On Tuesday, UBS upgraded Indonesian coal miner Indo Tambangraya Megah Tbk (ITMG:IJ) (OTC: PTIZF) stock from Neutral to Buy, increasing the price target to IDR34,000 from IDR25,400.
The upgrade was attributed to a significant revision in the company's coal reserve estimates, which now stand at 373 million tonnes, marking a 32% increase from previous figures.
The reassessment of Indo Tambangraya's coal reserves was a result of the December 2023 Joint Ore Reserves Committee (JORC) assessment, which also took into account higher long-term coal price assumptions.
Notably, high calorific value coal, with over 5,000 kilocalories, comprises the majority of the company's reserves at 304 million tonnes, a 20% increase from prior estimates.
The updated coal reserve figures also include a notable rise in mid to low calorific value coal reserves, which have jumped to 69 million tonnes from newer mining sites. This represents an increase of 138% and accounts for 18% of the total reserves. The new reserve life estimate suggests a total production life of approximately 19 years for Indo Tambangraya, an improvement from the previously estimated 14 years.
The extended reserve life is expected to address concerns regarding the sustainability of Indo Tambangraya's operations, especially when compared to its industry peers.
For context, competitor Adaro Energy (ADRO:IJ) has a reserve life of 22 years, while PT Bukit Asam (PTBA:IJ) boasts a reserve life of 75 years. The updated reserve estimates suggest that Indo Tambangraya is better positioned for long-term production, with the company's 2024 production target set at around 20 million tonnes.
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