TIG – Tigers Realm Coal

shaw is giving a 50% discounted rate from $1.23

The full 14 page report can be seen here.

Event

Shaw Stockbroking initiate coverage of Tigers Realm Coal (TIG) with a Buy recommendation and a $0.60ps 12 month price target.

Highlights

Tigers Realm Coal (TIG) is earning significant stakes in two large coal project located in far eastern Russian and Colombia. Since listing on the ASX in late August this year the share price of Tigers Realm Coal (TIG) has retreated from 44cps down to 33cps. This has mainly been driven by the
general market malaise associated with the European dept crisis rather any company specific issues.

TIG is now trading at significant discount to our valuation of $1.23ps and our 12 month price target of $0.60ps. We ascribe a Buy recommendation on the assumption that TIG will be eventually re-rated as each significant milestone is progressively achieved. First major milestone recently
announced was a 66% increase of inferred resources to 294 million tonnes at the Amaan coking coal project.

TIG was incorporated in late 2010 with aim of exploring for and developing coal resources. TIG listed on the Australian Stock Exchange on 29 August 2011 after raising A$37.5 million at A50c per share in an Initial Public Offering.

TIG’s largest shareholder is Tigers Realm Minerals Pty Ltd.

TIG currently has two coal projects which are:

· Amaan Joint Venture in far eastern Russia where TIG has a 40% ownership, increasing to 60% once a licence to explore and extract coal is granted and then increasing to 80% upon completion of a bankable feasibility study.

· Landazuri Joint Venture in Columbia where TIG is earning a 60% to 70% ownership in three joint ventures.

The Amaan coking coal JV project is currently at a stage where a 268mt inferred coal resource has been delineated and preliminary technical studies have outlined conceptual parameters for a proposed 5.3 million tonnes per annum mining and export operation. The next steps involve
upgrading a substantial portion of the coal resources base to the measured and indicated categories and completing a feasibility study.

The Landazuri coking coal JV project is currently at a stage where a 21mt inferred coal resource has been outlined and conceptual studies indicate the potential to produce a single coking coal product on an unwashed basis. The next steps involve upgrading the resources using 2,380m of
completed drilling and initialising production utilising road transport.

Recommendation

TIG is trading at significant discount to our valuation of $1.23ps and our 12 month price target of $0.60ps. We initiate with a Buy recommendation on the assumption that TIG will be re-rated as each significant milestone is
progressively achieved.

Peer Comparison

On an enterprise value per resource tonne basis TIG ranks amongst other less developed coal companies. Whilst this method of analyses is rather simplistic, the value of a coal companies is highly dependent on the infrastructure needed to bring coal to market. Typically enterprise
value per resource tonne multiples will improve progressively as coal companies achieve certain milestones related to infrastructure development (funding, permits, construction, etc).

Nevertheless other factors such as margins are also very important – note how CEY was taken over on a relatively low multiple mainly as its business was selling lower margin thermal coal to local utilities.

Price Target

Given TIR’s early stage of development and the number of milestones that have to be overcome prior to the commencement of production at both the Amaan and the Landazuri coking coal projects we believe that a discount to valuation should be applied. At this stage we apply a 50% discount to our $1.23 per share valuation to achieve a 1 year price target of $0.60 per share. This discount rate will be progressively reduced as each significant milestone is achieved.