Tuesday, October 23, 2007

A Bet on Coal

With the acceleration in gasification technology development, investors should revisit the coal industry. The oft reviled fuel source may get a chance to rebuild its image as the “clean” fuel. Take for example, new processes that use pure oxygen streams to create easily sequestered carbon dioxide emissions. Another example is the coal-to-gas or coal-to-liquids technologies that put coal into pipelines, thereby reducing that pesky transportation expense.

The potentially brighter future for coal has not gone unnoticed by industry players. For example,
Waratah Coal, Inc. (WCI: TSX) is making the rounds among institutional investors these days, talking up its plans to develop promising coal deposits in Australia. Waratah, named after a New South Wales rugby team, owns a total of seven sites. Drilling projects are underway in two locations, one of which has already confirmed the presence of high quality coking coal.

The company was recently fortified with a CND$8.0 million private placement. Cash resources are crucial for Waratah in this developmental period, since the company has not revenue. Recent cash burn rates are near CND$600,000 per quarter.

Experienced management is one of the keys to success for early stage companies, In this regard, Waratah is in good shape. The company is led by Peter Lynch, CEO and President. Lynch is a seasoned mining engineer, cutting his teeth at Shell Coal Australia and refining his skill sets at a coal subsidiary owned by White Mining and Sumitomo Corp. David Campbell, who is exploration manager at Waratah, has held senior geological positions with some of the most successful mining companies in the world.

One big problem for Waratah is the need to build a railway to bring its coal to coastal seaports. However, Waratah does not plan to go it alone. Management is out courting potential partners as well as investors.

At a price of $CDN2.00 and change, Waratah stock is priced like an option on the company’s mining assets. Proving those assets will take some time, so the stock is most appealing for the investors with an extended-term investment horizon.

Neither the author of the Small Cap Copy
web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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