After a tap on the shoulder by corporate regulator ASIC, Indonesian company Golden Investments has retracted a number of key pricing assumptions in its review of hostile takeover target Stanmore Coal.

Golden Investments was not privy to the financial modelling used in the Stanmore’s (ASX:SMR) valuation assessment of its Isaac Plains Complex, which is why it was forced to remove “any illustrative impact on the value per share of Stanmore”.

But Golden Investments says there are still material issues with the Stanmore report, including reliance on outdated coal prices assumptions, and a lack of justification or explanation of a 6-fold increase in the value of Isaac Downs “over a short, five month, period.”

Stanmore is recommending shareholder reject the 95c per share offer.

In November, the Stanmore board said the takeover offer from Golden Investments “significantly undervalues” the burgeoning coal miner.

On November 20, Stanmore (ASX:SMR) saw its share price surge 21 per cent to over $1 when the takeover offer was tabled by new, 19.9 per cent shareholder Golden Investments.

The stock is currently trading for around 95.5c, which is a slight premium on the Golden Investments offer and a 90 per cent increase over the past year.

The Stanmore Coal share price over the past 12 months.
The Stanmore Coal share price over the past 12 months.

The young coal miner told investors that its Isaac Plains coking coal mine in Queensland was performing “above expectations” and would contribute to “underlying” EBITDA earnings of $130 million to $150 million this year, compared to $45.6 million last year.

“The offer implies an enterprise valuation for Stanmore of only $225 million, which values the shares at only 1.5 to 1.7 times our forecast FY 2019 [earnings],” Stanmore chairman Stewart Butel told investors in November.

“This is materially below the trading multiples for the shares of all of the coal producing companies listed on ASX.”

 READ: A coal mine collapse in China was so bad it could force a rise in imports 

How’s the outlook?

Mr Butel also said the outlook for coking, or metallurgical, coal which is used in steelmaking remains positive.

“Metallurgical coal prices are well supported, and it is the company’s view that they will remain that way over the long term as there is no replacement technology for this product in the steelmaking process,” he said.

Although the price of coking coal exported from Australia has come off its March 2018 peak of $US202.35 ($281.22) per tonne, Mike Cooper, a senior editor covering the coal market for S&P Global Platts, told Stockhead that both thermal and coking coal prices in Australia have been “quite resilient for the past few months”.

Coking coal is currently trading around $US173.25 per tonne.