Macquarie raises Straits Asia to $3.80, keeps outperform

Stock Name: StraitsAsia
Company Name: STRAITS ASIA RESOURCES LIMITED
Research House: MacQuarie

Macquarie has raised its target price on Singapore-listed coal miner Straits Asia Resources (STRL.SI) to $3.80 from $3.40 and maintained its outperform rating.

Straits Asia said last week that Indonesia’s minister of forestry has issued a borrow and use license to the firm for the Northern Leases at the Sebuku mines, allowing it to begin mining work.

Macquarie said it believes the approval will lead Straits Asia to be the proxy of the ASEAN coal sector given the production size, improving governance, decent liquidity and attractive valuation.

The brokerage has increased its 2011 coal production estimate for Straits Asia to 12 megatonnes (MT) from 11.5 MT and it expects an additional 50-60 MT of reserves, on top of the current reserves of around 130 MT, with more upside upon successful exploration.

Straits Asia produced 10.6 MT of coal in the whole of 2010.

The Sebuku mines have better coal quality, which could lead to higher selling prices, as well as lower production costs, Macquarie said. Sebuku coal is one of Indonesia’s highest grades of thermal coal, according to Straits Asia.

At 10:38 a.m., Straits Asia shares were down 3.1% at $2.79 on a volume of 3.5 million shares.