Drug maker invests in coal

GIVEN the parlous state of the US coal industry, news that an Australian drug maker is investing $US4 million in a US coal mine is bound to raise eyebrows.
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Noel Dyson

After all, if reports are to be believed, the US Environmental Protection Authority is gearing up to release even stricter regulations against the coal sector after the presidential election.

So it would not have been unreasonable for some wags to accuse Avexa of taking some of what it has been making.

The company also is lending Coal Holdings $6 million on top of the $4 million it is investing.

Avexa chairman Iain Kirkwood said the deal made good commercial sense for the company.

After all, the company Avexa is investing in is chasing metallurgical coal and not steaming coal, which is the market most likely to be cruelled by tougher EPA rules.

“Two experts have reviewed and verified the technical and economic assumptions used in the project’s business plan,” Kirkwood said.

“Production costs are budgeted at $50 per ton. The base case metallurgical selling price of $US130/t is expected to generate $85 million a year gross. Earnings before interest and tax is expected to be $50 million a year.

“Avexa’s 25.5% share will earn $12.5 million pre-tax each year, or $8.1 million after tax for the 15-year life of the mine based on these assumptions. Avexa’s $6 million loan should be repaid out of the first year’s cash flow.”

Cash flow from the project will allow Avexa to fund the development of several medicines, including Apricitabine for the treatment of drug-resistant HIV, a new generation HIV Integrase inhibitor against resistant HIV, and an anti-bacterial compound for the superbug Clostridium difficile.

The $4 million represents about 24% of Avexa’s consolidated total assets as at June 30.