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Pro-Forma Capital Structure

Sector Materials
Share Price (A$) 0.145
Fully Paid Ordinary Shares (m) 117.6
Opt (ex $0.20-$1.00, exp 12-15) (m) 17.2
Market Capitalisation (dil) (A$m) 17.1
Cash (A$m) 2.8
Directors & Management
Domenic Martino Non Exec Chairman
Alan Hopkins Chief Executive Officer
Luke Martino Non Exec Director
Michael Pixley Non Exec Director
Major Shareholders
HSBC Cust Noms (Aust) Ltd 5.5%
LJM Enterprises (WA) Pty Ltd 4.2%
Analyst
Guy Le Page +61 8 9488 0800
Share Price Performance
21 May 2012
ASX Code PZC
Speculative Buy
Price target: 81 cents
Pan Asia Corporation Limited
Focus zeroes in on emerging TCM Project
Page 1 Copyright 2012 RM Research Please refer to import
Corporate Restructure...Focus on TCM
Pan Asia has recently restructured its projects to
Coal Project. This is highly justified by recent e
the continuity of the coal seams contiguously to
resource at TCM.
The restructure freed up A$2.6 million in cas
Ranrich Investments Limited allowing Pan Asia t
resources to advancing the TCM Project to comp
As part of this, Pan Asia exchanged its right to
Project for a royalty of US$1 per tonne on all coa
total of US$15 million. This could represent an i
for the Company as it progresses its goal to be
into the expanding Asian markets.
Resource Inventory Growing
The TCM Project (which has also recently been g
the Ministry of Mines and Energy) currently cont
of measured, indicated and inferred resources o
Significantly, the TCM Project has 50.3 million
and another 38.1Mt in Indicated. The Feasibi
detailed geotechnical assessment, coal seam ga
scheduling, and capital and operating cost estima
Coal industry participant PT Kopex Mining Con
Feasibility Study based on annual coal product
Stage 3 drilling, which consisted of 4 bore
continuation of the coal seams but identified tha
SM seams) were nearer to surface than expected
seams was narrowing to the north. These are
potential to enhance project economics.
Thermal Coal Outlook Robust
The outlook for thermal coal in the South East A
very robust. Due to its proximity to the developin
freight advantage over the Australian export mar
the product remains strong, as long as coal quali
quality analysis thus far suggests that product wil
Price Catalyst
Completion of Feasibility Study at TCM-late June
Action and Recommendation
Speculative Buy. RM Research believes that P
has significant potential to increase resources a
cents based on peer analysis. The latest positive
the mineral resource suggests further growth in t
Pro-Forma Capital Structure
Sector Materials
Share Price (A$) 0.145
Fully Paid Ordinary Shares (m) 117.6
Opt (ex $0.20-$1.00, exp 12-15) (m) 17.2
Market Capitalisation (dil) (A$m) 17.1
Cash (A$m) 2.8
Directors & Management
Domenic Martino Non Exec Chairman
Alan Hopkins Chief Executive Officer
Luke Martino Non Exec Director
Michael Pixley Non Exec Director
Major Shareholders
HSBC Cust Noms (Aust) Ltd 5.5%
LJM Enterprises (WA) Pty Ltd 4.2%
Analyst
Guy Le Page +61 8 9488 0800
Share Price Performance
21 May 2012
Pan Asia Corporat
Focus zeroes in on emerg
tant disclosures located at end of this report.
o focus on its 75% controlled TCM
exploration success that highlights
o the north of the expanding coal
h that was previously loaned to
to dedicate cash and management
pletion of Feasibility Study.
o earn a 50% interest in the BCKP
al sold from the permit, limited to a
important source of future funding
a major supplier of key resources
granted Clean & Clear status by
tains 128.8 million JORC tonnes
of high calorific value thermal coal.
tonnes in the Measured category
lity Study is now advanced with
as analysis, civil engineering, mine
ations close to finalisation.
ntractors (KMC) is conducting the
tion of 1.5 million tpa from TCM.
eholes, not only highlighted the
at the major coal seams (SU and
d and that the parting between the
significant findings that have the
Asia/China region continues to be
g nations in Asia, Indonesia has a
rket. This ensures that demand for
ty is acceptable. TCM Project coal
ll be highly sought after.
e 2012.
Pan Asias flagship TCM Project
and we have a price target of 81
e news from drilling to the north of
the scale of the project.
Pro-Forma Capital Structure
Sector Materials
Share Price (A$) 0.145
Fully Paid Ordinary Shares (m) 117.6
Opt (ex $0.20-$1.00, exp 12-15) (m) 17.2
Market Capitalisation (dil) (A$m) 17.1
Cash (A$m) 2.8
Directors & Management
Domenic Martino Non Exec Chairman
Alan Hopkins Chief Executive Officer
Luke Martino Non Exec Director
Michael Pixley Non Exec Director
Major Shareholders
HSBC Cust Noms (Aust) Ltd 5.5%
LJM Enterprises (WA) Pty Ltd 4.2%
Analyst
Guy Le Page +61 8 9488 0800
Share Price Performance
21 May 2012
ASX Code PZC
Speculative Buy
Price target: 81 cents
tion Limited
ging TCM Project
Page 2 Copyright 2012 RM Research Please refer to important disclosures located at end of this report.
21 May 2012
Immediately adjacent to PT
Arutmin ATA mine
High calorific value thermal coal
6,200 kcal / kg (AR)
128Mt of JORC measured, indicated
& inferred resource, with significant
potential to increase target
(target 200Mt+)
Haul road in (51kms to Batulicin
Barge Loading Terminal)
COMPANY BACKGROUND
Pan Asia Corporation (Pan Asia or the Company) is an emerging supplier of energy
resources into expanding Asian markets.
The Companys strategy is to target mid-tier projects that it can add significant value to.
This involves Pan Asia undertaking drilling programmes to prospective areas to generate
significant JORC tonnages. It then completes Feasibility Studies and ensures all titles/
approvals are obtained, so that the project is made ready for development partnerships/
offtake agreements.
INDONESIA THERMAL COAL
Pan Asias focus is on thermal coal in Kalimantan, Indonesia.
Its coal interests include:
1) A flagship pre development project (TCM South).
2) High priority exploration (TCM North).
3) A pipeline of significant project opportunities.
Our view has always been that the jewel in the crown of the asset portfolio purchased from
Innovation West was the pre-development project, TCM, which is now the main focus for
management of the Company.
Irom seofooJ scrops to
cool Jeveloper...
...witb o focus on
lnJonesio
Portfolio bos been
refineJ to enbonce
quolity onJ ensure
oliqnment of interests
FICURE 1: Inuonesian
Piojects (souice: Pan
Asia Limited)
Project portfolio consists
of proJucinq mines, neor
-term Jevelopments onJ
explorotion ossets
Fnerqy for Asio
...witb o focus on lnJonesio
FIGURE 1: Indonesia
Kalimantan: #1 Thermal
coal exporting region in
the world (Pan Asia
Corporation Limited)
0ur view is still tbot TCH is
tbe jewel in tbe crown
FIGURE 2: PT Arutmin
ATA coal mine adjacent to
TCM deposit (Source:
Pan Asia Corporation
Limited, ASX
Presentation (28/03/2012)
PT Arutmin ATA coal mine adjacent to
Close to Asian Markets
TCM: 75% interest (25% Local Partners) (3,440Ha)
Page 3 Copyright 2012 RM Research Please refer to important disclosures located at end of this report.
21 May 2012
TCM PROJECT
A Production and Operation IUP (license) was granted for TCM in June 2010. This license
facilitates the commercial extraction of coal from the 3,440 hectare project area for a period of
15 years (renewable). This issuance of this license has allowed the Company to advance
planning and discussions on commencing mining at TCM. A clear and clean status has
already been granted by the Ministry of Mining and Energy Resources (9/5/2012) which
means that the IUP does not overlap on any other concessions.
PT Kopex Mining Contractors (KOPEX) is nearing finalization of a full Feasibility Study into
commencing underground operations at TCM, with a view to produce 1.5mtpa for at least 15
years.
The quality of the product from the ATA mine and that expected from the TCM Project is of
vastly superior quality to that of most other operations in Kalimantan. This enhances project
economics and product demand.
A maiden resource statement for TCM was released in May 2010, with an indicated JORC-
compliant resource of 19.7Mt with an additional 11.0Mt in inferred category. The phase 2
drilling programme resulted in the resource increasing to 53.2 million tonnes in total (a 73%
increase), with 22.2Mt in Indicated category and the remaining 30.8Mt in Inferred category.
This re-estimated resource resulted in a small decrease in coal quality with average calorific
value of 6,566 kcal/kg (ADB) versus 6,682 previously; ash content rising from 12.09% to
13.52%; total moisture increasing from 4.64% to 6.41%; but sulphur content decreasing from
1.83% to 1.52%.
In October 2011 an additional 18 boreholes, bringing the total to 35, resulted in a further 115%
increase in Resource to a total of 114.6Mt. Enhanced understanding of the complexity of the
TCM deposit achieved through the current drill programme facilitated a maiden Measured
Resource of 35.6Mt, as well as a 57% increase in Indicated Resource to 35.1Mt and a 42%
increased in Inferred Resource to 43.9Mt.
In May 2012 a further 20 boreholes were added to the database, 4 of which were contiguous
and to the north of the previous resource boundary. This resulted in a 12% increase in Total
Mineral Resource to 128.8Mt, including a substantial lift in Measured Resource of 41% to
50.3Mt.
Equally, if not more, significant was that the 4 boreholes drilled to the north identified that the
coal seams targeted for underground exploitation are shallower than expected and the parting
between the coal seams narrows.
Further drilling is ongoing with another 6 to 10 boreholes now being drilled in a stage-4 drill
programme testing the northern continuity of the coal seams. RM Research anticipates
further encouraging exploration results to flow through to increased mineral resources. This
should sustain a long-life coal mining operation that should underpin Pan Asias push into the
ranks of coal production companies listed on the ASX.
Feasibility Study
Pan Asia, through its major contractor KOPEX, is close to finalizing the Feasibility Study on
commencing underground mining at TCM.
Golder Rock Mechanics Technology, a subsidiary of Golder Associates, has concluded a
detailed geotechnical study that has resulted in recommendations on underground mine
design parameters. This study made conclusions on roadway design, panel and pillar widths
and type and frequency of rock support which in turn will be inputs for KOPEX to derive
operating cost estimates.
CRL Energy, a reputable New Zealand based research and consulting company, has issued a
final Coal Seam Gas Content and Composition Analysis report. It concluded that the methane
levels in the coal seam gas extracted from samples were rated as low to medium. This has
allowed KOPEX to design ventilation and gas drainage systems for the proposed underground
mine.
Tbe l0P focilitotes
commerciol cool extroction
for 1S yeors
uolity of cool from TCH
HeosureJ resources
increoseJ by 41% to
S0.S Ht
Current }0RC Resource is
128Ht
jORC now:
HeosureJ S0Ht
lnJicoteJ S8Ht
lnferreJ 40Ht
1O1AI 128Mt
...Neor completion
Hetbone levels in tbe cool
seom bove been roteJ os
low to meJium
21 M
A deta
has fa
waste
infrast
All init
anticip
A deta
RM R
extens
re-opt
to resu
Produ
RM Re
12-24
with th
underg
KOPE
additio
such a
future
The C
Decem
million
We no
depen
would
therma
over 1
dollars
EST
minera
Based
of the
The av
tonne,
resour
lnitiol pre-proJuction
CAPFX bos come in ot
opproximotely 0S$190
million
We ore projectinq selloble
cool ot o rote of 1.S H
tonnes per montb, over o
mine life of 1Syeors -
RM Rexeurch ore
projectinq ottributoble
resources to Pun Axlu in
excess of 1S0Ht by lote
2012
FIGURE 4: ASX Listed
peer comparisons -
EV/Total Resource tonnes
(source: RM Research
internal modelling).
RM Rexeurch is projectinq
o neor term price torqet of
81 cents
W
AvL8
Page 4 Copyright 2012 RM Research Please refer to import
May 2012
ailed civil engineering site survey has been conducted
acilitated selection of localities for the coal handling and
dumps, drainage, roads, offices, accommodatio
tructure.
tial capital and operating cost estimates have already
pated that start-up capital and pre-production costs will
ailed life of mine (LOM) schedule and mine design is
Researchs opinion that the recent positive boreh
sion of coal seams at shallower levels means that this
imisation. Although this will undoubtedly cause some
ult in enhanced project economics.
uction Pipeline
esearch forecast that Pan Asia will be entering the c
months. We anticipate production from TCM of at lea
he potential to expand output further by leveraging off
ground coal extraction garnered from the TCM exp
EX. To support this production profile, it will be necess
onal funds for capital expenditure and pre-production c
as attracting mining and logistics experts and potential
shareholder dilution.
Company is targeting the delineation of a resource in
mber 2012, which will result in attributable resources
n tonnes.
ote that the production and resource targets outlined
ndent on exploration success. We maintain our view th
provide enormous upside to the Companys valuatio
al coal production profile of at least 1.5 million tonnes p
150 million tonnes, should command a market capital
s.
TIMATED OF VALUE & PEER GRO
al resource is $0.93 per tonne.
d on Pan Asias current mineral resource position of
peer group average, a share price target of $0.81 per
verage EV: measured and indicated resource among
, reflecting the higher confidence levels of the reso
rces.
lnitiol pre-proJuction
CAPFX bos come in ot
opproximotely 0S$190
million
We ore projectinq selloble
cool ot o rote of 1.S H
tonnes per montb, over o
mine life of 1Syeors -
RM Rexeurch ore
projectinq ottributoble
resources to Pun Axlu in
excess of 1S0Ht by lote
2012
FIGURE 4: ASX Listed
peer comparisons -
EV/Total Resource tonnes
(source: RM Research
internal modelling).
RM Rexeurch is projectinq
o neor term price torqet of
81 cents
0.00 1.00 2.00 3.00 4.00
CCk
CCL
k8L
WPC
8ACL
tant disclosures located at end of this report.
d over the TCM license area. This
d preparation plant, stockpiles and
n village and other necessary
been received and reviewed. It is
be in the region of US$190m.
very close to being finalized. It is
hole results outlining a northern
s design and schedule will require
delay to project start-up it is likely
oal producer ranks within the next
ast 1.5 million tonnes per annum,
f the knowledge and experience of
perience and its relationship with
ary to raise significant amounts of
costs. Alternative funding initiatives
customers may assist in reducing
n excess of 200 million tonnes by
s for Pan Asia of more than 150
d by Pan Asia are becoming less
hat the achievement of these goals
on. Indicatively, a Company with a
per annum and a resource base of
lisation of several hundred million
OUP COMPARISON
RM Research has
conducted an analysis of
coal companies listed on the
ASX. Based on the closing
share prices of 10 May
2012, we have looked at the
enterprise value (EV =
market capitalisation plus
net debt position) for a group
of four companies and the
ratio of each ones EV to
total mineral resource
tonnage, measured and
indicated resource tonnage
and ore reserve tonnage.
The average EV: total
75% of 129Mt and the application
share is derived.
the same peer group is $1.60 per
ource base compared to inferred
lnitiol pre-proJuction
CAPFX bos come in ot
opproximotely 0S$190
million
We ore projectinq selloble
cool ot o rote of 1.S H
tonnes per montb, over o
mine life of 1Syeors -
RM Rexeurch ore
projectinq ottributoble
resources to Pun Axlu in
excess of 1S0Ht by lote
2012
FIGURE 4: ASX Listed
peer comparisons -
EV/Total Resource tonnes
(source: RM Research
internal modelling).
RM Rexeurch is projectinq
o neor term price torqet of
81 cents
0
21 M
AVE
COA
tonne
In the
mostly
deman
Pacific
Again
Chines
potent
and U
Septe
levels
US$11
import
respon
FIGURE 5: ASX Listed
peer comparisons -
EV/Total Measured +
Indicated Resource
tonnes (source: RM
Research internal
modelling).
FIGURE 6: ASX Listed
peer comparisons -
EV/Total Ore Reserve
tonnes (source: RM
Research internal
modelling).
FIGURE 7: Asian Coal
Prices (source: Platts,
Bloomberg, Citi Research
& Analysis, 9 May 2012).
Tbermol cool prices ore
projecteJ to foll to o low of
orounJ 0S$9S tbis yeor
before risinq to
0S$110,tonne in CY 201S
AvL
Page 5 Copyright 2012 RM Research Please refer to import
May 2012
0.00 5.00 10.00 15.00 20.00
COK
GCL
KRL
WHC
ERAGE
P
fa
h
m
in
r
s
th
o
m
T
A
E
m
w
a
1
>
m
fa
th
th
AL MARKET OUTLOOK
from recent prices approaching US$120/tonne (Figure
face of weak demand, Trading volumes have also be
y due to oversupply from Colombian, U.S., South Afr
nd in Europe in particular remains flat with increasin
c coal market in turn generating regional oversupply.
moving into 2013 we see improving supply dema
se costs likely to put a floor on Thermal Coal prices a
tial for supply disruption with rising costs likely to see
S.
mber-December Quarter prices are likely to fall in the r
around US$102.40. In CY 2013 RM Research co
10/tonne. In the face of softening Chinese internal d
ts will surpass China by 2H 2012. The increased proj
nse to severe domestic coal shortages.
FIGURE 5: ASX Listed
peer comparisons -
EV/Total Measured +
Indicated Resource
tonnes (source: RM
Research internal
modelling).
FIGURE 6: ASX Listed
peer comparisons -
EV/Total Ore Reserve
tonnes (source: RM
Research internal
modelling).
FIGURE 7: Asian Coal
Prices (source: Platts,
Bloomberg, Citi Research
& Analysis, 9 May 2012).
Tbermol cool prices ore
projecteJ to foll to o low of
orounJ 0S$9S tbis yeor
before risinq to
0S$110,tonne in CY 201S
0.00 2.00 4.00 6.00
CCk
CCL
k8L
WPC
L8ACL
tant disclosures located at end of this report.
Pan Asia is starting to validate the
aith that RM Research had in a
high level of conversion to
measured and indicated resources
n Pan Asias total mineral
esource after completion of a
series of infill drill programmes and
his is reflected in its current status
of 69% of total resource in
measured and indicated.
The average EV: reserve is
A$9.90 per tonne.
Even a modest ore reserve
medium-term target of 25Mt, which
would be sufficient to support an
attributable production profile of
1.5Mtpa to Pan Asia over a life of
>15 years, would support an EV of
more than A$165m. This is a
actor of around 10 times greater
han the current market value of
he Company.
We have lowered our
estimates for Thermal
Coal over 2H 2012 on
the back of forecast
oversupply in global
markets. Moving in to
2013 however, rising
production costs in the
United States and China
are likely to partly offset
supply increases.
Coal prices ex Indonesia
are likely to come in
around between
US$100-US$107 per
e 7).
een relatively low in recent months
rican and Russian exporters. Coal
ng supplies being pushed into the
and balances with rising US and
around US$90/tonne. We also see
e a number of shutdowns in China
region of US$95/tonne from recent
nsiders prices will move towards
demand, we anticipate that Indian
ected import tonnages are also in
FIGURE 5: ASX Listed
peer comparisons -
EV/Total Measured +
Indicated Resource
tonnes (source: RM
Research internal
modelling).
FIGURE 6: ASX Listed
peer comparisons -
EV/Total Ore Reserve
tonnes (source: RM
Research internal
modelling).
FIGURE 7: Asian Coal
Prices (source: Platts,
Bloomberg, Citi Research
& Analysis, 9 May 2012).
Tbermol cool prices ore
projecteJ to foll to o low of
orounJ 0S$9S tbis yeor
before risinq to
0S$110,tonne in CY 201S
Page 6 Copyright 2012 RM Research Please refer to important disclosures located at end of this report.
21 May 2012
CORPORATE
The last major corporate event was the restructure of the Memorandum of Understanding with
Ranrich Investments Limited (RIL) (29/2/2012) in respect to the BCKP IUP project. The
parties agreed to acquire the interests of PZC in exchange for US4.50 million and a royalty of
US$1.00 per tonne up to US$15 million. RIL representative Honardy Boentario also agreed to
step down from the board on 7/3/2012. RIL are also to deliver approximately 220,000 tonnes
of coal to PZCs designated buyer. By way of background, RIL and PZC subsidiary Innovation
West Pty Ltd (IW), entered into an MOU in 2010 for the financing of and investment in various
coal projects. The repayment of the finance was based on RRI making contracted coal
shipments to a designated buyer arranged by IW. Since entering into the original financing
arrangement, RRI has struggled to provide the scheduled coal deliveries and as a result, PZC
then restructured this and had the principal monies outstanding under the contract repaid.
DIRECTORS AND MANAGEMENT
Domenic Martino NON EXECUTIVE CHAIRMAN
Mr Martino is a Chartered Accountant and a former CEO of Deloitte Touche Tohmatsu
(Australia). He specializes in corporate finance including mergers and acquisitions, initial
public offerings and strategic opportunities. He has assisted many high profile companies in a
diversified number of industries and is currently Chairman of Synergy Plus Limited (ASX:
SNR); a Director of AIM listed Gladstone Pacific Nickel Ltd; Chairman of ORH Limited
(ASX: ORH) a mining services company; Chairman of Australasian Resources Limited (ASX:
ARH) currently developing a billion tonne iron ore resource in the Pilbara; and a Director of
Clean Global Energy Ltd (ASX: CGV), an underground coal gasification company. Mr
Martino was a founding Director and former Chairman of coal bed methane companies Blue
Energy Limited and Sydney Gas Limited (acquired by AGL Energy Limited, one of
Australias major integrated companies with a market capitalisation of around A$6 billion).
Alan Hopkins CHIEF EXECUTIVE OFFICER
Mr Hopkins brings over 20 years experience serving as CEO in resource companies with
international operations. This includes extensive experience with start-ups and turnaround
situations managing through phases of exceptional growth. His previous positions include
serving as a founding Australian Executive of international mining engineering group Edward
L Bateman Pty Ltd, CEO of Carnegie Corporation Ltd, CEO of Moonstone Diamond
Corporation Ltd as well as CFO of Grants Patch Mining Ltd.
Luke Martino NON EXECUTIVE DIRECTOR
Luke has over 20 years experience at partner and board level with major accounting firms and
is a Director of several private and public companies. He has gained significant experience
and established credibility in the mining & resources, property and hospitality industries. Luke
is the Company Secretary of Victory West Moly Limited, and Sunbird Resources Limited.
Luke is also a director of Westzone Enterprises Pty Ltd a property development company that
recently completed a A$100 million shopping centre. He is the former Chairman of Konekt
Ltd, former director of NuEnergy Limited and a former Director of South Pacific Resources
Corporation, a Canadian publicly listed company with mining projects in the Republic of
Indonesia. He is also a former Board Member of the Deloitte Australian practice. Luke holds a
Bachelor of Commerce (UWA), is a fellow of the Institute of Chartered Accountants, a Member
of the Australian Society of Certified Practicing Accountants and a Member of the Institute of
Company Directors.
Michael Pixley NON EXECUTIVE DIRECTOR
Mr. Pixley has worked as a merchant banker with over 20 years experience in Asia and has
extensive networks and relationships that provide the Group with access to key personnel in
the government, corporate and private business sectors. Mr. Pixley has been a Director of
both listed and unlisted companies in Australia and the United States. In addition, in 1992 he
joined a prominent Asian group with both listed and private companies having extensive
business interested throughout Asia, United States of America and Australia.
Tbe sole of PZCx interest in
tbe BCKP l0P bos freeJ up
0S$4.S0 million in cosb onJ
olloweJ tbe Compony to
focus on TCH
Bomenic wos formerly CF0
of Beloitte Toucbe
Tobmotsu
Alon bos over 20 yeors
experience incluJinq o
perioJ os CF0 of Curnegle
Corporutlon
luke bos extensive
experience in mininq,
enerqy, property onJ
bospitolity
Fxtensive experience os o
Jirector of botb listeJ onJ
unlisteJ componies in
Austrolio onJ 0S
Page 7 Copyright 2012 RM Research Please refer to important disclosures located at end of this report.
21 May 2012
RISK ANALYSIS
Sole Project Focus: PZC is very much focussed on TCM however RM Research
believes exploration conducted on this high-quality coal project provides plenty of
exploration upside.
Exploration Risk: Follow up exploration at TCM may fail to outline commercially viable
coal deposits on the project area. We believe this risk is very low at this stage.
Financial Position: The Company has limited cash reserves (around A$2.80 million)
which may necessitate an equity raising within the next three to six months. It is likely that
Pan Asia will require more funding in the near term, so that it can inject capital into the
development of the TCM coal project. This may cause dilution to existing shareholders
although RM Research anticipates that alternative funding arrangements such as project
partnering and prepayment financing may reduce the likelihood of future dilution.
Commodity Risk: Thermal coal is seen as a less attractive long term solution to the
worlds energy requirements due to its relatively large carbon footprint. RM Research
believes that demand for thermal coal is unlikely to diminish in the medium term. This is
due to the introduction of new clean coal burning technology and the necessity for a
gradual phase out of coal fired power generation due to the limited supply of alternative
energy fuels such as crude oil, uranium and natural gas and long lead time to production.
Market Risks: Further declines in equity markets may continue to put pressure on junior
resource companies as investors switch out of risk into perceived safe haven
investments such as cash, gold and counter cyclical equities. Our medium term view is
that the risk premium has been eroded for many junior resource companies and we see
near term upside.
Currency Risks: A strengthening Australian dollar (as funds flow back into riskier
currencies) may make the price of copper and gold in local (Australian) currency terms
less attractive. This could have negative influences on Australian copper miners however
it is more relevant to producing companies.
Sovereign Risk: Indonesia has a history of being a difficult operating environment for
foreign companies. Recent changes to the foreign investment rules and regulations have
secured more robust project tenure and more desirable monetary policies.
Coal Quality: The quality of coal delivered is critical to maintaining healthy operating
margins. The quality of the TCM Projects thermal coal product is relatively high with good
calorific values >6,500 kCal/kg on a air dried basis.
Infrastructure Risks: The transportation of coal to suitable loading facilities is critical and
any delays could place financial pressure on the Company. We believe however that
access to existing transport and coal processing infrastructure facilitates appears
favourable for rapid project development and a quick return on investment.
CONCLUSION
RM Research believes that Pan Asia is starting to derive value from its flagship TCM Project
in Indonesia. The final feasibility study is due to be completed during the current quarter,
although we are anticipating a re-optimisation after the recent excellent exploration results to
the north of the current mineral resource.
Although not without sovereign, project execution and financing risk Pan Asia has negated
this risk by engaging highly reputable and experience technical, marketing and financing
partners/advisers. RM Research envisages substantial upside from current share price levels
and accordingly rates the Company as a Speculative Buy with a near term price target of 81
cents.
Pon Asio is biqbly leveroqeJ
to tbe performonce of TCH
Tbe Compony bos limiteJ
cosb reserves onJ moy
require oJJitionol copitol in
tbe sbort term
Recent morket trenJs bove
seen o switcb out of risk
ossets
lnJonesio bos proveJ o
cbollenqinq investment onJ
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Page 8 Copyright 2012 RM Research Please refer to important disclosures located at end of this report.
21 May 2012
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Hold
A sound well managed company that may achieve market performance or less, perhaps due to an
overvalued share price, broader sector issues, or internal challenges.
Sell Risk is high and upside low or very difficult to determine. We expect a strong underperformance relative to
the market and see better opportunities elsewhere.
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