Xceed Resources (ASX: XCD) is an Australia-based company engaged in the exploration and development of coal projects in Southern Africa.
The company is developing the Moabsvelden thermal coal project in the Witbank coal field. Moabsvelden is expected to have a mine life in excess of 15 years and will produce export quality as well as domestic quality thermal coal.
Xceed Resources’ (ASX: XCD) completion of the Bankable Feasibility Study for its Moabsvelden Coal Project, which provides confidence that Moabsvelden will turn into a producing asset, has prompted an increase in one broker’s price target.
The following is an excerpt from the broker update:
Moabsvelden BFS completed
Xceed Resources Ltd (ASX: XCD) has received the completed Bankable Feasibility Study (“BFS”) for the company’s flagship 74% owned Moabsvelden thermal coal project in the Witbank coal field, South Africa.
The completion of the BFS is a major milestone in the company’s development, and based on the results, Xceed believes Moabsvelden is both technically and economically viable. As a result of the incorporation of the BFS results into our model and changes to our valuation, we are increasing our target price to 25¢ per share fully diluted, from 22¢ previously.
- BFS done. The completed BFS study has been received from the study managers, Belton Mining & Projects. The study has been delivered on schedule which we think warrants kudos to the Xceed management team. Furthermore, we believe the results demonstrate the robustness of the Moabsvelden project and increase the likelihood of its development.
- Refined not reinvented. The key technical and financial parameters are mostly unchanged from Xceed’s existing development plan and this suggests to us that Xceed’s initial evaluation of the project was fairly accurate.
- Key takeaways: The 15 year LOM has the potential to be extended by a further three years
║Capital costs are estimated at A$33m on an owner-operator basis. Xceed estimates that a BOOM arrangement for the wash plant would result in a 45% decrease in capex to A$18m, but with the corollary of significantly higher operating costs.
║Expressions of interest by numerous potential customers to take coal at the mine gate neatly liberates the project from having to secure rail and port allocation.
║The BFS indicates a A$92m ungeared, post-tax NPV (12.5%) and an EBITDA margin of 45%.
- Target price increased. We are increasing our target price for XCD to 25¢ per fully diluted share, from 22¢ previously. This is due to changes to our model and valuation on the back of the new BFS results, and an increase in our NAV multiple to 0.85 from 0.75 to reflect our increased confidence in the Moabsvelden technical and financial parameters.
- Next steps. With most of the technical work done, we expect XCD’s effort to be concentrated on the permitting processand financing discussions. Xceed plans to submit the EMP in June and application for a water-use-licence in July.
Management expects all permits to be in hand by the end of 2012, although the company’s timeline allows for slippage until early Q2 2013 as permitting often has a long lead time. Once these key elements are in place, construction is expected to take 9 months illustrating the short lead time of taking Moabsvelden into production.
The BFS results are extremely encouraging and we view the completion of this landmark study as a major achievement for the company.
The results significantly de-risk the project and provide increased confidence that Moabsvelden will turn into a producing asset.
As a result, we reiterate our buy recommendation on the stock. Given that XCD currently trades at a large discount to our NAV, we see material upside as the company makes further progress across all projects.
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