Hughes Drilling Limited ("HDX")

[steve fleming]

THe coal market is pretty tough going at the moment. Prices and profits are substantially down, and this sentiment is likely to be impacting HDX (in addition to capital raising selling pressure).

However one thing to be aware of is that most arrangements between coal producers and rail and port and storage providers are subject to repressive 'take or pay' contracts. that is, producers pay for space even if they don;t use it.

As a result production volumes need to be maintained in order to avoid some pretty major penalties for not taking up their rail/storage/port commitments. Miners are often better off exporting coal at a loss to ensure that they have the cash flow available to meet the requirements of service providers.

This works hopefully in HDX's favour as it means that coal production volumes are maintained during low price points of the cycle.

[Joshuatree]

Thats a very important piece of info , thanks Steve. So Coal companies are winning twice with a consistent, reliable, quicker maintenance young Reichdrill fleet with less downturn costing less and crucially filling the wagons, they're locked into paying for.

[macduffy]

As expected, the market has come back to the SPP price of 32c, albeit no sales so far today.

There is provision for acceptance and payment via BPay so I'll leave a decision to a little closer to closing date of 17 April.

[NZSilver]

Just deciding where to put some money I have saved up, seems like a lot of shares are fairly valued to over valued. I wasn't going to undertake in the spp, however after my research, it looks like its one of the most undervalued shares on the market. So I'm in.

[cloggs]

Can anyone tell me - Is there an advantage to buying via the SPP when the price is tha same on the market. Want to get some more at this price, but if I can buy it on market for the same price It'll save me the bother of filling in the forms etc.

[macduffy]

There's a saving in brokerage - none via the SPP.

Note though that there is a possibility that the SPP applications could be scaled back. No target amount is specified to be raised but there is a mention that directors may not participate to allow " a greater allocation to shareholders".

[cloggs]

Discovered billpay. Nice. Very convenient.

[macduffy]

Discovered billpay. Nice. Very convenient.

Yes, takes care of those nasty mailing delays too!

The research report from Baillieu Holst that the company sent shareholders recently made interesting reading. As corporate advisers to HDX they have "restricted" their recommendation, as per normal. ie they don't make one!
They do, however, provide a valuation, or rather, several - a DCF based valuation of 73c; a valuation based on a FY14 EBITDA multiple of 3.5x of 47c; and a "blended" (50/50) valuation of 60c. Whichever way they look at it, the SPP at 32c looks worth taking up. I've done so.

[macduffy]

Thanks, KW.
I wonder how long it takes for lower prices and/or production to impact HDX' contracts? Commercially sensitive, of course, but presumably there is some mechanism to "adjust" costs to the mine owner? At the very least, it gives them a big card to play at contract renewal time!

[percy]

This is why I remain skeptical of HDX - I cannot for the life of me see how one company can be doing so well when the rest of the industry is falling over. I'd be very cautious as to their future prospects - especially with so many contracts due for renewal in the next 12 months.

http://www.theage.com.au/business/mi...417-2hzaz.html

Looks as though HDX will have no trouble getting experienced drilling staff.!! lol.