around US$45 per tonne.
Recent sales of hard coking coal have been well above US$100 per tonne compared to the current contract price of around US$60 per tonne.
Planned production, sales and costs (except for NSW Government royalty) for FY 2005 at Excel's three operating mines are in line with Prospectus forecasts.
Higher coal prices are expected to generate improved margins in FY 2005 and accordingly, Excel expects to exceed its FY 2005 Prospectus profit forecast.
Production and sales performance at Wambo were higher than Plan in Q1 and were up on Q1 FY 2004.
Planned sales and production for the balance of FY 2005 are in line with Prospectus forecasts.
Development Consent for the Wambo Rail Project has been received from the NSW Government.
Planning and preparation work is well advanced with the aim of commencing construction late in calendar 2004.
Preparation for the expansion of Wambo opencut mine, the development of the Wambo Seam underground mine and the upgrade of the coal preparation plant is proceeding as planned.
(20min delay)
