United Tractors (UNTR IJ) announces latest coal acquisition by Sarina Lesmina - CLSA

· ‪UNTR acquired 60% of PT Duta Sejahtera (DS) through a subsidiary TTA with US$11.5m. The acquisition also included an option to acquire 60% stake in another mine, Duta Nurcahya (DN).

· UT mentioned a total reserve of 25 to 100m tonnes of 6,000-6,300 kcal.

More details:

1) DS mine has reserve of close to 10m tonnes. Green field, although already obtained the permit to mine forest (ijin pinjam pakai hutan produksi). The US$11.5m is to buy 60% stake in DS, which works out to be US$1.9 per tonne reserve. This we think is still a reasonable pricing. UT gave a rough guidance of a max US$3 to 4 per tonne acquisition cost, based on past transactions.

2) DN is the bigger mine, hence UT gave a range of 25m to 100m tonnes reserve , depends on determination on the strip ratio. This deal opens oppt for UT to buy stake in DN, but of course, price is unknown at this moment.

3) This confirms our view that coal assets are hot items now, which enables seller to sell at piece meals. (Recent acquisition of Bukit Enim 100m tonnes reserve at 20% stake, asmin asset bought at 30% stake but UT is negotiating to buy another 30%). UT is aware of this and we believe the company will try not to overpay the assets. Rough ceiling from UT is US$3-4 per tonne based on past acquisition.

4) DS and DN are located next to each other, north of TTA about 40km. DN's license is under process. UT said there is already some production (small) coming out of DN.

5) Both mines belong to a local owner. Non-related party.