FBR Capital: Australia Provides Supply Growth but at Sharply Rising Costs
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Rating Summary:
18 Buy, 17 Hold, 7 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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FBR Capital: Australia Provides Supply Growth but at Sharply Rising Costs
FBR analyst says, "The three major topics that coal and iron ore investors have been focusing on recently are (1) Chinese supply and demand trends, (2) Australian supply trends (floods and long-term projects), and (3) Japanese demand trends. Here, we focus on the latter two, based on our recent trip to Australia and ties to our March 16, 2011, report, "Assessing the Short-Term Weakness and Long-Term Benefits from the Japanese Disaster." It appears that the supply recovery is well on its way, with almost all mines to be fully on line by 3Q11, even with the recent rains that have dumped an additional 4–6 inches. The industry is gearing up for massive supply expansions in coal and iron ore and faces shockingly high cost increases along the whole food chain, driving up break-even economics for these commodities. The floods will delay some of these expansion projects by 2-6 months with the focus on bringing existing mines fully on line. With the combination of rising costs, infrastructure access, rising/significant capital deposits, and declining commodity quality, we expect another round of M&A within the smaller Australian producers to better realize value. The net takeaways are bullish over the next few years with rising risks for oversupply by the end of the decade. At present, coal stocks trade at an average 7.0x, 5.5x, and 5.2x for 2011E–2013E EV/EBITDA, which represents ~18% upside to our target prices. We remain long-term bulls on the coal and iron ore space."
FBR maintains an Outperform rating on Arch (NYSE: ACI) (PT $50), Alpha (NYSE: ANR) (PT$73), Cloud Peak (NYSE: CLD) (PT $26), Cliffs (NYSE: CLF) (PT $145), CONSOL (NYSE: CNX) (PT $59), and Peabody (NYSE: BTU) (PT $77).
FBR maintains a Market Perform rating on Patriot (NYSE: PCX) (P $30), Walter (NYSE: WLT) (PT $140), Massey (NYSE: MEE) ($69.33) and Natural Resource Partner (NYSE: NRP) (PT $32)
FBR analyst says, "The three major topics that coal and iron ore investors have been focusing on recently are (1) Chinese supply and demand trends, (2) Australian supply trends (floods and long-term projects), and (3) Japanese demand trends. Here, we focus on the latter two, based on our recent trip to Australia and ties to our March 16, 2011, report, "Assessing the Short-Term Weakness and Long-Term Benefits from the Japanese Disaster." It appears that the supply recovery is well on its way, with almost all mines to be fully on line by 3Q11, even with the recent rains that have dumped an additional 4–6 inches. The industry is gearing up for massive supply expansions in coal and iron ore and faces shockingly high cost increases along the whole food chain, driving up break-even economics for these commodities. The floods will delay some of these expansion projects by 2-6 months with the focus on bringing existing mines fully on line. With the combination of rising costs, infrastructure access, rising/significant capital deposits, and declining commodity quality, we expect another round of M&A within the smaller Australian producers to better realize value. The net takeaways are bullish over the next few years with rising risks for oversupply by the end of the decade. At present, coal stocks trade at an average 7.0x, 5.5x, and 5.2x for 2011E–2013E EV/EBITDA, which represents ~18% upside to our target prices. We remain long-term bulls on the coal and iron ore space."
FBR maintains an Outperform rating on Arch (NYSE: ACI) (PT $50), Alpha (NYSE: ANR) (PT$73), Cloud Peak (NYSE: CLD) (PT $26), Cliffs (NYSE: CLF) (PT $145), CONSOL (NYSE: CNX) (PT $59), and Peabody (NYSE: BTU) (PT $77).
FBR maintains a Market Perform rating on Patriot (NYSE: PCX) (P $30), Walter (NYSE: WLT) (PT $140), Massey (NYSE: MEE) ($69.33) and Natural Resource Partner (NYSE: NRP) (PT $32)
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