The following is an extract from the report.
Low Risk Entry Into Coal Market
Universal Coal Plc is a UK domiciled, South African focussed coal exploration and development company. UNV has 1.9Bt coal resources across 3 thermal and 2 coking coal projects.
Near term production from the Kangala Project, a relatively low risk domestic thermal coal opportunity and the initiation of pre-feasibility study on the Berenice / Cygnus coking project are likely to be the major drivers of value in the shorter term.
We initiate coverage on UNV with a SPECULATIVE BUY recommendation and 12 month target of AUD0.42.
- The Kangala Project in the Witbank Coalfield has received all licences required to operate a mine and has a signed contract for the supply of 2.1Mt/a domestic thermal coal to Eskom.
UNV is currently finalising engineering and project financing for Kangala. A total of AUD50M capital will be required to develop a 2.4Mt/a open cut operation for 16 years at a low total cost of AUD16/sales tonne.
The project allows a low risk entry into the coal industry in South Africa and affords synergistic opportunities to launch other projects in the vicinity.
- The Berenice / Cygnus Project is a large coking / thermal deposit with 1.3Bt resources (over 400Mt in the Measured and Indicated category). A concept study has confirmed that the project can support a 10Mt/a open cut operation in excess of 25 years.
The environmental risk assessment, geotechnical study and geohydrological survey have been commissioned, and drilling is currently underway, which will feed into a pre-feasibility study.
- A convertible note facility of AUD12M has been secured from Susquehanna International Group (of which AUD7m has been drawn down by the company).
Additionally a private placement of around AUD10M (subject to conditions) to Power Origin Developments has been announced. Both deals have options packages attached which could raise another AUD15M.
The cash will primarily be used to complete Phase 2 drilling on Berenice / Cygnus and the development of Kangala.
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