Bumi Resources
Investment case: We remain bullish on the coal price outlook. We highlight
Bumi Resources sector-high production growth CAGR of 15% over 2007-09E
as the companys quality coal assets and infrastructure should support a
continued ramp-up in production. As such, we believe Bumi is in a strong
position to benefit from continued coal price momentum in the medium term.
We also highlight the potential of a 30-35% increase in reserves by year-end
due
to recent coal price strength, which could add seven to 10 years to Bumis
reserve life. Lastly, Bumis management has indicated that, in addition to
coal
mine expansion, future investment might include: 1) gold and copper
development; 2) coal-bed-methane development; 3) iron-ore exploration in
Mauritania; and 4) taking a stake in Newmonts Indonesian gold and copper
operations. None of these projects are included in our valuation.
Valuation: Bumi is trading at a 8.5x 2009E PE. Our DCF-based price target
assumes WACC of 11.6% and a December 2008 cut-off date.
Potential catalysts: Higher coal prices, additional project pipelines (gold,
copper, coal bed methane), increase in reserve life, and quarterly results.
Risks: We believe key risks for Bumi Resource include commodity price
declines, higher costs, and lower-than-expected production either due to heavy
rainfall or difficulties sourcing equipment.
---------------------------------
Looking for last minute shopping deals? Find them fast with Yahoo! Search.
