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Pan Asia Corporation: Stonebridge has SPECULATIVE BUY with $0.44 price target

StoneBridge Group has inked a research report on emerging thermal coal junior Pan Asia Corporation (ASX: PZC) maintaining its BUY recommendation and has updated its price target to $0.44 from $0.52 per share.

Company data

Last Price: A$0.14
52 week hi/low: A$0.42/0.125
Market cap: A$18.11 million
Cash: A$2.5 million
Debt: A$0.00
Enterprise Value: A$15.6 million
Shares on issue (undiluted): 129.579 million
Options (Avg ex $0.806): 11.14 million
Shares on issue (fully diluted): 140.719 million
Price Target: A$0.44
Valuation (DCF WACC 14.9%): A$63.5

Share Price Catalysts

- JORC Indicated and Measured Resource Late 2011
- BFS Early 2012

Independent study confirms project viability

Pan Asia Corporation (NYSE:PZC) is an emerging thermal coal junior with assets in South and East Kalimantan Indonesia. PZC has a number of projects and prospects at various stages. The principal focus is on its 75% owned TCM project in south Kalimantan, where PZC has approximately 53.2mt of JORC resource. The overall exploration target for PZC is 200mt over the next 24 months.

Key Points

Kopex recommends advancement to final feasibility:

Leading international coal group Kopex Mining Contractors (KMC) has recommended the TCM project be advanced to final feasibility stage, following a positive independent study, which indicates the projects viability.

Additionally, Kopex has also recommended the option of access from an open cut high wall be pursued as part of future studies. We see this as positive for PZC, given Kopex’s experience in underground mining space and the view that Kopex will likely become the mining contractor of the project.

Additional Drilling program underway:

The additional infill drilling program is now underway, which we expect will help convert a portion of JORC Resource into a Reserve. PZC have indicated that approximately 6,500m of drilling or approximately 25 holes will be drilled including up to 9 holes covering an open pit area, and a further 13 to the southern end of the underground mining area.

The final 3 holes will test the extension of the resource to the north of the existing project.

Quality Thermal Resource:

PZC through its TCM project, has exposure to high quality export thermal coal with an average calorific value of 6,566kcal/kg, 6.41% total moisture, 13.52% ash and 1.52% sulphur.

TCM, is adjacent to PT Arutmin’s ATA Mine which, has been in operation for a number of years.

Investment View

We see PZC as an early entry exposure to an Indonesian energy play with a potential long life of approximately 15+ years in a high quality province through the TCM project, and its emerging pipeline of prospective coal
assets. We have adjusted our initial mine life of 19 years to 15, based on the independent study from Kopex.

Price Target

We maintain our SPECULATIVE BUY recommendation and have updated our price target to $0.44/share from $0.52/share using a discounted cash flow at TCM based on a 2.8mtpa ROM for 15 years with a 60% risk weight.

We have also included an NPV on the Ranrich projects based on an interest payment of $2.00/t for the first eighteen months and royalty payment of $0.60/t for the first eight years.

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