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Earnings fears over Banpu's Mongolia move

Banpu is spending 432 million Australian dollars (Bt13.8 billion) to take complete control over Mongolia-focused Hunnu Coal after acquiring a 12.4-per-cent stake in March for A$45 million.



However, the market is concerned that the move will dilute Banpu's earnings over the next few years as Hunnu's coal mines are under development and it is expected to post losses.

Chanin Vongkusolkit, chief executive officer of Banpu, said the company would be working on the plans. It really lies on the stage of development of the first coal project, Tsan Uul. If Banpu can develop quickly, the loss may not occur, otherwise, in any case the loss will not be large. The investment is to create values from good coal deposits in the medium to long term.

Hunnu has substantial resource of thermal and coking coal; with more exploration to confirm coal quality and reserves amount. At present, it has approximately 843 million tonnes of JORC Coal Resources. Banpu expects to realize revenue from Hunnu Coal within 1-2 years. By year 2015, Banpu's team can manage to cooperate with the existing local team to develop and construct Tsant Uul (TU) project with an aim of 3-5 million tonnes of high heat value thermal coal.

"Banpu is a long term player in the Mongolian coal industry. We believe Mongolia will become a key coal supplier in the region. It has become clear to Banpu, since the formation of our strategic partnership, that there are clear synergies in combining Banpu and Hunnu. An acquisition of Hunnu fits within Banpu's stated strategy of expanding its position in key Asia Pacific markets."

"We believe this will be the foundation for Banpu to develop further into larger operations in Mongolia," said Chanin.

Chief financial officer Somruedee Chaimongkol said yesterday in a statement to the Stock Exchange of Thailand that Banpu offered A$1.80 per share for the remaining 88 per cent of Hunnu Coal.

That price was 30 per cent higher than the Perth-based company's closing price of A$1.385 on Thursday on the Australian stock market.

Banpu bought into Hunnu Coal after Hunnu became a partner with a Mongolian coal miner in March.

Hunnu Coal's board has unanimously recommended to shareholders that they accept the deal from Banpu if there is no superior offer. The tender-offer process is conditioned on Banpu receiving approval from relevant agencies and holding a relevant interest of at least 90 per cent of Hunnu Coal's shares. Banpu will pay for the acquisition in cash, Somruedee said.

CIMB Securities said in a research note that although Hunnu Coal would benefit Banpu in the long run, Banpu's stock in the short term would be affected as it was offering a premium above the market price.

Banpu's debt and capital-expenditure burdens will increase after it invests to secure 100 per cent of Hunnu Coal. The expected losses from Hunnu will erode Banpu's earnings over the next three years.

Hunnu Coal is expected to post net losses of A$18 million this year, A$22 million next year and A$1.6 million in 2013. Hunnu also requires capital expenditures, as its coal mines are under development.

Hunnu's first coal mine in Tsant Uul is expected to start producing 1.5 million tonnes next year, with output growing to 3 million tonnes in 2013. Another coal mine, Unst Khudag, would follow in 2013.

Published : September 12, 2011