Gloucester Coal

Australian Resources Weekly provided by Australian market analyst UBS.

What are consensus estimates telling us?

Consensus estimates versus spot prices:

Bloomberg data suggests spot is lower than consensus estimates for lead (-25%), nickel (-23%) and zinc (-19%) and higher than consensus estimates for copper (5%) and oil (28%). The implication is that there could be downside risk to zinc, lead and nickel, if prices do not rise from current levels and hence a negative impact on the stocks exposed to these commodities.

Gloucester Coal (GCL) Have a Buy (1H) share recommendation with a price target of $4 from analyst Citigroup Investment Research. The stock market analyst has given the rating upon condition that their broker call is pending release of additional information in early June. The mining company has an enviable track record of consistent production and capital management. Xstrata's $4.75 bid for Gloucester Coal was a surprise given GCL's low future production of about 2.5mtpa. However Xstrata has quoted blending synergies with GCL’s thermal product and the welcomes the addition of its hard coking coal to the portfolio of products. The bid price is a 33% premium to last months' VWAP. The analyst estimates that the $4.75 bid implies FY07e and FY08e PERs of 12.6x and 12.4x respectively and a 19% NPV premium. The latter is similar to the premium implied from the $8.50 first price bid for Excel Coal (delisted) that was later raised to $9.50 implying a ~30% premium. The analyst doubts that it has given the low GCL production and full PERs implied. Even though the Independent Expert gauged the $8.50 bid for Excel to be fair and reasonable, the price was increased by ~12% to $9.50 implying a FY07e PER of ~17x. GCL's Board has recommended acceptance of the bid and agreed to a $3.9m break fee.

SB Citigroup has rated the Gloucester Coal (GCL) stock as Upgrade to Buy, High Risk from a Hold recommendation. The broker recently visited the company and has overcome previous doubts. Their share price target rises from $3.80 to $4.10. Gloucester Coal Limited is listed on the Australian Stock Exchange (ASX) under stock code GCL. Check your charts!