Recommendation DBSV (8 Oct 09) TP $2.91

Infrastructure problem at Jembayan

Straits Asia Resources (SAR) announced that after several days of continuous rain, there has been a significant erosion along the Mahakam River foreshore at the end of the new load out facility at Straits Asia’s Jembayan mine.

As a consequence, there has been a failure of the foundation structure under this facility. The extent and impact of this failure on the future operation of the new load out facility is currently being investigated.

However, it is clear that no further loading will be possible from this facility at least for some time. Jembayan operates 2 load out trains at the mine: the original facility with a nominal annual capacity of 5.5 million tonnes; and the new facility that was recently commissioned and has been building up capacity as part of an overall mine expansion plan. Based on an initial assessment, the original load out facility does not appear to be affected by this event. All other mining activities at Jembayan continue to function normally and all reasonable steps are being undertaken to mitigate the impact of this event.

Presently, we maintain our estimate that Jembayan mine will produce 7mn tons of coal for 2009, and as of 1H09, sales volume from Jembayan totaled 2.9mn tons. As such, we retain our BUY call on the counter with TP of S$2.91 implying 14.4x FY10F PE. Our target was derived using DCF valuation with assumed WACC of 10.7%The exact impact of this event cannot be determined at the moment. However, with the original load out facility still in operation, we believe the sales volume loss will be minimal.ASH NOTES

nah...unlikely will fluctuate much DOWNwards now...closing 5pm soon..may b next wk? hee..

i think $1.85 will be nice :D

 
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