FLX - Felix Resources

[noirua]

Felix Resources stock remains stable after the rise following the 2nd Quarter report.

Felix will continue their expansion and increase the number of staff employed by going ahead and building their (80% owned) Moolarben open cut mines and underground mines (near Mudgee, NSW), costing about $350 million ( the mine will be completed mostly through cash reserves, currently over $300 million, and from future profits).

The mine will be low cost when running at full capacity and would be highly profitable at current prices for thermal coal, reports MD, Mr Brian Flannery.

The mine is set for completion by the early part of 2010 at the latest and should be ready to ship coal out of NCIG's new port at Newcastle when it is ready in March 2010.

 

[noirua]

Felix Resources after managing an estimated net $160 - $170 million in the first half year may be continuing strongly enough to retain their 53 cent dividend for 2009. This and continuing to finance their share, 80%, of the $450m Moolarben Project.

It will be 2011 before substantial profits pile in from the Moolarben mine. So Felix may well see gross profits beat analysts average of $412m for 2009 and a fall back in 2010.
Providing everything goes well at Moolarben and coal prices stay steady from here, profits should bounce strongly in 2011.

There are risks, low in the financing of Moolarben with $300m in the bank. But everything depends on the world's economies, coal prices, demand and the strength of the Aussie$.

 

[noirua]

Felix Resources are due to announce a decision on the talks about another party taking a controlling stake in felix Resources.
The Moolarben Project will start producing thermal coal at the end of '09 and this low cost thermal coal production may well put pressure on the price of thermal coal once NCIGs new terminal at Newcastle Port is ready in early 2010.
Felix stock price continues to flounder between $8 - $9 against a high of $23.30. Indicating few think talks will have any other outcome than 'talks will be discontinued due to market conditions'.

 

[noirua]

Update on Felix Resources 80% owned Moolarben Project.
http://mudgee.yourguide.com.au/news/local/news/general/moolarben-ready-to-go/1438787.aspx

 

[noirua]

Felix Resources Half Year Report to 31st December 2008.
http://www.asx.com.au/asxpdf/20090227/pdf/31g9v84sx3tdb6.pdf

Half Year EBIT $224.6 million, ($166.1 million after tax).

Half Year Dividend is a same again 3c plus a special 20c dividend, both are fully franked - payable 31st march 2009.

Cash reserves are at $283.4m. Dividend will cost $45.2m and tax at $58.5m.

 

[zaz]

Other notable items:

• Change of control discussions are ongoing but unlikely to lead to anything in the current environment
• Impairment testing has shown that the recoverable amount of operating assets is significantly higher than the carrying value (i.e. no impairment)
• Made a profit of 60.4M on coal swaps which are EXCLUDED from current earnings. They will be shown over 2009.
• Paid down 57.3M in debt, spent 34.2M on property, plant and equipment, Paid tax of 58.5M, still have $283.4M in the bank!
• Earnings reflect substantial foreign exchange hedges at much higher levels than that AUD is trading (around .94). Once these are worked off, by April 2009, they will receive the full benefit from the AUD plunge.

Average contracted thermal coal prices last year were around $125USD. That is equivalent to $83 this year given the movement in the AUD. If they settle at $78, that is only a 5% loss in revenue and that is before the impact of the coal swaps.

 

[noirua]

Thermal coal out of the Newcastle Port is trading at US$65.32 per tonne, or AU$101 per tonne. This is spot for 3 months delivery and it came close to US$60 during trading on Thursday.
The fact that Felix, like MCC and GCL, are moving towards thermal coal sales at these lower prices is worrying for Year Ending 2010. Moolarben coal sold in the period March to June 2010 will still be in the early start up high cost phase.

 

[pacestick]

Lokks like felix increased profit by about 220% Af act not noted by the media who have raved on about wow increasing profit 10%. I am still of the opinion that this company will get through the downturn better than most other coal companies and have increased my shareholding on that belief

 

[noirua]

Looks like felix increased profit by about 220% An act not noted by the media who have raved on about wow increasing profit 10%. I am still of the opinion that this company will get through the downturn better than most other coal companies and have increased my shareholding on that belief

I have the same view on Felix getting through this Worldwide deep recession comfortably. Coal profits may well halve per tonne for Felix in Year Ending June 2010 but Moolarben sales will help a bit, and profits should recover to Y/E 2009 levels in Y/E 2011, as output from Moolarben becomes very profitable. The odds, imho, are reasonable for the 53c dividend (excluding 20c special dividend) being maintained in the next few years.

 

[noirua]

Felix Resources are studying possible purchases or involvement in Indonesian and Indian interests.
http://www.bloomberg.com/apps/news?pid=20601081&sid=aRzVyQiAPTN0&refer=australia

 

[zaz]

Felix Resources are studying possible purchases or involvement in Indonesian and Indian interests.
QUOTE]

I like Felix precisely because they are based in Australia. Country risk premiums for India and Indonesia are an enormous 11% and 13% respectively! Never mind that Indonesia has been nationalizing resource projects.

Flannery doesn't have any competitive advantage in India or Indonesia. He's just going to be some dumb cashed up westerner. If they need to do something with cash then buy back shares (selling at 1/3 of intrinsic value) or pay it out in dividends.

To understand the impact of the higher country risk. A $100 a year stream of cash in Australia over 10 years is worth $600 at Felix current cost of equity. The same stream in Indonesia is worth $375. To get that at 1/3 discount is about $125.

So if Flannery can buy $100 over 10 years for $125 outright in Indonesia - THAT IS THE SAME AS BUYING BACK FLX SHARES! Is anyone in Indonesia going to sell a 10 year life mine at a 1.25 multiple.

 

[noirua]

I think MD Brian Flannery is really out to grow Felix Resources into a major coal concern. If someone wants to pay over the odds for the company or for a stake in a mine, then he's in for that as well.
The companies Board of Directors are one of the very few around who seem to have all assets laid out on their stalls for offers. Expect surprises from Felix in these depressed markets with $340 million cash in the bank.

 

[zaz]

Thermal coal out of the Newcastle Port is trading at US$65.32 per tonne, or AU$101 per tonne. This is spot for 3 months delivery and it came close to US$60 during trading on Thursday.
The fact that Felix, like MCC and GCL, are moving towards thermal coal sales at these lower prices is worrying for Year Ending 2010. Moolarben coal sold in the period March to June 2010 will still be in the early start up high cost phase.

Chubu, Japan's third-largest utility by capacity, and Xstrata have agreed on a price of $US70-$US72 a tonne for thermal coal under a contract for the next fiscal year, two persons close to the deal said Wednesday.

http://www.theaustralian.news.com.au/business/story/0,28124,25171188-643,00.html

This is reasonably bullish for Felix.

 

[noirua]

Chubu, Japan's third-largest utility by capacity, and Xstrata have agreed on a price of $US70-$US72 a tonne for thermal coal under a contract for the next fiscal year, two persons close to the deal said Wednesday.

http://www.theaustralian.news.com.au/business/story/0,28124,25171188-643,00.html

This is reasonably bullish for Felix.

The US$70 - US$72 price range appears to have been set for thermal coal at 6,322K/cal/kg.
Felix coal from the Minerva mine is 6,700K/cal/kg, Ashton mine thermal at 7,100K/cal/kg and semi-soft coke at 7,250K/cal/kg, Yarrabee PCI at 7,300K/cal/kg, and Moolarben export thermal at 6,900K/cal/kg (5,750K/cal/kg for domestic thermal).
(Prices set for Felix thermal at Minerva is usually 6% above benchmark, and Moolarben about 10% above from 2010 when mine sells coal.)

Problem for Felix, the reason the share price is down 70% (high $23.30), is that PCI and semi-soft coke agreements are set to severely plunge in price. Semi-soft coke was set at US$240 per tonne and new agreements look like being set at around US$92 - US$96 per tonne (hard coking coal at US$120 per tonne against US$300 per tonne). PCI coal set at about US$180 per tonne down to around US$80 - US$85 per tonne.

 

[zaz]

Yanzhou may be willing to offer only A$10 to A$12 per share, valuing Felix at up to A$2.35 billion, one of the people said. Felix may want at least A$15 per share, said the other person.

http://www.bloomberg.com/apps/news?pid=20601081&sid=aJLNxQwFYtk8&refer=australia

http://in.reuters.com/article/oilRpt/idINPEK1350620090311?sp=true

 

[pacestick]

Thanks for the article on takeover which recent statement from company all but ruled out, most interested to know whether MD of felix is in Indonesia or India

 

[michael_selway]

Yanzhou may be willing to offer only A$10 to A$12 per share, valuing Felix at up to A$2.35 billion, one of the people said. Felix may want at least A$15 per share, said the other person.

http://www.bloomberg.com/apps/news?pid=20601081&sid=aJLNxQwFYtk8&refer=australia

http://in.reuters.com/article/oilRpt/idINPEK1350620090311?sp=true

Hey this looks good thanks

Earnings and Dividends Forecast (cents per share)
2008 2009 2010 2011
EPS 51.8 140.7 50.7 118.2
DPS 53.0 63.3 22.0 50.7

thx

MS

Yanzhou Coal Talks With Felix Resources Said to Stall on Price
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By Cathy Chan

March 11 (Bloomberg) -- Yanzhou Coal Mining Co.’s talks to take over Felix Resources Ltd., whose stock gained 9 percent last year, have stalled after price disagreements, two people with knowledge of the matter said.

Shareholders of Brisbane-based Felix Resources, which supplies coal to Korea and Japan, have sought at least A$2.9 billion ($1.9 billion), one of the people said, declining to be identified because discussions are private. Yanzhou Coal, China’s fourth biggest producer, may be willing to pay as much as A$2.35 billion, the other person said. No formal offer has been made, the people said.

Talks began late last year and the two companies have been unable to agree on terms as Felix investors want at least twice as much as the current market price of A$7 a share, said the people. Chinese companies have become more prudent in making overseas acquisitions after losing billions in the U.S., Europe and Africa since the global financial crisis began in 2007.

“While China is encouraging its companies to spend more on commodities and energy assets overseas, these acquisitions are still highly regulated because on concerns of improper use of their cash,” said Huo Teh-ming, professor of China Center for Economic Research at Peking University.

Zhang Baocai, a spokesman at Shandong-based Yanzhou Coal, didn’t reply to calls made to his office. Felix Managing Director Brian Flannery is out of Australia and unable to comment, his personal assistant said. Peter Brookes, a spokesman for Felix, declined to immediately comment.

Price Gaps

Felix surged 37 percent to A$7.43 on Dec. 5, the biggest gain since February 1989, after the Australian Financial Review reported Yanzhou was in talks to buy the company for more than A$3 billion. Since then, Felix has slipped 11 percent. Yanzhou gained 5.4 percent yesterday in Hong Kong, paring the stock’s drop this year to 20 percent.

Yanzhou may be willing to offer only A$10 to A$12 per share, valuing Felix at up to A$2.35 billion, one of the people said. Felix may want at least A$15 per share, said the other person.

China’s investment in resource producers totaled $22 billion last month, including Aluminum Corp. of China’s stake in Rio Tinto Group, as prices of commodities including coal and oil fell from July’s records. Yanzhou acquired its only overseas asset, Australia’s Austar energy coal mine, in 2005.

China, the world’s largest coal producer and user, uses the fuel to generate almost 80 percent of its electricity. As part of the government’s $585 billion economic stimulus plan announced in November, China accelerated approvals for the construction of power plants, underpinning growth in coal demand.

Managers Meet

Senior management of both companies met in the third week of February in Hong Kong and made little progress, the people said, asking not to be identified because the meeting was private. No date has been set for further talks, one of the people said.

Flannery said March 6 that Felix in February shelved talks to sell itself to an unidentified company. Felix “decided to move on,” he said in an interview at the time.

Felix had said in a Feb. 27 statement that the talks with the unidentified company were unlikely to be concluded in the “near term” because of the global financial crisis.

The company’s major shareholders include Flannery, 57, and Chairman Travers Duncan, each owning 15 percent. Hans Mende is a director who controls American Metals and Coal International Inc., which owns 19 percent of Felix. David Knappick, former chief financial officer, owns 7.4 percent of Felix, according to Felix’s 2008 annual report.

American Metals and Coal International Inc., a closely held mining investment company, bought a 19.2 percent stake in Felix for A$188 million on March 21, 2007. Felix sells part of its coal through AMCI.

Felix Resources is also studying acquisitions of energy coal assets in India and Indonesia, Flannery said in the interview last week. The Australian coal producer said last month first-half profit more than tripled to A$166 million as contract prices for thermal and coking coal rose to a record in 2008 on rising demand from utilities and steel mills in Asia.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net.

 

[noirua]

I can't see Yanzhou Coal bidding enough to take out Felix Resources with capital gains tax a big factor for all of the major stockholders.

None of the so called interested companies in Felix have dared to bid and make the first mark in the sand. All can see that BHP Billiton stock remains the best performance in the mining sector and they could takeout Felix, without tax problems, quite easily.

The main interest is in the low cost Moolarben mine that expects to make sales from March 2010 and should build up to 13mtpa, attributable to Felix, by 2012.
An outside chance that Felix could relinquish a chunk of Moolarben, even up to 51% to the likes of BHP Billiton.

Felix have problems with its 100% owned Yarrabee Mine in Queensland, and badly needs a partner who will take a lot of PCI coal. The new wash plant is ready, so the company could produce 2.9mtpa of PCI coal from June 2009.
Unfortunately plans to increase production from 1.8mtpa have had to be shelved because of weak markets and the figure is also in doubt.
Wilpeena (North Yarrabee) is a new PCI coal area that is being explored and drilled and should add even more production.
A good opportunity for a new partner to take a cheap 49% stake providing they take most of the 2.9mtpa of PCI coal at market prices.

 

[gfresh]

I am curious as to why the shareprice of Felix has been "kept in range" in the last week.. seems unusual compared to it's regular price action and as the rest of the market has been fairly strong. Just reminds me of the action on GCL for 2 weeks before the merger announcement.. May be nothing.

 

[noirua]

I am curious as to why the shareprice of Felix has been "kept in range" in the last week.. seems unusual compared to it's regular price action and as the rest of the market has been fairly strong. Just reminds me of the action on GCL for 2 weeks before the merger announcement.. May be nothing.

A good point gfresh as the market quite obviously does not think a takeover is at all likely. Only AMCI could possibly bid for Felix among the companies major holders and as they are a private American company, with coal crash problems in the States, a bid looks totally out of the question.

Chinese companies would have to overcome Aussie Government objections in bidding for Felix and NSW would not be pleased to see a Chinese company own 80% of the major Moolarben Project, imho.

Felix Resources look cheap at $7.38 if coal prices recover, but are they cheap at $15.00.

I would not be surprised to see a Felix Resources major holder break ranks and sell their holding at some stage. This move may come sooner than we think.