In a research report released today, RM has rated Pan Asia a Speculative Buy and placed a price target of A$0.81 on the company, a 450% increase on the company's current share price.
Pan Asia recently completed a restructure in order to focus its attention on the TCM project, where a Feasibility Study is pending.
Earlier this month the company increased the JORC Resource at TCM to 128.8 million tonnes of coal.
The following is an excerpt from the report.
Focus zeroes in on emerging TCM Project
Pan Asia has recently restructured its projects to focus on its 75% controlled TCM Coal Project. This is highly justified by recent exploration success that highlights the continuity of the coal seams contiguously to the north of the expanding coal resource at TCM.
The restructure freed up A$2.6 million in cash that was previously loaned to Ranrich Investments Limited allowing Pan Asia to dedicate cash and management resources to advancing the TCM Project to completion of Feasibility Study.
As part of this, Pan Asia exchanged its right to earn a 50% interest in the BCKP Project for a royalty of US$1 per tonne on all coal sold from the permit, limited to a total of US$15 million. This could represent an important source of future funding for the Company as it progresses its goal to be a major supplier of key resources into the expanding Asian markets.
Resource Inventory Growing
The TCM Project (which has also recently been granted "Clean & Clear" status by the Ministry of Mines and Energy) currently contains 128.8 million JORC tonnes of measured, indicated and inferred resources of high calorific value thermal coal. Significantly, the TCM Project has 50.3 million tonnes in the Measured category and another 38.1Mt in Indicated.
The Feasibility Study is now advanced with detailed geotechnical assessment, coal seam gas analysis, civil engineering, mine scheduling, and capital and operating cost estimations close to finalisation.
Coal industry participant PT Kopex Mining Contractors (KMC) is conducting the Feasibility Study based on annual coal production of 1.5 million tpa from TCM. Stage 3 drilling, which consisted of 4 boreholes, not only highlighted the continuation of the coal seams but identified that the major coal seams (SU and SM seams) were nearer to surface than expected and that the parting between the seams was narrowing to the north. These are significant findings that have the potential to enhance project economics.
Thermal Coal Outlook Robust
The outlook for thermal coal in the South East Asia/China region continues to be very robust. Due to its proximity to the developing nations in Asia, Indonesia has a freight advantage over the Australian export market. This ensures that demand for the product remains strong, as long as coal quality is acceptable. TCM Project coal quality analysis thus far suggests that product will be highly sought after.
Completion of Feasibility Study at TCM-late June 2012.
Action and Recommendation
Speculative Buy. RM Research believes that Pan Asia's flagship TCM Project has significant potential to increase resources and we have a price target of 81 cents based on peer analysis. The latest positive news from drilling to the north of the mineral resource suggests further growth in the scale of the project.
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