This is outside of my usual gambit of cum capital raising trades but none the less well worth a mention purely on deep value grounds.
So what are we dealing with? Coal mining in South Africa. Not exactly the next Uber but thats not why we’re interested in it.
So Universal is currently operating the Kangala facility which is now comfortably throwing off 2.8Mt of Thermal Coal each year. Its sitting right at the bottom of the cost curve, like actually the bottom. Meaning that whilst the depressed nature of the coal market means it isn’t exactly earning what it could in 2008, it is happily trading away whilst the rest of the industry capitulates. Even at current prices it is throwing off about $30M a year, in 2008 that would have been closer to $300M (some things are too good to be true)
At 20 year mine life and a stretched domestic market electricity generation means that the demand growth is almost guaranteed into the 2 – 3 years. A 20 year mine life on defined resources means that there isn’t much to worry about there.
There is a good $27M in the bank today a lot of it is ear marked for expansion to get us up to 4.0Mt with the ramp up of the NCC Colliery, but the build levels should keep coming.
Current Market Cap? Less than $60M. Meaning @12 cents you are picking it up for… hmm 2 – 3x earnings.
What can go wrong.
Umm. Well aussie investors dont rate anything where the mine isn’t listed as a destination for Rex. And to be fair South Africa isn’t the worlds most capital markets friendly place.
Aside from that, Ichor, on receipt of the Preference Share conversion notice on Friday leaves us with a shareholder owning 30%. potentially meaning we might not have a competitive process if an acquirer came along.
Could the world become full of Solar Panels. Of course. in 2040. Let’s not get too far ahead of ourselves on the Green trade just yet. South Africa alone are looking to build another 5 Coal Generators in the next 3 years.
Neither of these stop me opening my wallet.
This thing has got 30 cents in it in my book.