Universal Coal rated Strong BUY from BGF Equities with $0.60 price target

Universal Coal (ASX: UNV) has received a Strong BUY recommendation from BGF Equities with a target price of $0.60 based on imminent resource upgrades.

Universal last traded at $0.37.

The following is an extract from the BGF Equities report.

Imminent resource upgrades to significantly revalue this emerging stock.

Investment Perspective.

Since listing in December 2010, Universal Coal has advanced to the feasibility study stage three coal projects, each with near term production potential.

In addition, the company has provided some additional exploration excitement with its recent drilling and imminent resource upgrade at the Berenice/Cygnet metallurgical coal prospect in the Limpopo province.

This emerging South African coal company now has over 820 Mt under management and equity resources of 203 Mt, with the ability to increase its project equity to 74%.

The three thermal coal projects in the Witbank offer both domestic and export off-take potential with the Roodekop and Kangala Projects tagged for early development.

The company has just announced a positive draft BFS for Kangala with the final document to be released in September.

The Witbank projects; Kangala, Roodekop and Brakfontein, could elevate Universal to the status of a mid-tier thermal and PCI coal producer with combined output of 6Mtpa by 2015.

However, we believe that the metallurgical coal resources at Berenice/Cygnus/Somerville in the northern Limpopo Province offer the most upside and expect these to increasingly become the focus for the company.

The project area is within 30km of existing rail and offers considerable potential for exports. Preliminary coal analyses indicate strong coking properties and we await the results of the full washability testing and resource upgrade in July-August.

Universal is well placed to participate in the strong growth in South African coal production and exports expected as rail capacity improves and moves more into balance with existing port capacity.

At current prices, UNV is trading near the bottom of its range and at a significant discount to its current valuation of $1.01 per share.

It offers a compelling investment opportunity given the expected revaluation of the company when the various resource upgrades are announced in July.

Primary Points

- The company has equity JORC resources of 166.5 Mt in the Witbank coalfield and 37.3 Mt in the Limpopo Coalfield including measured resources at the Kangala and Roodekop Projects.

- The Witbank projects - Roodekop, Kangala and Brakfontein, are adjacent to several operating mines, thermal power stations and rail infrastructure and the company is investigating JVʼs for coal sales, shared infrastructure and toll treatment of coal.

- Initial mining will probably be at the Roodekop open cut, as early as 2012, with the Kangala project also expected to be in production in 2012.

- The Roodekop Project, is expected to ramp up to an initial 1.5Mtpa opencut operation producing primarily export quality thermal coal at low strip ratios of 3.5:1.

- The Brakfontein open cut/underground Project is expected on line in 2013 with an export coal focus. It is expected to produce a Richards Bay Coal Terminal specification thermal coal for direct export.
- The Limpopo Coalfield projects, Berenice and Somerville, where UNV is earning up to 74% equity, have metallurgical coal potential within 30km of existing rail.
- Preliminary coal analyses at Berenice indicate strong coking properties with CSN in the range 7-9. Further testing from large diameter drill hole samples are underway to provide full analysis of coking properties.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/17705/universal-coal-rated-strong-buy-from-bgf-equities-with-060-price-target-17705.html