Paradigm Capital Inc. Mid Morning Comments - Investor Village
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RESEARCH TEAM
Paradigm Capital Inc. Mid Morning Comments
Technology Daniel Kim (Head of Research)
416.363.6644
Gabriel Leung Metals,Mining & Agriculture
416.361.6054
Don MacLean
416.360.3459
David Davidson
416.360.3462
Don Blyth
416.360.3461
Santo Ranieri
416.364.3161
Metals, Mining & Agriculture Mawson West Ltd.: Dikulushi and Kapulo Project Delays Made Official [NAV: $2.95 , $3.00 TP, Buy]
Jeff Woolley, CFA
416.361.9557
Spencer Churchill, CFA Industrial Products
416.361.6056
J. Marvin Wolff, CFA Infrastructure / Travel & Leisure
416.361.3376
Corey Hammill Biotech & Health Care
416.361.0754
Alan Ridgeway, Ph.D, CFA Energy Services
416.361.9080
John Bereznicki, CFA Oil & Gas
403.513.1034
Lyndon Dunkley
403.513.1029
Ken Lin, CFA Quantitative / Technical Analysis
403.513.1042
Oil & Gas Coastal Energy Company: One Last Chance for Bua Ban South Miocene [Est:, $25.00 TP, Buy]
Please Note: Click on the company title to directly view associated research note. Previously published research notes available at www.paradigmcap.com/research or contact a Paradigm Capital sales representative. Log-in required – register here Once you have initially logged in, you will not be prompted to repeat the process. If you wish to unsubscribe from Paradigm Capital’s research, please click here
Tina Normann
416.216.3564
Research Associates Daniel Choi
403.513.1932
Michael Charlton
403.513.1030
Jordan De Jong
416.363.6228
Ben Gunn, CFA
416.363.5115
Amanda Ierfino
416.216.3574
Shamil Kashmeri
416.363.3422
Lauren McConnell
416.366.7776
Grant Moenting
416.360.1397
Julia Reid
416.361.6037
Jason Tucker
403-513-1031
SALES TEAM
Paradigm Capital Inc, IIROC/TSX member
1
David Roland
416.216.6844
John Bellamy (Head of Sales)
416.361.6032
Alisa Beach, CFA
416.360.3579
Diane Braxatoris
416.366.5838
Mark Dickinson
416.368.8960
Naomi Ebata, CFA
416.364.9764
Blake Hossack
416.361.5987
Tanner Kohara
416.216.3583
March 29, 2012
Research Note March 29, 2012
Company Profile (C$) Sector Ticker
Coastal Energy Company One Last Chance for Bua Ban South Miocene
Oil & Gas CEN‐T
Buy
Stock Rating Financial Summary (US$)
Paradigm Estimates Offshore Prod (y/e Dec) (Bopd) FDCFPS P/CF FY11e 10,041 $1.69 9.3 x FY12e 21,000 $4.28 3.7 x FY13e 23,000 $4.60 3.4 x Consensus Estimates FY11e 10,434 FY12e 23,930 FY13e 28,117
$1.68 $4.02 $4.35
9.4 x 3.9 x 5.7 x
EV/EBITDA 9.3 x 3.1 x 2.9 x
EPS $0.62 $1.86 $1.98
Net Debt ($mm) $45.1 ($248.0) ($580.5)
9.9 x 3.9 x 3.1 x
$0.57 $2.31 $2.58
$40.2 ($170.6) ($442.5)
Closing Price 12‐Mth Target previously Potential ROR
$15.75 $25.00 $30.00 59%
Shares O/S Bsc (mm) Shares O/S FD (mm) Mkt Cap, Bsc (mm) Mkt Cap, FD (mm)
112.8 120.8 $1,777 $1,903
2013 P/CF 2013 EV/EBITDA 2013 EV/BOE/D
3.4x 2.9x $57,509
All figures in US$, unless otherwise noted. Source: Company filings, Paradigm Capital Inc., First Call Consensus estimates Investment Thesis. Coastal offers investors upside from an exploration and development portfolio in Thailand, principally offshore.
Event Coastal provided an update on its two most recent exploration wells at Bua Ban South.
Details
Coastal announced that its Bua Ban South A‐02 was drilled 700m from the previously drilled A‐01 well to a total depth of 8,275 feet. The well encountered 8 feet of net pay in the Lower Oligocene with 17% porosity and encountered the oil water contact at 8,120 feet TVD (true vertical depth). The A‐01 and A‐02 well data indicates that these wells are not connected to the Bua Ban Main field; pressure data indicates they are more analogous to the Songkhla basin. The discovery appears large enough for commercial production. Coastal’s Bua Ban South A‐03 well was drilled on the western edge of the main bounding fault and encountered non‐hydrocarbon‐bearing Miocene sands. The company has spud the fourth Bua Ban South exploratory well 2,500m south of the original Miocene discovery at Bua Ban Main A‐11. This well is on the eastern edge of the fault block and should further delineate the outer boundary of the Bua Ban Main Miocene reservoir.
Company Description
Coastal Energy, based out of Houston, Texas, is an international oil and gas company with assets in Thailand. The company is focused on acquiring discovered, underdeveloped oil and gas opportunities with significant upside potential, primarily in Southeast Asia. The company’s current portfolio includes a number of development assets, along with multiple potential high‐impact exploration prospects. Research Team
Lyndon Dunkley, Analyst 403.513.1029 [email protected] Michael Charlton, Associate 403.513.1030 [email protected] 1-Year Stock Chart Coastal Energy Co. (CEN‐CA) 22
Paradigm Capital Inc, IIROC/TSX member 1 Our disclosure statements are located at the end of this report
Volume (Thousands)
1,400 1,200
18
1,000
16 14
800
12
600
10
400
8
200
6
Conclusion Although results from three out of the four exploratory wells testing the Bua Ban South have not encountered the Prolific Miocene of the Main field, the Oligocene discovery makes the Bua Ban South exploration program a minor success in its own right. Although it will likely not add reserves to the same level as was expected in the Miocene, we expect that after production testing Coastal will be moving a new Mobile Offshore Production Unit (MOPU) on site to begin commercialization of the Oligocene. We are lowering our 2012 and 2013 production forecasts as well as our target price to $25.00 (from $30.00), representing 5.4x our 2013 FDCFPS estimate of $4.60. However, due to the overall cash flow generation potential of the company and the additional high‐impact drilling for the balance of the year, we maintain our Buy recommendation.
Price (CAD)
20
4
0 Apr May Jun
Jul
Aug Sep Oct Nov Dec Jan Feb Mar
Volume
Coastal Energy Co.
Source: FactSet Prices
Estimate Changes (US$) NEW FY12e Production FDCFPS EPS
OLD
FY13e
FY12e
FY13e
23,000↓
23,000
28,000
$4.28↓
$4.60↓
$4.81
$5.70
$1.86↓
$1.98↓
$2.37
$2.69
21,000↓
Source: Paradigm Capital Inc.
Research Note
Figure 1: Financial Summary
Ticker:
CEN
Recommendation:
Buy
Share Price:
$15.75
Risk:
MED
FD Market Cap. ($mm):
$1,903
Target Price:
Enterprise Value ($mm):
$1,948
Total Return (%):
$25.00 59%
2010
2011e
2012e
2013e
7,653
10,041
21,000
23,000
37%
31%
109%
10%
67.8
89.0
186.1
203.8
Offshore Production Oil & NGL
bbl/d
Growth
%
boe/d Per mm Shares (Bsc) Financials Revenue
$mm
$200.0
$359.5
$832.1
$896.5
Royalty
$mm
$16.9
$28.8
$66.6
$71.7
Royalty %
%
8%
8%
8%
8%
Operating/Transp. Costs
$mm
$55.1
$102.6
$115.0
$125.9
G&A/Mgmt Fees
$mm
$12.8
$22.9
$42.2
$46.2
Interest
$mm
$2.1
$5.0
$11.6
$12.6
Cash Flow
$mm
$109.3
$190.8
$501.9
$539.0
Net Debt
$mm
$90.9
$45.1
($248.0)
($580.5)
CFPS (diluted)
$/share
$1.00
$1.69
$4.28
$4.60
EPS (diluted)
$/share
$0.04
$0.62
$1.86
$1.98
Basic Shares Outstanding
mm
109.7
112.8
112.8
112.8
FD Shares Outstanding
mm
121.1
120.8
120.8
120.8
Per Share Values
$/boe Values Revenue
$/boe
$56.95
$100.00
$106.79
$108.56
Operating & Transportation
$/boe
$15.70
$28.00
$15.00
$15.00
G&A/Mgmt Fees
$/boe
$3.66
$6.25
$5.50
$5.50
Operating Netback
$/boe
$35.97
$64.00
$83.25
$84.88
US$/bbl
$82.16
$90.21
$100.00
$110.00
16.2x
9.3x
3.7x
3.4x
Commodity Prices WTI Crude Oil Valuation P/CF EV/EBITDA EV/boe/d
$/boe/d
23.9x
9.3x
3.1x
2.9x
$260,561
$194,031
$78,820
$57,509
Source: Company filings, Paradigm Capital Inc.
Paradigm Capital Inc, IIROC/TSX member 2 March 29, 2012
Research Note
Disclaimer Section 1. 2. 3.
Paradigm Capital Inc. expects to receive or intends to seek compensation for investment banking services from the subject companies in the next 3 months. Paradigm’s disclosure policies and research distribution procedures can be found on our website at www.paradigmcap.com. Paradigm Capital research is available on First Call, Reuters or at www.paradigmcap.com. Issued by Paradigm Capital Inc.
Stock Coverage History 03/14/12 FY12-13 CFPS raised 02/23/12 Target raised ($30.00) 11/16/11 Target raised ($20.00) 07/29/11 Target raised ($14.50) 6/28/11 Target raised ($11.50) 03/23/11 Target raised ($9.50) 04/22/08 Initiating target price ($6.50)
Research Rating System Paradigm Capital uses the following rating recommendation guidelines in its research:
Recommendation
# of % of Companies B/H/S
What our ratings mean:
144
70%
Buy – Expected returns of 20% or more over the next 6 to 12 months.
Buy (Spec)
34
17%
Speculative Buy - Expected returns of 20% or more over the next 6 to 12 months on high-risk development or "pre-revenue" companies, such as junior mining and early stage biotech companies.
Hold
22
11%
Hold - Expected returns of +/-20% over the next 6 to 12 months.
Sell
5
2%
Sell - Expected returns of -20% or more over the next 6 to 12 months.
Total
205
Buy
About Paradigm Capital Inc. Paradigm Capital is a research-driven, independent, institutional equity investment dealer focused on sectors and companies that have attractive long-term secular growth prospects. Paradigm Capital’s research is available on our website at www.paradigmcap.com. Please speak to your Sales or Trading Representative if you require access to the website. The analyst (and associate) certify that the views expressed in this report accurately reflect their personal views about the subject securities or issuers. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations expressed in this research report. Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is determined by revenues generated directly or indirectly from various departments including Investment Banking, based on a system that includes the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance and client feedback. Analysts are not directly compensated for specific Investment Banking transactions. The opinions, estimates and projections contained herein are those of Paradigm Capital Inc. (“PCI”) as of the date hereof and are subject to change without notice. PCI makes every effort to ensure that the contents herein have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. However, PCI makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions that may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this research report or its contents. Information may be available to PCI, which is not reflected herein. This research report is not to be construed as an offer to sell or solicitation for or an offer to buy any securities. PCI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. PCI may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. Paradigm Capital Inc. is a member of The Toronto Stock Exchange, The TSX Venture Exchange and The Investment Industry Regulatory Organization of Canada (IIROC). Any products or services mentioned on this website are made available only in accordance with local law (including applicable securities laws) and only where they may be lawfully offered for sale. Paradigm Capital Inc. will not open accounts except in jurisdictions in which it is registered. To U.S. Residents: This report was prepared by Paradigm Capital Inc. which is not subject to U.S. rules with regard to the preparation of research reports and the independence of analysts. Paradigm Capital U.S. Inc., affiliate of PCI, accepts responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so through Paradigm Capital U.S. Inc.
Paradigm Capital Inc, IIROC/TSX member 3 March 29, 2012
Research Note March 29, 2012
Company Profile (C$)
Mawson West Ltd.
Sector Ticker
Dikulushi and Kapulo Project Delays Made Official Financial Summary (US$)
Paradigm Estimates Net Revenue (M) FY12e 136.6 FY13e 322.7
(y/e Dec.31)
Consensus Estimates FY12e FY13e
149.2 382.3
CFPS 0.57 1.02 0.58 1.73
P/CF 2.0 x 1.1 x
EPS 0.50 0.91
1.9 x 0.6 x
0.39 1.36
P/E 2.2 x 1.2 x 2.9 x 0.8 x
Source: Company filings, Bloomberg consensus estimates, Paradigm Capital Inc. Investment Thesis. Mawson West is a DRC‐focused junior copper producer currently generating positive cash flow from its Dikulushi stockpile operation. 2012 should prove to be a milestone year for the company, as it plans to commission its high‐grade Dikulushi Crown Pillar Cutback Project in Q3/12, ~1‐3 months behind schedule. In addition, the company will also be focused on completing construction of its Kapulo Copper Project to be commissioned in H1/12. Both development projects are fully funded based on internal cash‐flows and will significantly expand Mawson West’s copper and silver production profile
Event
Mawson West published its 6‐month MD&A and financial statements (the company had changed its financial year‐end from June 30 to December 31). The financials revealed specific information regarding development delays at both its Dikulushi Cutback Project and its Kapulo development project.
Details
At Dikulushi, a slower‐than‐expected ramp‐up by the mining contractor, coupled with a heavy rainy season in the DRC, has caused slower‐than‐expected progress on site: 3.2M Bank Cubic Metres (BCMs) have been moved with 3.9M BCMs remaining, the project currently 45% complete. The delays have caused Mawson to guide for a ~1–3‐month delay for the commissioning of ore through the Dikulushi plant, meaning that first ore to the mill and first copper production is now expected sometime in late Q3. Mawson’s contractor is currently in the process of mobilizing additional equipment to the project to increase production in an attempt to “claw‐ back” on this revised schedule. In line with the company’s strategy to fund the completion of construction at Kapulo with cash flows from Dikulushi, the project schedule at Kapulo has been slowed due to the aforementioned delays at Dikulushi. In addition at Kapulo, Mawson West is now expecting that total project costs are likely to increase 20–30% from the $69.5M included in the 2011 BFS. The increase in costs has been attributed to the scope change from 0.5Mtpa to 0.6Mtpa (previously made public), general inflation (material/input costs), and a change in the EPCM contractor for the project, which occurred in December 2011.
Paradigm Capital Inc, IIROC/TSX member 1 Our disclosure statements are located at the end of this report
Buy
Stock Rating Closing Price 12‐Mth Target previously Potential ROR
$1.12 $3.00 $3.25 168%
Shares O/S Bsc (M) Shares O/S FD (M) Mkt Cap, Bsc ($M) Mkt Cap, FD ($M)
143.300 145.870 $160 $163 $2.95 $0.46
NAV/sh Working Capital/sh
Company Description
Mawson West is an Australian‐based copper producer, developer and explorer with a focus on the Democratic Republic of Congo (DRC). MWE owns 90% of the Dikulushi Mining Convention and has one currently operating mine at Dikulushi and one mine project in development at Kapulo. Research Team David Davidson, Sr. Analyst 416.360.3642 [email protected] Jeff Woolley, CFA, Analyst 416.361.9557 [email protected] Santo Ranieri, Analyst 416.364.3161 [email protected] Grant Moenting, Associate 416.360.1397 [email protected] 1-Year Stock Chart Mawson West Ltd. (MWE‐CA) 2.2
Price (CAD)
Volume (Thousands)
1,200
2
1,000
1.8 800
1.6 1.4
Conclusion Management had implied previously that timelines were likely slipping; however, this most recent information has put some hard numbers and timelines on the future delays at Dikulushi and cost increases at Kapulo. We have revised our model to incorporate the delays and ultimately we see a decrease in 2012 copper production to 26Mlb from 38Mlb and a decrease in 2013 production to 71Mlb from 80Mlb (Figure 1). These estimates are conservative; the company is applying a full 3 months of delays at Dikulushi, ultimately leading to a 3–4 month delay at Kapulo. While concerns that Mawson West will need to return to market to fund its development projects, these worries should be dismissed as the company’s strategy has always been to fund Kapulo with cash flow from Dikulushi. If anything, Kapulo will be delayed until the company can finance its construction (including the 20–30% increase, putting the total project in the $85–$90M range). The decrease in production, in addition to an increase in the Kapulo capex, along with some balance sheet adjustments in our model, have reduced our NAV to $2.92/sh from $3.37/sh. Therefore, we are decreasing our target price to $3.00 from $3.25 based on a 1.0x NAV multiple. We still believe the mid‐term growth story is intact despite the delays, and the name still remains one of the cheapest in our coverage universe on a P/CF basis. As such, we maintain our Buy recommendation.
Metals & Mining MWE‐T
600
1.2
400
1 200
0.8 0.6
0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Volume
Mawson West Ltd.
Source: FactSet Prices
Estimate Changes (C$) NEW
OLD
FY12e
FY13e
FY12e
Rev. (M)
136.6↓
322.7↓
195.1
355.2
EPS
0.50↓
0.91↓
0.79
1.03
Source: Paradigm Capital Inc.
FY13e
Research Note March 29, 2012
Figure 1: Mawson West Copper Production (Paradigm Estimates) 80.00
Annual Copper Production (M lbs Cu)
70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2011
2012
2013
2014
2015
Dikulushi
2016
2017
2018
2019
2020
Kapulo
Source: Company filings, Paradigm Capital Inc.
Paradigm Capital Inc, IIROC/TSX member 2 March 29, 2012
Research Note March 29, 2012
Figure 2: Mawson West NAV US$ millions
C$ millions
Per Share
OPERATING ASSETS
Dikulushi (90%) 10%dcr Total
$218.0 $218.0
$218.0 $218.0
$1.49 $1.49
OTHER ASSETS Working Capital (of which cash is $65m) Kapulo (90%) 10%dcr Exploration Properties Cash from Exercise of Options/Warrents Other Investments Total
$68.1 $80.1 $50.0 $1.9 $15.0 $215.0
$68.1 $80.1 $50.0 $1.9 $15.0 $215.0
$0.47 $0.55 $0.34 $0.01 $0.10 $1.47
$433.1
$433.1
$2.97
TOTAL ASSETS LIABILITIES Bank Debt Environmental Long term leases Severance Charges Total
$1.6 $1.3 $0.0 $0.0 $2.8
$1.57 $1.26 $0.00 $0.00 $2.8
$0.01 $0.01 $0.00 $0.00 $0.02
TOTAL LIABILITIES
$2.8
$2.8
$0.02
NET ASSET VALUE
$430.3
$430.3
$2.95
Exchange Rate US$1.00 =C$
1.00
*FD based on current "in-the-money" dilutive securites
Shares Outstanding Basic to be issued Options/Warrants Fully Diluted*
143.30 0.00 2.57 145.87
Source: Company filings, Paradigm Capital Inc.
Paradigm Capital Inc, IIROC/TSX member 3 March 29, 2012
Research Note
Disclaimer Section 1. Paradigm Capital Inc. has assumed an underwriting liability for, and/or provided financial advice for consideration to Mawson West (MWE-T) during the past 12 months. 2. Paradigm Capital Inc. expects to receive or intends to seek compensation for investment banking services from the subject companies in the next 3 months. 3. Paradigm’s disclosure policies and research distribution procedures can be found on our website at www.paradigmcap.com. 4. Paradigm Capital research is available on First Call, Reuters or at www.paradigmcap.com. Issued by Paradigm Capital Inc. Stock Coverage History 10/07/11 Initiating target ($3.25)
Research Rating System Paradigm Capital uses the following rating recommendation guidelines in its research:
Recommendation
# of % of Companies B/H/S
What our ratings mean:
144
70%
Buy – Expected returns of 20% or more over the next 6 to 12 months.
Buy (Spec)
34
17%
Speculative Buy - Expected returns of 20% or more over the next 6 to 12 months on high-risk development or "pre-revenue" companies, such as junior mining and early stage biotech companies.
Hold
22
11%
Hold - Expected returns of +/-20% over the next 6 to 12 months.
Sell
5
2%
Sell - Expected returns of -20% or more over the next 6 to 12 months.
Total
205
Buy
About Paradigm Capital Inc. Paradigm Capital is a research-driven, independent, institutional equity investment dealer focused on sectors and companies that have attractive long-term secular growth prospects. Paradigm Capital’s research is available on our website at www.paradigmcap.com. Please speak to your Sales or Trading Representative if you require access to the website. The analyst (and associate) certify that the views expressed in this report accurately reflect their personal views about the subject securities or issuers. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations expressed in this research report. Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is determined by revenues generated directly or indirectly from various departments including Investment Banking, based on a system that includes the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance and client feedback. Analysts are not directly compensated for specific Investment Banking transactions. The opinions, estimates and projections contained herein are those of Paradigm Capital Inc. (“PCI”) as of the date hereof and are subject to change without notice. PCI makes every effort to ensure that the contents herein have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. However, PCI makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions that may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this research report or its contents. Information may be available to PCI, which is not reflected herein. This research report is not to be construed as an offer to sell or solicitation for or an offer to buy any securities. PCI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. PCI may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. Paradigm Capital Inc. is a member of The Toronto Stock Exchange, The TSX Venture Exchange and The Investment Industry Regulatory Organization of Canada (IIROC). Any products or services mentioned on this website are made available only in accordance with local law (including applicable securities laws) and only where they may be lawfully offered for sale. Paradigm Capital Inc. will not open accounts except in jurisdictions in which it is registered. To U.S. Residents: This report was prepared by Paradigm Capital Inc. which is not subject to U.S. rules with regard to the preparation of research reports and the independence of analysts. Paradigm Capital U.S. Inc., affiliate of PCI, accepts responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so through Paradigm Capital U.S. Inc.
Paradigm Capital Inc, IIROC/TSX member
4
March 29, 2012
RESEARCH TEAM
Paradigm Capital Inc. Mid Morning Comments
Technology Daniel Kim (Head of Research)
416.363.6644
Gabriel Leung Metals,Mining & Agriculture
416.361.6054
Don MacLean
416.360.3459
David Davidson
416.360.3462
Don Blyth
416.360.3461
Santo Ranieri
416.364.3161
Metals, Mining & Agriculture Mawson West Ltd.: Dikulushi and Kapulo Project Delays Made Official [NAV: $2.95 , $3.00 TP, Buy]
Jeff Woolley, CFA
416.361.9557
Spencer Churchill, CFA Industrial Products
416.361.6056
J. Marvin Wolff, CFA Infrastructure / Travel & Leisure
416.361.3376
Corey Hammill Biotech & Health Care
416.361.0754
Alan Ridgeway, Ph.D, CFA Energy Services
416.361.9080
John Bereznicki, CFA Oil & Gas
403.513.1034
Lyndon Dunkley
403.513.1029
Ken Lin, CFA Quantitative / Technical Analysis
403.513.1042
Oil & Gas Coastal Energy Company: One Last Chance for Bua Ban South Miocene [Est:, $25.00 TP, Buy]
Please Note: Click on the company title to directly view associated research note. Previously published research notes available at www.paradigmcap.com/research or contact a Paradigm Capital sales representative. Log-in required – register here Once you have initially logged in, you will not be prompted to repeat the process. If you wish to unsubscribe from Paradigm Capital’s research, please click here
Tina Normann
416.216.3564
Research Associates Daniel Choi
403.513.1932
Michael Charlton
403.513.1030
Jordan De Jong
416.363.6228
Ben Gunn, CFA
416.363.5115
Amanda Ierfino
416.216.3574
Shamil Kashmeri
416.363.3422
Lauren McConnell
416.366.7776
Grant Moenting
416.360.1397
Julia Reid
416.361.6037
Jason Tucker
403-513-1031
SALES TEAM
Paradigm Capital Inc, IIROC/TSX member
1
David Roland
416.216.6844
John Bellamy (Head of Sales)
416.361.6032
Alisa Beach, CFA
416.360.3579
Diane Braxatoris
416.366.5838
Mark Dickinson
416.368.8960
Naomi Ebata, CFA
416.364.9764
Blake Hossack
416.361.5987
Tanner Kohara
416.216.3583
March 29, 2012
Research Note March 29, 2012
Company Profile (C$) Sector Ticker
Coastal Energy Company One Last Chance for Bua Ban South Miocene
Oil & Gas CEN‐T
Buy
Stock Rating Financial Summary (US$)
Paradigm Estimates Offshore Prod (y/e Dec) (Bopd) FDCFPS P/CF FY11e 10,041 $1.69 9.3 x FY12e 21,000 $4.28 3.7 x FY13e 23,000 $4.60 3.4 x Consensus Estimates FY11e 10,434 FY12e 23,930 FY13e 28,117
$1.68 $4.02 $4.35
9.4 x 3.9 x 5.7 x
EV/EBITDA 9.3 x 3.1 x 2.9 x
EPS $0.62 $1.86 $1.98
Net Debt ($mm) $45.1 ($248.0) ($580.5)
9.9 x 3.9 x 3.1 x
$0.57 $2.31 $2.58
$40.2 ($170.6) ($442.5)
Closing Price 12‐Mth Target previously Potential ROR
$15.75 $25.00 $30.00 59%
Shares O/S Bsc (mm) Shares O/S FD (mm) Mkt Cap, Bsc (mm) Mkt Cap, FD (mm)
112.8 120.8 $1,777 $1,903
2013 P/CF 2013 EV/EBITDA 2013 EV/BOE/D
3.4x 2.9x $57,509
All figures in US$, unless otherwise noted. Source: Company filings, Paradigm Capital Inc., First Call Consensus estimates Investment Thesis. Coastal offers investors upside from an exploration and development portfolio in Thailand, principally offshore.
Event Coastal provided an update on its two most recent exploration wells at Bua Ban South.
Details
Coastal announced that its Bua Ban South A‐02 was drilled 700m from the previously drilled A‐01 well to a total depth of 8,275 feet. The well encountered 8 feet of net pay in the Lower Oligocene with 17% porosity and encountered the oil water contact at 8,120 feet TVD (true vertical depth). The A‐01 and A‐02 well data indicates that these wells are not connected to the Bua Ban Main field; pressure data indicates they are more analogous to the Songkhla basin. The discovery appears large enough for commercial production. Coastal’s Bua Ban South A‐03 well was drilled on the western edge of the main bounding fault and encountered non‐hydrocarbon‐bearing Miocene sands. The company has spud the fourth Bua Ban South exploratory well 2,500m south of the original Miocene discovery at Bua Ban Main A‐11. This well is on the eastern edge of the fault block and should further delineate the outer boundary of the Bua Ban Main Miocene reservoir.
Company Description
Coastal Energy, based out of Houston, Texas, is an international oil and gas company with assets in Thailand. The company is focused on acquiring discovered, underdeveloped oil and gas opportunities with significant upside potential, primarily in Southeast Asia. The company’s current portfolio includes a number of development assets, along with multiple potential high‐impact exploration prospects. Research Team
Lyndon Dunkley, Analyst 403.513.1029 [email protected] Michael Charlton, Associate 403.513.1030 [email protected] 1-Year Stock Chart Coastal Energy Co. (CEN‐CA) 22
Paradigm Capital Inc, IIROC/TSX member 1 Our disclosure statements are located at the end of this report
Volume (Thousands)
1,400 1,200
18
1,000
16 14
800
12
600
10
400
8
200
6
Conclusion Although results from three out of the four exploratory wells testing the Bua Ban South have not encountered the Prolific Miocene of the Main field, the Oligocene discovery makes the Bua Ban South exploration program a minor success in its own right. Although it will likely not add reserves to the same level as was expected in the Miocene, we expect that after production testing Coastal will be moving a new Mobile Offshore Production Unit (MOPU) on site to begin commercialization of the Oligocene. We are lowering our 2012 and 2013 production forecasts as well as our target price to $25.00 (from $30.00), representing 5.4x our 2013 FDCFPS estimate of $4.60. However, due to the overall cash flow generation potential of the company and the additional high‐impact drilling for the balance of the year, we maintain our Buy recommendation.
Price (CAD)
20
4
0 Apr May Jun
Jul
Aug Sep Oct Nov Dec Jan Feb Mar
Volume
Coastal Energy Co.
Source: FactSet Prices
Estimate Changes (US$) NEW FY12e Production FDCFPS EPS
OLD
FY13e
FY12e
FY13e
23,000↓
23,000
28,000
$4.28↓
$4.60↓
$4.81
$5.70
$1.86↓
$1.98↓
$2.37
$2.69
21,000↓
Source: Paradigm Capital Inc.
Research Note
Figure 1: Financial Summary
Ticker:
CEN
Recommendation:
Buy
Share Price:
$15.75
Risk:
MED
FD Market Cap. ($mm):
$1,903
Target Price:
Enterprise Value ($mm):
$1,948
Total Return (%):
$25.00 59%
2010
2011e
2012e
2013e
7,653
10,041
21,000
23,000
37%
31%
109%
10%
67.8
89.0
186.1
203.8
Offshore Production Oil & NGL
bbl/d
Growth
%
boe/d Per mm Shares (Bsc) Financials Revenue
$mm
$200.0
$359.5
$832.1
$896.5
Royalty
$mm
$16.9
$28.8
$66.6
$71.7
Royalty %
%
8%
8%
8%
8%
Operating/Transp. Costs
$mm
$55.1
$102.6
$115.0
$125.9
G&A/Mgmt Fees
$mm
$12.8
$22.9
$42.2
$46.2
Interest
$mm
$2.1
$5.0
$11.6
$12.6
Cash Flow
$mm
$109.3
$190.8
$501.9
$539.0
Net Debt
$mm
$90.9
$45.1
($248.0)
($580.5)
CFPS (diluted)
$/share
$1.00
$1.69
$4.28
$4.60
EPS (diluted)
$/share
$0.04
$0.62
$1.86
$1.98
Basic Shares Outstanding
mm
109.7
112.8
112.8
112.8
FD Shares Outstanding
mm
121.1
120.8
120.8
120.8
Per Share Values
$/boe Values Revenue
$/boe
$56.95
$100.00
$106.79
$108.56
Operating & Transportation
$/boe
$15.70
$28.00
$15.00
$15.00
G&A/Mgmt Fees
$/boe
$3.66
$6.25
$5.50
$5.50
Operating Netback
$/boe
$35.97
$64.00
$83.25
$84.88
US$/bbl
$82.16
$90.21
$100.00
$110.00
16.2x
9.3x
3.7x
3.4x
Commodity Prices WTI Crude Oil Valuation P/CF EV/EBITDA EV/boe/d
$/boe/d
23.9x
9.3x
3.1x
2.9x
$260,561
$194,031
$78,820
$57,509
Source: Company filings, Paradigm Capital Inc.
Paradigm Capital Inc, IIROC/TSX member 2 March 29, 2012
Research Note
Disclaimer Section 1. 2. 3.
Paradigm Capital Inc. expects to receive or intends to seek compensation for investment banking services from the subject companies in the next 3 months. Paradigm’s disclosure policies and research distribution procedures can be found on our website at www.paradigmcap.com. Paradigm Capital research is available on First Call, Reuters or at www.paradigmcap.com. Issued by Paradigm Capital Inc.
Stock Coverage History 03/14/12 FY12-13 CFPS raised 02/23/12 Target raised ($30.00) 11/16/11 Target raised ($20.00) 07/29/11 Target raised ($14.50) 6/28/11 Target raised ($11.50) 03/23/11 Target raised ($9.50) 04/22/08 Initiating target price ($6.50)
Research Rating System Paradigm Capital uses the following rating recommendation guidelines in its research:
Recommendation
# of % of Companies B/H/S
What our ratings mean:
144
70%
Buy – Expected returns of 20% or more over the next 6 to 12 months.
Buy (Spec)
34
17%
Speculative Buy - Expected returns of 20% or more over the next 6 to 12 months on high-risk development or "pre-revenue" companies, such as junior mining and early stage biotech companies.
Hold
22
11%
Hold - Expected returns of +/-20% over the next 6 to 12 months.
Sell
5
2%
Sell - Expected returns of -20% or more over the next 6 to 12 months.
Total
205
Buy
About Paradigm Capital Inc. Paradigm Capital is a research-driven, independent, institutional equity investment dealer focused on sectors and companies that have attractive long-term secular growth prospects. Paradigm Capital’s research is available on our website at www.paradigmcap.com. Please speak to your Sales or Trading Representative if you require access to the website. The analyst (and associate) certify that the views expressed in this report accurately reflect their personal views about the subject securities or issuers. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations expressed in this research report. Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is determined by revenues generated directly or indirectly from various departments including Investment Banking, based on a system that includes the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance and client feedback. Analysts are not directly compensated for specific Investment Banking transactions. The opinions, estimates and projections contained herein are those of Paradigm Capital Inc. (“PCI”) as of the date hereof and are subject to change without notice. PCI makes every effort to ensure that the contents herein have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. However, PCI makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions that may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this research report or its contents. Information may be available to PCI, which is not reflected herein. This research report is not to be construed as an offer to sell or solicitation for or an offer to buy any securities. PCI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. PCI may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. Paradigm Capital Inc. is a member of The Toronto Stock Exchange, The TSX Venture Exchange and The Investment Industry Regulatory Organization of Canada (IIROC). Any products or services mentioned on this website are made available only in accordance with local law (including applicable securities laws) and only where they may be lawfully offered for sale. Paradigm Capital Inc. will not open accounts except in jurisdictions in which it is registered. To U.S. Residents: This report was prepared by Paradigm Capital Inc. which is not subject to U.S. rules with regard to the preparation of research reports and the independence of analysts. Paradigm Capital U.S. Inc., affiliate of PCI, accepts responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so through Paradigm Capital U.S. Inc.
Paradigm Capital Inc, IIROC/TSX member 3 March 29, 2012
Research Note March 29, 2012
Company Profile (C$)
Mawson West Ltd.
Sector Ticker
Dikulushi and Kapulo Project Delays Made Official Financial Summary (US$)
Paradigm Estimates Net Revenue (M) FY12e 136.6 FY13e 322.7
(y/e Dec.31)
Consensus Estimates FY12e FY13e
149.2 382.3
CFPS 0.57 1.02 0.58 1.73
P/CF 2.0 x 1.1 x
EPS 0.50 0.91
1.9 x 0.6 x
0.39 1.36
P/E 2.2 x 1.2 x 2.9 x 0.8 x
Source: Company filings, Bloomberg consensus estimates, Paradigm Capital Inc. Investment Thesis. Mawson West is a DRC‐focused junior copper producer currently generating positive cash flow from its Dikulushi stockpile operation. 2012 should prove to be a milestone year for the company, as it plans to commission its high‐grade Dikulushi Crown Pillar Cutback Project in Q3/12, ~1‐3 months behind schedule. In addition, the company will also be focused on completing construction of its Kapulo Copper Project to be commissioned in H1/12. Both development projects are fully funded based on internal cash‐flows and will significantly expand Mawson West’s copper and silver production profile
Event
Mawson West published its 6‐month MD&A and financial statements (the company had changed its financial year‐end from June 30 to December 31). The financials revealed specific information regarding development delays at both its Dikulushi Cutback Project and its Kapulo development project.
Details
At Dikulushi, a slower‐than‐expected ramp‐up by the mining contractor, coupled with a heavy rainy season in the DRC, has caused slower‐than‐expected progress on site: 3.2M Bank Cubic Metres (BCMs) have been moved with 3.9M BCMs remaining, the project currently 45% complete. The delays have caused Mawson to guide for a ~1–3‐month delay for the commissioning of ore through the Dikulushi plant, meaning that first ore to the mill and first copper production is now expected sometime in late Q3. Mawson’s contractor is currently in the process of mobilizing additional equipment to the project to increase production in an attempt to “claw‐ back” on this revised schedule. In line with the company’s strategy to fund the completion of construction at Kapulo with cash flows from Dikulushi, the project schedule at Kapulo has been slowed due to the aforementioned delays at Dikulushi. In addition at Kapulo, Mawson West is now expecting that total project costs are likely to increase 20–30% from the $69.5M included in the 2011 BFS. The increase in costs has been attributed to the scope change from 0.5Mtpa to 0.6Mtpa (previously made public), general inflation (material/input costs), and a change in the EPCM contractor for the project, which occurred in December 2011.
Paradigm Capital Inc, IIROC/TSX member 1 Our disclosure statements are located at the end of this report
Buy
Stock Rating Closing Price 12‐Mth Target previously Potential ROR
$1.12 $3.00 $3.25 168%
Shares O/S Bsc (M) Shares O/S FD (M) Mkt Cap, Bsc ($M) Mkt Cap, FD ($M)
143.300 145.870 $160 $163 $2.95 $0.46
NAV/sh Working Capital/sh
Company Description
Mawson West is an Australian‐based copper producer, developer and explorer with a focus on the Democratic Republic of Congo (DRC). MWE owns 90% of the Dikulushi Mining Convention and has one currently operating mine at Dikulushi and one mine project in development at Kapulo. Research Team David Davidson, Sr. Analyst 416.360.3642 [email protected] Jeff Woolley, CFA, Analyst 416.361.9557 [email protected] Santo Ranieri, Analyst 416.364.3161 [email protected] Grant Moenting, Associate 416.360.1397 [email protected] 1-Year Stock Chart Mawson West Ltd. (MWE‐CA) 2.2
Price (CAD)
Volume (Thousands)
1,200
2
1,000
1.8 800
1.6 1.4
Conclusion Management had implied previously that timelines were likely slipping; however, this most recent information has put some hard numbers and timelines on the future delays at Dikulushi and cost increases at Kapulo. We have revised our model to incorporate the delays and ultimately we see a decrease in 2012 copper production to 26Mlb from 38Mlb and a decrease in 2013 production to 71Mlb from 80Mlb (Figure 1). These estimates are conservative; the company is applying a full 3 months of delays at Dikulushi, ultimately leading to a 3–4 month delay at Kapulo. While concerns that Mawson West will need to return to market to fund its development projects, these worries should be dismissed as the company’s strategy has always been to fund Kapulo with cash flow from Dikulushi. If anything, Kapulo will be delayed until the company can finance its construction (including the 20–30% increase, putting the total project in the $85–$90M range). The decrease in production, in addition to an increase in the Kapulo capex, along with some balance sheet adjustments in our model, have reduced our NAV to $2.92/sh from $3.37/sh. Therefore, we are decreasing our target price to $3.00 from $3.25 based on a 1.0x NAV multiple. We still believe the mid‐term growth story is intact despite the delays, and the name still remains one of the cheapest in our coverage universe on a P/CF basis. As such, we maintain our Buy recommendation.
Metals & Mining MWE‐T
600
1.2
400
1 200
0.8 0.6
0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Volume
Mawson West Ltd.
Source: FactSet Prices
Estimate Changes (C$) NEW
OLD
FY12e
FY13e
FY12e
Rev. (M)
136.6↓
322.7↓
195.1
355.2
EPS
0.50↓
0.91↓
0.79
1.03
Source: Paradigm Capital Inc.
FY13e
Research Note March 29, 2012
Figure 1: Mawson West Copper Production (Paradigm Estimates) 80.00
Annual Copper Production (M lbs Cu)
70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2011
2012
2013
2014
2015
Dikulushi
2016
2017
2018
2019
2020
Kapulo
Source: Company filings, Paradigm Capital Inc.
Paradigm Capital Inc, IIROC/TSX member 2 March 29, 2012
Research Note March 29, 2012
Figure 2: Mawson West NAV US$ millions
C$ millions
Per Share
OPERATING ASSETS
Dikulushi (90%) 10%dcr Total
$218.0 $218.0
$218.0 $218.0
$1.49 $1.49
OTHER ASSETS Working Capital (of which cash is $65m) Kapulo (90%) 10%dcr Exploration Properties Cash from Exercise of Options/Warrents Other Investments Total
$68.1 $80.1 $50.0 $1.9 $15.0 $215.0
$68.1 $80.1 $50.0 $1.9 $15.0 $215.0
$0.47 $0.55 $0.34 $0.01 $0.10 $1.47
$433.1
$433.1
$2.97
TOTAL ASSETS LIABILITIES Bank Debt Environmental Long term leases Severance Charges Total
$1.6 $1.3 $0.0 $0.0 $2.8
$1.57 $1.26 $0.00 $0.00 $2.8
$0.01 $0.01 $0.00 $0.00 $0.02
TOTAL LIABILITIES
$2.8
$2.8
$0.02
NET ASSET VALUE
$430.3
$430.3
$2.95
Exchange Rate US$1.00 =C$
1.00
*FD based on current "in-the-money" dilutive securites
Shares Outstanding Basic to be issued Options/Warrants Fully Diluted*
143.30 0.00 2.57 145.87
Source: Company filings, Paradigm Capital Inc.
Paradigm Capital Inc, IIROC/TSX member 3 March 29, 2012
Research Note
Disclaimer Section 1. Paradigm Capital Inc. has assumed an underwriting liability for, and/or provided financial advice for consideration to Mawson West (MWE-T) during the past 12 months. 2. Paradigm Capital Inc. expects to receive or intends to seek compensation for investment banking services from the subject companies in the next 3 months. 3. Paradigm’s disclosure policies and research distribution procedures can be found on our website at www.paradigmcap.com. 4. Paradigm Capital research is available on First Call, Reuters or at www.paradigmcap.com. Issued by Paradigm Capital Inc. Stock Coverage History 10/07/11 Initiating target ($3.25)
Research Rating System Paradigm Capital uses the following rating recommendation guidelines in its research:
Recommendation
# of % of Companies B/H/S
What our ratings mean:
144
70%
Buy – Expected returns of 20% or more over the next 6 to 12 months.
Buy (Spec)
34
17%
Speculative Buy - Expected returns of 20% or more over the next 6 to 12 months on high-risk development or "pre-revenue" companies, such as junior mining and early stage biotech companies.
Hold
22
11%
Hold - Expected returns of +/-20% over the next 6 to 12 months.
Sell
5
2%
Sell - Expected returns of -20% or more over the next 6 to 12 months.
Total
205
Buy
About Paradigm Capital Inc. Paradigm Capital is a research-driven, independent, institutional equity investment dealer focused on sectors and companies that have attractive long-term secular growth prospects. Paradigm Capital’s research is available on our website at www.paradigmcap.com. Please speak to your Sales or Trading Representative if you require access to the website. The analyst (and associate) certify that the views expressed in this report accurately reflect their personal views about the subject securities or issuers. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations expressed in this research report. Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is determined by revenues generated directly or indirectly from various departments including Investment Banking, based on a system that includes the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance and client feedback. Analysts are not directly compensated for specific Investment Banking transactions. The opinions, estimates and projections contained herein are those of Paradigm Capital Inc. (“PCI”) as of the date hereof and are subject to change without notice. PCI makes every effort to ensure that the contents herein have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. However, PCI makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions that may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this research report or its contents. Information may be available to PCI, which is not reflected herein. This research report is not to be construed as an offer to sell or solicitation for or an offer to buy any securities. PCI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. PCI may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. Paradigm Capital Inc. is a member of The Toronto Stock Exchange, The TSX Venture Exchange and The Investment Industry Regulatory Organization of Canada (IIROC). Any products or services mentioned on this website are made available only in accordance with local law (including applicable securities laws) and only where they may be lawfully offered for sale. Paradigm Capital Inc. will not open accounts except in jurisdictions in which it is registered. To U.S. Residents: This report was prepared by Paradigm Capital Inc. which is not subject to U.S. rules with regard to the preparation of research reports and the independence of analysts. Paradigm Capital U.S. Inc., affiliate of PCI, accepts responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so through Paradigm Capital U.S. Inc.
Paradigm Capital Inc, IIROC/TSX member
4
March 29, 2012
