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Tuesday, August 31, 2010

Coalspur (ASX:CPL) - a company making project

This is not strictly a blue-chip stock but it will resemble one in a few years since a company-making mining project. Australian coal miners have always competed with Canada, Colombia, Venezuela, Indonesia, South Africa and China in the seaborne coal market. Colombian coal mostly goes to Europe, South Africa is for domestic, EU and Asia, Venezuela to EU & USA, Indonesia for domestic and Asia, and increasing China is for domestic, as it can afford little export capacity given its burgeoning energy market.
West Coast Canada coal mining capacity lies amongst the Rocky Mountains. Most of the coal is used for domestic applications, however when prices have been high, some capacity has always leaked in to the Asian market. A strong Chinese demand and an appetite for coal from other sources than Australia, makes this company particularly appealing.
Coalspur (ASX:CPL) is developing a 900Mt thermal coal resource in Western Canada's Rocky Mountains. It is a lower quality coal (5800kcal/kg GAR) compared to Australian projects (6400kcal/kg GAR), so its $48/tonne FOB operating cost is not directly comparable. I suspect this local port can only do panamax ships (70,000dwt), so they will have a freight penalty to Asia, but perhaps not NE Asia (China, Japan). Canada appears to have a 15% federal resource tax judging from the feasibility study. The project is expected to generate cashflows of $110-180mil per annum. Expect this project to find a Chinese financier looking for project equity and marketing rights. For more info refer to
West Coast Canada has always been an exporter of coal to Asia, and it does not have the same potential as Australia for new capacity. This project however has a large resource. I suggest it has remained undeveloped until now because of the low coal prices before they took off a few years ago, and because the coal is lower energy. There is probably good reason they will stay high given the Asian demand for electricity, and prospect of electric cars.
Most mines I think in West Canada have been developed primarily for the domestic market. So long as China is strong, this project has value. i.e. It is vulnerable to a collapse in Chinese economic activity. I expect China to take off though, so I see little reason to expect a collapse. The company has placed shares to a strategic investor, ie. 67mil at 50c, raising $35mil, plus $7mil, so they have $42mil, which will allow them to finance some project development. I have no idea why the options were given 1:2 so cheaply. The company has 367mil shares at 77c worth $270mil. See Google Finance for a stock chart - support is at 60c, but personally I would not be surprised to see them fall back to 45c after an issue.
I have mixed feelings about this one because of the issues already make. Too much corporate activity is happening behind the scenes. I think this could have been a far better investment for you, and I was a bit late finding it. Just one to watch until it falls to one of those support levels. A mental post-it note for all of you. The project does have the capacity to produce a great deal of coal as there is a lot of unused coal export capacity in the region I suspect. These issues need to be considered. I called this a 'blue chip' only because I won't be buying it.
Andrew Sheldon

Sunday, August 29, 2010

SMH tips - a mix of good and bad

I note that the SMH is recommending a few stocks, some of which we think look good:
1. Abacus Group (ASX:ABP) - see - the chart seems to suggest to me they are consolidating before making a move
2. Fairfax Media Ltd (ASX:FXJ): I much like Fairfax Media limited as well because I see the media companies benefiting from increased penetration of the Facebook and Twitter domains. The interesting aspect will be the revenue they will eventually derive from Facebook and Twitter for use of their stories. I am expecting the media groups to profit from sharing of media stories. See They will eventually realise they should be allowing you to share content, and to benefit from sharing that content.
3. Harvey Norman (ASX:HVN): The chart is less impressive to me, probably because they trade off higher priced, higher margin products, and that is not attractive in this internet-based revolution, so whilst earnings might recover in a strong Australian market, I think they will lose market share. So less attracted by this stock, and that is reflected in a less appealing chart trend. See
4. News Corporation (ASX:NWS) - The Sydney Morning Herald is recommending media stocks to its readers. Does it not see a conflict of interest there? The stock is even trending down. Maybe that is why it feels compelled to recommend Fairfax. Anyway, we would be looking for signs of support in this stock before we signed on. See I trust I am matching the right paper to the right group. I guess the problem for News Corp is its exposure to the weaker US and European market. So I would look for downside to that magical $10 support it always seems to go for. In the meantime, I'd go for Fairfax for media exposure.
5. Sims Metal Management (ASX:SGM) - This is a great stock, but this does not appear to be the time to buy them. I guess the problem is a shortage of scrap, but I must confess I do not know the dynamics of the industry. See
6. Salamat Group (ASX:SLM): I actually know something about this group because of my partner's background in the call centre market. The stock has already recovered, and I don't have such a positive view of the industry, as I see people relying more upon online support, people being prepared to use more online support, and the outsourcing of business to offshore call centres, where they will see margins fall. Interesting they use Malaysia as a call-centre base. In this respect they will probably confront higher staff turnover than in the Philippines, as well as a smaller population base. They will have a better work ethic than Filipinos, however Filipinos are more personable, and I think provides a more sustainable call centre base. See This stock I think will not yield much growth, but more likely trading volatility, in which case, you have missed the move already.
7. UGL Limited (ASX:UGL): I like engineering contractors like UGL, and the chart has some appeal, as I think we are destined to see a breakout. Resolution of the election will likely give greater comfort to investors that the company will be able to book more project contracts in future, so I can see this stock breaking resistance, but I would watch for confirmation of a positive trend, as I don't know the market position of this stock. See

SMH also recommended some gold stocks, though I don't like the top end of the mining market. See my speculators blog.
Andrew Sheldon

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