Maules Creek awaits PWCS allocation

ASTON Resources is hoping to be one step closer to securing infrastructure for its $A480 million Maules Creek coking coal project in New South Wales when Port Waratah Coal Services allocates capacity at its Newcastle terminal tomorrow.

Lou Caruana
Maules Creek awaits PWCS allocation

The company is also in talks with the Australian Rail Track Corporation about rail access to the port and is negotiating extra funding through a deal to sell a stake of the company to Japanese trading group Itochu Corp by December 15.

Aston managing director Todd Hannigan told ILN he was confident that if coal prices and exchange rates remained at current levels, the payback on the invested capital for Maules Creek would be less than three years, well before the industry average of six years.

“We will find out the results from our first nomination on December 1,” he said in regard to Aston’s application to PWCS.

“We are not commencing construction until late next year and first coal is 2012, so we have time to sort it out.”

The company is aiming for 10.8 million tonnes per annum of production by 2014 from the Maules Creek open cut coal mine, which is located in the Gunnedah Basin and sits about 16 kilometres from the nearest main rail line and 380km from Newcastle’s port.

About $200 million is required to lift the capacity of the existing rail line to more than 50Mtpa.

“We are currently in negotiations with ARTC and expect to contract by end of H1 2010. There will be no capital charge, just the rail cost,” Hannigan said.

In its $400 million initial public offering, Aston scaled back the original price of $8.20 per share to $5.96 per share due to tepid institutional support at the time. Its share price has now risen by about 30% since it listed in August.

“Unfortunately, the market conditions at IPO were not ideal so the price was impacted by this,” Hannigan said. “The market is now starting to understand the growth story and appreciate the full value of the company. This is an ongoing process and we expect this to continue.”

Broking group Credit Suisse believes the market had unduly discounted Aston because of the perceived risk of its management being unable to secure infrastructure in time and at a reasonable price.

“Our analysis suggests the port and rail challenges facing Aston are no greater than many peers which trade on higher valuations and we expect AZT's valuation discount to improve as Maules Creek is de-risked,” Credit Suisse said in a report.

The steep discount reflects three key risks: funding of capital expenditure, no guaranteed rail capacity, and no guaranteed port capacity, the broker said.

“Rolling forward 12 months (to end 2011) we believe management can resolve funding risks (via a transaction with Itochu) and rail capacity risks (via a contract with ARTC),” it said.

“While we acknowledge risks to both of these assumptions, our $9.50 per share target price anticipates management can successfully deliver positive outcomes.

“We expect port capacity will not be resolved within 12 months, and the market will still price Aston at a decent discount to valuation.”

Broker RBS Morgans believes that Aston will “actively negotiate possible arrangements” with other coal producers that cannot meet their take-or-pay obligations, or to strike deals with producers which want to blend relatively high-ash Hunter Valley coal with the low-ash Maules Creek coal.

The company would need to secure PWCS spot allocations in order to reach its ramp-up targets because the Terminal 4 project at the port is not expected to be ready until 2016 “at best”

ARTC was in phase 2 of a five-phase process to duplicate the existing rail through the Gunnedah Basin to Newcastle, expected to cost $185 million.

A funding solution is expected to be struck in early 2011, while the staged construction is anticipated to allow Aston and other players in the region to start increasing coal exports from 2013.


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