Regardless of whether Nathan Tinkler’s ambitious $5.3 billion plan to privatise Whitehaven succeeds, the company’s share price had fallen about 40% since the Aston Resources merger was finalised back in May and now represented good value over the medium term, it said.

“The business [Whitehaven] is transitioning from being 70% thermal, 30% metallurgical business producing approximately 5 million tonnes per annum, and will move to 10Mtpa in FY13, assuming the successful implementation of the longwall at Narrabri,” Foster said.

“The company is targeting long-term production of 25Mt by 2016, and the split will move to about 65% metallurgical/35% thermal over time, which in our view will improve margins and take the reliance away from thermal margins.”

Bandanna was trading at a very attractive enterprise value of just $76 million, with over 1.6 billion tonnes of coal assets and a 14% equity interest in Queensland’s Wiggins Island coal export terminal stage 1 worth $41 million, Foster said.

Bandanna has a 4Mt allocation for both port and rail from 2014 and is targeting production from two coal projects, Springsure Creek (thermal) and Dingo West (PCI).

“If we included the equity value of the WICET investment, its net cash would be $155 million and enterprise value would equate to $35 million,” Foster said.

“You are effectively paying $0.07 per share for Bandanna’s coal assets, which is equivalent to $0.02/t on an enterprise value/resource basis and $0.11/t for marketable reserves.”

Over the past 12 months coal stocks have been punished for a variety of reasons, most notably the declining demand for coal, driven in part by increased interest in natural gas, according to Foster.

Also, escalating costs including the introduction of the carbon tax, higher port and rail charges, and lower coal prices have exacerbated conditions for coal stocks.

But this was about to change, Foster said.

“We believe there are a number of reasons why we think the market has bottomed, and is about to turn a corner,” it said.

“Natural gas prices in the US hit fresh seven month highs this week, touching $3.16 per gigajoule and climbing a whopping 65% over the last three months. We believe this will lead to a potential reduction in coal-to-gas switching, improving demand for coal.

“Many US based coal companies have scaled back production as a result of dwindling demand which overtime will help reduce stockpiles.

“Deals are still being done from an M&A perspective, the most recent being Anglo American’s $555 million acquisition for a 58.9% stake in the Revuboe coal deposit in Mozambique’s Moatize basin and the overall underlying demand from China and India is linked to population growth and industrial expansion.”