Straits Resources (SRL) is a coal miner, with secondary interests in copper and gold mining.
SRL’s flagship operations include the Sebuku and Jembayan coal mines in Indonesia, which are owned by SRL’s subsidiary Straits Asia Resources.
SRL is now looking at a vastly changed future owing to a demerger, and a takeover offer from Thai-based PTT Mining.
The development will result in SRL becoming a pure coal play, whilst SRL will demerge its metals businesses under a new ASX-listed company, MetalsCo.
SRL says the demerger will provide greater clarity of identity to each of the businesses by creating a pure coal company and a pure metals company.
In this month’s AGM presentation SRL updated the market as to its operational achievements and goals.
Straits Asia is targeting 16-18 million tonnes of production from Sebuku and Jembayan by 2013, and Tritton is targeting 25,000t copper production for FY11.
SRL’s Brunei drilling has commenced and Madagascar feasibility has reached completion.
Mt Muro Gold boasts a stable production platform and SRL anticipates it will be cash flow positive by the end of FY11.
The group is also actively exploring, investing around $20 million across the group in FY11.
On 31 August, SRL posted an FY10 net loss of $69.4 million, which was less than FY09’s $235.3 million loss.
The result was impacted by the $72 million write-down associated with its Hillgrove Mine, whereas on an underlying basis, SRL posted a net loss of $18.5 million.
SRL’s focus in 2010 was on the recapitalisation of its Tritton copper mine in NSW and the Mt Muro gold mine in Indonesia, with the group investing $62 million in capex at its core operations during the year.
As a result of the capitalisation, SRL was confident enough to announce a 10% share buyback in addition to a 5 cent final dividend.
SRL boasts a strong balance sheet with cash and investments of $218 million.
SRL said that it was in a strong position to leverage off an upturn in global economic activity, targeting production of 27,000 tonnes of copper at Tritton in FY11.
SRL has agreed to a demerger, and a takeover offer from Thai-based PTT Mining.
PTT has proposed paying $544.1 million for SRL’s existing 40% interest in PTT Asia Pacific Mining Pty, which is also 60%-owned by PTT.
The development will result in shareholders receiving $1.72 cash per SRL share, in addition to one share in a new listed company called MetalsCo, which will include SRL’s existing metals and associated businesses.
SRL will hold onto its coal business and intends to become a pure coal company.
SRL says the demerger will provide greater clarity to each of the businesses by creating a pure coal company and a pure metals company. Moreover, the separation of distinct businesses creates efficiencies and a more appropriate platform for both metals and coal businesses going ahead.
SRL’s decision to demerge its coal and base metal assets is an important step in unlocking value for shareholders, and SRL’s stock has already risen on the development.
The new demerged company will be copper focused, with the Tritton copper mine near Nyngan in NSW targeting 25,000 tonnes in FY11.
SRL is positioned in three of the best commodities of the moment – coal, copper and gold.
Though SRL performed below expectations in FY10, the recapitalisation programs at Tritton and Mt Muro will be completed towards the end of FY11 and lay the foundations for sustained growth.
Given this potential upside, SRL is going to be one of the stocks to watch in coming months.