fmic bellwether 06.29.12

6
2012 Jun 29 FGEN’ S CHEAP VS. EARNINGS PROSPECTS SCC: CALACAS REHABILITATED PLANT 2 WILL BE ON COMMERCIAL OPERATION ON AUGUST 2012 PXP WONT REPEAT 2011’ S PHP5.6BN RECORD NET INCOME, PUTS UP PHP4BN FOR PADCAL, BULAWAN, KALAYAAN AND SI- LANGAN EXPLORATION CAPEXSAYS PX CHAIR MVP Interest Rates Sideways to Downward Yields will likely continue to move sideways with a down- ward bias as the government released its borrowing program for the 3Q2012. Amount was flat quarter on quarter, Php108bn, prompting market participants to look for timing of the issuance as cue, which was in the latter part of 3Q or in September. The 20YR and 25YR will be auctioned in August and September, respectively, thus limiting supply of the most liquid security, which is positive for market sentiment. Market participants opted for the 20YR paper, pushing down yields 8 to 10 bps week-on-week. Last Friday (June 29), yields went down 3 bps on the average across the yield curve, flatter on strong demand for the longer tenors. This trend is likely to be sustained. Secondary market trading volume also on that day rose to P40bn. FIRST METRO INVESTMENT CORPORATION Bellwether Market Stats GSM PM CLOSE June 29, 2012 23.57y 25s8 6.125 (-.015) Dealt @ 6.15 to 6.10 for 2.454Bn 24.36y 25s9 6.20 (-.05) Dealt @ 6.20 for .050Bn RTB Tranche June 29, 2012 15:15Y 5.50 (unch) Dealt @ 5.44 to 5.40 for .052Bn 20y 5.915 (unch) Dealt @ 5.9125 to 5.89 for 1.849Bn Continuation on Page 4 Volume 1 No. 5 Fortnightly on Market Action and Outlook Dizon Copper-Silver Mine Inc.’s Tailings Dam Project is Key to Share Price Run he Dizon Copper Silver Mines Inc. (DCSMI), together with Canada-based Capital Gold, will form a joint venture (JV) company to operate its Tailings Dam Project. DCSMI will own at least 20% of the JV company while the remaining stake will be allocated to the foreign part- ner and a technological partner. The project will require an estimated development cost of $70mn, which will be shouldered by both the foreign and technological part- ner. Essentially, Dizon will enjoy a free carry from these investors, giving Dizon at least a 20% share in the in- come. The tailings dam was where Benguet Corporation's previous gold mining operations' (that ceased in 1997) "waste" went. Its estimated resource/reserves is 100m tons of gold ore or 1m oz. of extractable gold. Gold grade is 0.30 grams per ton ore. There are also copper and pyrite in the dam, whose separation from the gold deposits will require a flotation and a leaching facility. PSEi Value % w-o-w Change Closing 5,246.41 2.47% High 5,285.84 2.50% Low 5,144.91 2.97% Value T/O (in mn Php) 30,554.70 32.33% Foreign Activity (mn USD) 736.35 1,147.39% Top Gainers Top Losers Stock Price % w-o-w change Stock Price % w-o-w change BEL 5.25 10.06% AGI 11.54 -3.19% TEL 2,650.00 5.92% SMC 114.00 -1.38% GLO 1,115.00 5.19% AC 469.20 -0.17% MER 253.40 5.15% BDO 63.40 -0.16% FGEN 17.66 4.50% For the week ending June 29, 2012 GSM PM CLOSE June 29, 2012 1.67y 5s67 2.85 (unch) 3.67y 7s48 4.285 (-.01) 4.27y 10s42 5.00 (unch) 9.50y 10s55 5.30 (-.08) Dealt @ 5.315 to 5.29 for 1.402Bn 9.65y 10s54 5.30 (-.03) Dealt @5.295 to 5.27 for .675Bn 19.15y 20s17 5.8875 (-.0175) Dealt @ 5.9075 to 5.88 for 28.705Bn Note: GSM is Government Securities Market

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Page 1: FMIC Bellwether 06.29.12

2012 Jun 29

FGEN’S CHEAP VS. EARNINGS

PROSPECTS

SCC: CALACA’S

REHABILITATED PLANT 2 WILL

BE ON COMMERCIAL OPERATION

ON AUGUST 2012

PXP WON’T REPEAT 2011’S PHP5.6BN RECORD NET INCOME, PUTS UP PHP4BN FOR PADCAL, BULAWAN, KALAYAAN AND SI-

LANGAN EXPLORATION CAPEX—SAYS PX CHAIR MVP

Interest Rates Sideways to Downward Yields will likely continue to move sideways with a down-

ward bias as the government released its borrowing

program for the 3Q2012. Amount was flat quarter on

quarter, Php108bn, prompting market participants to

look for timing of the issuance as cue, which was in the

latter part of 3Q or in September. The 20YR and 25YR

will be auctioned in August and September, respectively,

thus limiting supply of the most liquid security, which is

positive for market sentiment. Market participants opted

for the 20YR paper, pushing down yields 8 to 10 bps

week-on-week. Last Friday (June 29), yields went down

3 bps on the average across the yield curve, flatter on

strong demand for the longer tenors. This trend is likely

to be sustained. Secondary market trading volume also

on that day rose to P40bn.

F IRST METRO INVESTME NT CORPORAT ION

Bellwether Market Stats

GSM PM CLOSE June 29, 2012

23.57y 25s8 6.125 (-.015)

Dealt @ 6.15 to 6.10 for 2.454Bn

24.36y 25s9 6.20 (-.05)

Dealt @ 6.20 for .050Bn

RTB Tranche June 29, 2012

15:15Y 5.50 (unch) Dealt @ 5.44 to 5.40 for .052Bn

20y 5.915 (unch)

Dealt @ 5.9125 to 5.89 for 1.849Bn

Continuation on Page 4

Volume 1 No. 5

Fortnightly on Market Action and Outlook

Dizon Copper-Silver Mine Inc.’s

Tailings Dam Project is Key to

Share Price Run

he

Dizon Copper Silver Mines Inc. (DCSMI), together with

Canada-based Capital Gold, will form a joint venture

(JV) company to operate its Tailings Dam Project.

DCSMI will own at least 20% of the JV company while

the remaining stake will be allocated to the foreign part-

ner and a technological partner. The project will require

an estimated development cost of $70mn, which will be

shouldered by both the foreign and technological part-

ner. Essentially, Dizon will enjoy a free carry from these

investors, giving Dizon at least a 20% share in the in-

come.

The tailings dam was where Benguet Corporation's

previous gold mining operations' (that ceased in 1997)

"waste" went. Its estimated resource/reserves is 100m

tons of gold ore or 1m oz. of extractable gold. Gold

grade is 0.30 grams per ton ore. There are also copper

and pyrite in the dam, whose separation from the gold

deposits will require a flotation and a leaching facility. PSEi Value % w-o-w Change

Closing 5,246.41 2.47%

High 5,285.84 2.50%

Low 5,144.91 2.97%

Value T/O (in mn Php) 30,554.70 32.33%

Foreign Activity (mn USD) 736.35 1,147.39%

Top Gainers Top Losers

Stock Price % w-o-w change

Stock Price % w-o-w change

BEL 5.25 10.06% AGI 11.54 -3.19%

TEL 2,650.00 5.92% SMC 114.00 -1.38%

GLO 1,115.00 5.19% AC 469.20 -0.17%

MER 253.40 5.15% BDO 63.40 -0.16%

FGEN 17.66 4.50%

For the week ending June 29, 2012

GSM PM CLOSE June 29, 2012

1.67y 5s67 2.85 (unch)

3.67y 7s48 4.285 (-.01)

4.27y 10s42 5.00 (unch)

9.50y 10s55 5.30 (-.08)

Dealt @ 5.315 to 5.29 for 1.402Bn

9.65y 10s54 5.30 (-.03) Dealt @5.295 to 5.27 for .675Bn

19.15y 20s17 5.8875 (-.0175)

Dealt @ 5.9075 to 5.88 for 28.705Bn

Note: GSM is Government Securities Market

Page 2: FMIC Bellwether 06.29.12

Page 2

First Gen Corporation, (FGEN)

Cheap Vs. Earnings Prospects

We see three areas of significant improvement in

FGEN's operating outlook that warrant a buy on current

valuation, PE of 7x on 2013 earnings, which is even

cheaper than EDC's 10.3x PE.

1) The consolidation of the British Gas' 40% earnings

share in the natural gas (nat) power plants to FGEN

will kick in 2H2012. We estimate a half year impact or

Php1.1bn ($26mn) from the full year $52mn incremen-

tal earnings accruing to FGEN as a result of the buy-

out. Recall that FGEN used to own 60% of the nat gas

plants through two operating subsidiaries First Gas

Power Corporation (FGPC) for the 1,000MW Sta. Rita

and FGP Corp. for the 500MW San Lorenzo plant. It

recently concluded the purchase of its British partner's

40% equity stake in the nat gas plants. The purchase

will now entitle FGEN to the full earnings of the nat

gas plants, which in 2011 totaled $132mn in 2011 and

$130mn in 2010. We're using $130mn as our 2013

earnings projection for the combined nat gas plants

results, an approach acceptable to our FGEN resource

person. The nat gas plants' earnings are fairly con-

sistent as they are both contracted with Meralco with a

selling price pegged at Php4.45/kwh and fuel cost

treated as a pass-through. It is only plant downtime

and load factors that account for the plants' earnings

variability.

2) EDC's 130MW Bacman will contribute earnings of

Php3.5bn next year to EDC's consolidated bottom line.

That is when Bacman starts commercial operations in

January 2013 on contracted capacity of 114MW at a

selling price of Php4.70/kwh to several off-takers. The

uncontracted capacity is sold to WESM. The Php3.5bn

earnings of Bacman (EDC's estimate) will enable EDC

to build the Php7.3bn projected earnings this year for

its existing "running/operating" four plants: 110MW

Mindanao 1 and 2, 680MW Unified Leyte, 132MW FG

Hydro and 305MW Green Core for a minimum full year

earnings of Php11bn in 2013. The latter figure is our

projection vs. consensus earnings estimate of

Php9.8bn. See our previous report on EDC in The

Bellwether. FGEN has increased its economic interest

in EDC to 49% from previously 44% and the full impact

of the increased stake will be reflected in the books in

2013 worth an estimated increment of Php550mn

attributable earnings. From EDC's improved earnings

forecast for 2013 of Php11bn, FGEN stands to benefit

by Php5.4bn or $126mn by virtue of its 49% stake.

3) Since FGEN also owns a direct 40% equity in FG

Hydro and 29% of the latter indirectly through EDC, it

will share in the robust operating prospects of the

hydro plant. FG Hydro made Php1.1bn net profits in

1Q12, equal to the full year net profits in 2011 worth

Php1.1bn. Assuming the favorable earnings results in

1Q12 is replicated in 2Q12 due to strong electricity

demand in the Luzon grid, higher energy acceptance

rate of National Grid Corporation of the Philippines

(NGCP) for the reserve power market and spot prices

for full year 2013 earnings to reach Php2bn, we esti-

mate FGEN's profit uptake from FG Hydro to be

Php800mn or 40% of the abovementioned figure.

FG Hydro has one of the brightest prospects among

EDC's power plants given the ff:

it has an ancillary contract with NGCP which

accounted for Php600mn of the Php1.4bn operat-

ing revenues in 1Q12;

strong WESM prices hitting a high of Php16/kwh

in May;

strong electricity consumption;

and high dam water levels.

Stock Data

Price (Php) 17.66

Market Cap (Php Bn) 59.39

Outstanding shares (Bn) 3.36

Book Value/Share (Php) 0.36

Price to Book (X) 49.06

Recommendation BUY

Source: Bloomberg

Page 3: FMIC Bellwether 06.29.12

Page 3

ORE has shipped a total of 2m tons of ore in the first

half of this year to China and Australia. The shipments

are low grade nickel ore with 48% iron content. Grade

is below 1%/ton. Selling prices hover around $11-$12/

ton. The low grade shipments and low selling prices

($12/ton of ore vs. Marcventures Holdings' contracted

$27/ton) amid a slumping LME spot price for pure

nickel at $16.5k-17k/ ton are behind the disappointing

earnings in 1Q12 of just Php167mn. Low grade nickel

ore has found a commercial value due to the high

demand for iron ore, which in 1Q12 hit a high of $130/

ton. According to Nickel Asia management, with whom

we earlier spoke, for as long as iron ore is above

$100/ton, low grade nickel will retain its commercial

value.

ORE has slumped to Php5.00/share on what the mar-

ket perceives to be inconsistencies between shipment

volume, selling prices and earnings. Slowly, ORE

share prices are recovering, rising to Php5.42/share

yesterday, in line with sector sentiment improving over

the "rumored" minimal changes in Malacanang's draft

mining policy to come out officially very soon. At the

annualized 1Q2012 earnings which is a rough esti-

mate of the full year operations of its two mines in

Palawan and assuming shipments of low-grade ore for

the entire year, which ORE management confirmed to

be the operating cycle and strategy for 2012, PE is

12x. ORE's PE is below the market PE, but half-way

its peers' PE range: Marcventure's 5x and Nickel

Asia's 14x.Unless the LME nickel spot improves sub-

stantially, back above $20k, ORE is not shipping out

its high grade nickel ore.

Last year, ORE targeted 750k tons of shipments but

ended up with an actual 1m tons of high grade and

middle grade ore shipments as it put into commercial

operations two mines simultaneously. ORE continues

to explore 400 hectares more of its 2,170 hectare

MPSA area, 13% of which made up the fully explored

area, with 1.5% grade. It has plans to put up a sinter-

ing plant to remove the moisture content of its nickel

ore. ORE remains in our unpolished jewels list. Hold.

Highlights of Our Interview

with ORE Chair, Ms. Caroline Tanchay

Earnings

2Q2012 earnings likely to be higher than

Php167mn, the level of 1Q12.

Dividends likely in 2013 which will clearly put it

in the radar screen of more investors.

Plans

Building a $10mn nickel ore beneficiation plant

to be operational by 2013.

Acquiring a Palawan-based nickel mine bigger

than its 2,100 ha. MPSA.

Exploring a Mindanao gold mine, 4000 hectares.

Shipping a minimum of 3.5mn tons of ore in

FY2012 and 4mn tons in FY2013.

Expansion of port facilities costing P250mn to

double capacity from 5 to 10 vessels/mo.

Expand monthly shipment from 400k tons in

2012 to 700k tons in 2013.

Conclude a power supply agreement for its

18MW $60mn Aklan hydro power plant with Iloilo

Electric Cooperative (ILECO 1) Build a 10MW

hydro power plant in Cagayan de Oro costing

$30mn, to operate in 4Q2013.

Likely off-takers are Bukidnon Electric Coopera-

tive or Cagayan Electric Power and Light Co.,

Inc.

Clarifications

ORE’s Php470mn paid to related parties were

ORE mines’ pre-operating costs incurred from

2007 to 2010. These advances are likely to be

paid in stock and not in cash and the cash out-

flow won’t repeat.

Nickel ore average selling prices dipped from

$32/ton in 2Q2011 to P13 per ton in 1Q2012 on

low-grade shipments.

These are limonite (the top soil) with > 30% iron

content selling at $25 to $28 per ton, the level at

which Marcventures sells.

Oriental Peninsula Resources Group, Inc.

Ships 2m tons of Low Grade Nickel Ore in 1H2012; Eyes 4m tons for whole of 2012

Stock Data

Price (Php) 5.45

Market Cap (Php Bn) 7.91

Outstanding shares (Bn) 1.45

Book Value/Share (Php) 1.59

Price to Book (X) 3.43

Recommendation HOLD

Source: Bloomberg

(FGEN…continued from page 2)

Half of FG Hydro's 130MW capacity is contracted with

Nueva Ecija electric cooperatives while the rest is sold

to the merchant and ancillary markets. FGEN owns

40% of the plant directly and another 29% indirectly by

way of EDC's 60% stake in FG Hydro. FGEN owns

60% of EDC.

4) Improved effective cost of debt to 2.04% in 1Q12

from 2.30% or a 26 bps decline as the newly issued

preferreds last July 2011 carrying a lower interest rate

were used to retire the high cost 11.5% note of Unified

Holdings (UL). UL owns FGEN's subsidiary FGP Corp.

that runs the 500MW San Lorenzo natural gas plant.

Applying the cost of debt improvement on FGEN's

outstanding debt of $936mn, we estimate a minimum

yearly interest savings of $2.4mn of Php105mn. Also

FGEN intends to pay down more of the natural gas

plants' debt after extinguishing total debts worth

$213mn last year. FGEN's balance sheet leverage

remained steady even with the abovementioned bond

paydown as new long-term debt of $60mn was booked

as of 1Q2012. Interest bearing debt-to-equity ratio

stood at 0.64:1, same as in 1Q11.

We estimate FGEN's 2013 earnings to reach $149mn

or Php6.4bn based on the contribution of its significant

subsidiaries: the wholly owned nat gas plants, 49%-

owned EDC and 69%-owned FG Hydro (direct and

indirect ownership of 69%). On market cap of

Php59bn, FGEN's PE based on 2013 earnings is 9.4x,

a deep discount to market PE of 15x.

Key risks are:

Execution on Bacman's rehabilitation, which EDC said

will start commercial operations early next year. The

weather for FG Hydro whose dam water level is critical

to power sales delivery. Buy.

Page 4: FMIC Bellwether 06.29.12

Page 4

(Dizon Tailings Dam Project...continued from page

1)

The consortium of foreign investors are after a copper

off-take (for Hyudai) and gold (for Capital Gold), whose

sales the latter is sharing with Dizon. Dizon, being the

tailings dam claim owner, is also entitled to 80% of the

2.5% royalties computed on the gross profit margin.

We estimate the net present value of the tailings pro-

ject to be Php23bn based on a six year mine life. Out-

put (gold ore extraction) is planned to be ramped up

from initially 20k daily tonnage in year one or 2014 to

100k tons as early as the second year or 2015. That

translates to a recovery of 85% of the 1m oz of gold

reserves or 170k oz of shipment per year at $1,500/oz.

Cash cost per oz is estimated at $400, lower as the

gold deposits are already on the surface requiring no

mining cost, which is about $850/oz. for a typical mining

operation.

We obtained 20% of the tailings dam project NPV

worth Php4.5bn which is the value of Dizon's project

stake and add the DCF of Dizon's earnings from pro-

ject royalties, being the claim owner, worth Php510mn.

Thus our estimate of Dizon's equity value (excluding

other planned acquisitions) is Php5bn or Php64.35/

share.

Key risk is execution.

Recommending a trading buy on Dizon.

Stock Data

Price (Php) 33.00

Market Cap (Php Bn) 2.57

Outstanding shares (Mn) 78.00

Book Value/Share (Php) 0.36

Price to Book (X) 91.67

Recommendation TRADING BUY

Source: Bloomberg

Page 5: FMIC Bellwether 06.29.12

Page 5

PX won't be able to repeat the record high Php5.7bn

earnings last year. This is on account of lower metal

output and falling gold grade from its lone operating

mine, Padcal copper gold deposits in the province of

Surigao del Sur. This we confirmed with Philex Mining

Chair M. V. Pangilinan in an interview. Metal output

and sales are estimated at 119k oz. of gold and 30m

lbs of copper, below last year's actual 140k oz. of gold

and 38m lbs. of copper. We estimate earnings of

Php5.1bn on gold selling price of $1,600/oz. vs.

Bloomberg consensus of Php5.3bn, in our previous

report on PX. Total cost and expenses per oz of gold

net of copper revenue credit is $114/ in 2011, lower

than 2010's $404/oz due to the higher selling prices of

copper against which gold operating costs are

charged, as copper is a by-product. Operating cost per

ton of ore milled was Php560 in 2011, higher than in

2010's Php534/ton. At the market cap of Php117bn,

PX's PE at our estimated 2012 earnings is 23x.

PX is also eyeing more shares of LC, 5% of which it

currently owns. The purchase would either be from the

market or from a block seller. The strategic value of

LC to PX is its co-ownership of the Kalayaan gold and

copper mine through a 20% ownership in MA, which in

turn, owns 100% of the old Placer Mine and 40% of

Kalayaan. Furthermore, the Kalayaan mine is part and

parcel of the contiguous ore body of the old Bayugo

and Boyongan mines, now called the Silangan mine

project and is being developed by Silangan Mindanao

Mining Corp., a wholly-owned subsidiary of PX.

Kalayaan's reserves, according to a recent appraisal

revealed to us by LC President Bryan Yap in a compa-

ny visit, is 27.7m tons with grade of 0.49g/ton gold and

0.20%/ton copper.

The Silangan ore body is 400m tons in resource

(measured and indicated) with grade of 0.45%/ton for

copper and 0.70g/ton gold. The resource estimate

and the grade of Silangan is superior than Padcal's

140m ton resource and reserves of 80m tons with

grade of 0.24% cu/ton and 0.49g/ton gold. Silangan's

theoretical value at the gold selling price of $1,600/oz

and copper's $3.50/lb. and contained metal of 4.9bn

lbs of copper and 9m oz of gold amounts to $31.7bn,

based on a certified report by the Philippine Mineral

Reporting Code. This information was announced in

the stockholders' meet by the company CFO R. Migri-

no. This valuation is way above Padcal's theoretical

value of $6.2bn.

Mine life of Padcal could extend beyond 2020 after the

results of ongoing drilling in the Sto. Tomas and

Bumolo prospects are concluded. PX is spending

Php1.5bn for Padcal's exploration and another

Php2.5bn for all other explorations such as that of

Silangan, Bulawan -- a gold mine in Negros -- and

Kalayaan. Should exploration results show compara-

ble reserve estimates for Silangan and Kalayaan, the

mines will be merged and operated jointly, according

to Mr. Pangilinan. Earlier, Silangan was seen to be

commissioned ahead of Kalayaan, specifically in 2015

with initial tonnage of 5m a year, to rise to 10m in the

second year.

Given the earnings drop this year for PX's bread and

butter gold mining operations, we are recommending a

switch to PXP. PXP has been generating market ex-

citement in terms of the prospective resource esti-

mates, contingent reserves of the natural gas find on

par with Malampaya as well as its varied fuel resource

portfolio of coal (with an off-take agreement with Iligan

Cement), petroleum expansion through Galoc phase 2

and Pitkin's oil exploration in Peru and Vietnam and

most recently an announced expansion into renewable

energy, i.e. geothermal.

Philex Mining Corp.

Philex won’t Repeat 2011’s Php5.6Bn Record Net Income, Puts Up Php4Bn for Padcal, Bulawan, Kalayaan and Silangan Exploration Capex

Stock Data

Price (Php) 23.85

Market Cap (Php Bn) 117.63

Outstanding shares (Bn) 4.93

Book Value/Share (Php) 5.00

Price to Book (X) 4.77

Recommendation SWITCH TO PXP

Source: Bloomberg

Page 6: FMIC Bellwether 06.29.12

Page 6

Sem Calaca will start commercial operations of its

300MW plant 1 by August 2012, the second unit to be

fully rehabilitated. This is past the original schedule of

June 15, 2012, which explains some of the share

price softness. The plant, the older one of the two

300MW units and commissioned in 1984, will be under

a 1-month reliability testing before starting to sell to

Meralco by August 2012. Plants 1 and 2 will have a

combined contracted capacity with Meralco of 440MW

at a guaranteed rate of return of 14%.

Fuel is a pass-through and Meralco is in effect just

paying SCC a return on its fixed investments and

disallowing any margin on fuel and other variable cost.

Meralco is also allowing Calaca to have no replace-

ment power for any downtime within a 60-day period,

a provision lacking in the NPC contract (with Meralco)

under which Calaca belonged together with Aboitiz

Power, Masinloc, Sual of San Miguel Corp. Calaca

expects Php2.25bn earnings at the minimum from

running both plants simultaneously for the first time

since the rehabilitation program began with plant 2 in

October of 2010. That rehabilitation lasted until April

2011, also past the deadline of Feb. 2011. Plant 1's

rehabilitation started last Sept. 2011 and will end June

30, 2012.

Calaca will have zero sales to the WESM as it is fully

contracted with Meralco at the time when the WESM

has touched a high of Php16.00/kwh last month and

the Luzon grid achieved a historic high peak demand

of 7,900MW. Underscoring the strong electricity sales

in the Luzon grid was Meralco's year-to-date May

energy sales of 10%, slightly higher than the first

quarter's 9.9% growth this year.

Meanwhile, Semirara's coal mining operations will

have more domestic shipments than international amid

the weakness of coal prices abroad. The sales volume

mix is expected to turn 80% in favor of local versus

exports amid the China slowdown, which previously

accounted for a third of the 30% share of exports to

Semirara's total coal sales of 6.5m-7.0m tons yearly.

Calaca's two plants running will increase coal demand

from Semirara to 2m tons as each 300MW unit will

require about 1 million tons each year of coal.

Semirara's domestic coal selling price is holding at

Php3,000/ton, lower than the previous high of

Php3,300/ton early in the year and in late in 2011.

However, coal exports have softened to slightly below

Php3,000/ton. Domestic demand for coal is expected

to pick up with about 900MW coal-fired plants rising in

the Mindanao grid in the medium-term, the one by

Abotiz Power "Davao Coal" and three units of 200MW

each by Conal in Zamboanga province. All these

plants will use circulating fluidized-bed combustion

technology that require low grade coal. At an assumed

shipment of 7m this year, we expect the mining bottom

line to be Php5.3bn. Add the Php2.25bn from Calaca,

our consolidated bottom line projection is Php7.6bn for

a PE of 10x. Buy.

Semirara Mining Corp.

Stock Data

Price (Php) 218.20

Market Cap (Php Bn) 77.73

Outstanding shares (Mn) 356.30

Book Value/Share (Php) 46.42

Price to Book (X) 4.70

Recommendation BUY

Calaca’s Rehabilitated Plant 2 Will be on Commercial Operation in August 2012

In the week ending June 29, 2012, the Philippine market closed on a positive note on the back of quarter-end window-dressing. The PSE index was up 126 points (+2.47%) week-on-week to close at 5,246.41. Foreigners were NET BUY-ERS by P31.14B, mainly driven by the SMC block sale. In developed markets, US equities soared on the back of opti-mism over the EU Summit. For the week, the Dow rose 1.89%, the S&P gained 2.03%, and the Nasdaq added 1.47%. Today, we see the local bourse to react positively to the recent developments in Europe (i.e. agreement of the EU lead-ers to help the region’s struggling banks). While there may be signs of progress, it only dissipates near-term uncertainty. We remain to be cautious as the devil may be in the details. Moving forward this week, Europe re-mains to be the biggest concern as investors will focus on the ECB policy meeting this Thursday. Consensus is that the ECB will slash its main refinanc-ing rate by 25bps to 0.75% and cut its deposit rate by 25bps to 0%. US eco-nomic data due this week include ISM manufacturing index, construction spending, factory orders, June car sales, ISM service sector, non-farm payrolls, unemployment rate, and unemployment benefits. In the Philippines, June Inflation reading is due out this Thursday.

PSEi Near-term Uncertainty