Blackgold Natural Resources - Phillip Securities 2017-08-28: Spike In Coal Sales

Blackgold Natural Resources - Phillip Securities 2017-08-28: Spike In Coal Sales BLACKGOLD NATURAL RESOURCESLTD 41H.SI

Blackgold Natural Resources - Spike In Coal Sales

  • Expect a spike in coal production to 1.3mn tonnes in FY18e.
  • Award of Riau 1 mine-mouth power plant project will triple coal sales. But funding will need to be addressed.
  • Initiate with Trading BUY and a target price of S$0.16.


  • Blackgold Natural Resources (BNR) was formerly known as NH Ceramics. On Mar15, it acquired three coal concessions for US$150mn through the issuance of 635.6mn shares at S$0.295 each. 
  • The most valuable concession is Samantaka Batubara (SB), its only coal producing mine, has reserves of 147mn tonnes. The other two concessions are at the exploratory stage.

Investment Thesis 

Share price driver 1: Coal production and sales ramp 

  • Samantaka Batubara (SB) only started production in FY16 with 30,000 tonnes. We expect this to spike to 1.3mn tonnes in FY18e. A risk to production will be further delays by customer Santosa and Soma.
  • Both are earmarked for power plants.

Share price driver 2: More new customers 

  • Over the last 12 months, SB has secured two major customers – PLN Tenayan and Semen Padang. We do not rule out the company securing even more customer or increased demand from existing customers, in view of the increasing demand for power in Sumatra. 
  • Power consumption in Sumatra has been growing 9% p.a. the past five years. This is expected to rise even faster to 11% p.a. from 2017-2026 or double in six years, according to PLN (RUPTL).

Share price driver 3: Award of Riau 1 power plant project 

  • The big opportunity will be the award of Riau 1 power project. BNR will enjoy two sources of profits from Riau 1 mine-mouth. 
  • The first profit will be supplying on an exclusive basis, 3.5mn tonnes coal per annum to the power plant, for 30 years. This will triple 2018e production*. 
  • Secondly, BNR is able to enjoy profits generated by the Riau 1 power project itself.

* Based on the Independent Qualified Person’s Report (“IQPR”), SB can report US$30m PATMI with Riau 1 coal supply (but this excludes financing cost).

Investment risk 

  • The largest risk to our investment thesis is funding of Riau 1 opportunity. There will be two areas of funding required. 
    • Firstly, to expand coal capacity by 3.5mn tonnes, BNR will require capital expenditure of around US$60mn. This was highlighted in the IQPR (10 Aug17); 
    • Secondly, BNR intends to take a stake in the Riau 1 power plant project. There have been no details of the cost of the project. 
  • Our estimates are based on other power plant projects is a capital expenditure of around US$900mn. Assuming 30% equity funding for Riau 1 and BNR takes a 20% stake, it will cost BNR US$54mn.


  • We are assuming Blackgold Natural Resources (BNR) earns US$10.9m PATMI in FY18e. This is on the back of 1.3mn tonnes coal sales and ASP of US$40/tonne with a cash cost of US$25/tonne.
  • We are pegging Blackgold Natural Resources (BNR) valuations to regional peers. This gives us a valuation of around 10x PE. This gives us a target price of S$0.16 (assuming US$1 = S$1.36). We think BNR should trade in line with industry due to its high growth in production.
  • Worth noting that our PATMI is sensitive to our assumptions. Every 1% change in ASP is 4% impact to PATMI. And every 1% change in cash cost has similar 1% impact to PATMI.

Investment action 

  • We initiate with Trading BUY and target price of S$0.16. 
  • Positive news-flow from the surge in coal sales and award of Riau 1 project will be the major share price drivers for BNR. 
  • At our target price, BNR will be trading at 10x PE FY18e. This will be in line with regional peers.

Paul Chew Phillip Securities | http://www.poems.com.sg/ 2017-08-28
Phillip Securities SGX Stock Analyst Report BUY Initiate BUY 0.16 Same 0.16