CLSA Adaro Energy - Partnering with BHP in Maruwai - BUY

Adaro Energy – Partnering with BHP in Maruwai - BUY. Please see comments by analyst Olie:
BHP teaming up with Adaro. BHP Billiton has just announced that it has entered into a binding agreements to create a joint venture for its Indonesian Coal Project with a subsidiary of Adaro Energy (ADRO IJ), which has agreed to acquire a 25% interest in the JV with BHP Billiton retaining 75% interests.

Sizeable metallurgical coal resources. This JV covers seven Coal Contracts of Work (CCoWs) located in East and Central Kalimantan in Indonesia, with estimated undeveloped metallurgical and thermal coal resources of 774m tonnes. Note that this will be the first metallurgical coal project in Indonesia.
Details are not yet available. We do not know, at the moment, on how much would Adaro have to pay for this 25% interest in the JV nor are there details on development costs and production scheduling.

This is overall positive for Adaro. The company would be the only coal company that has exposure to metallurgical coal. Adaro should be able to lend its experience in dealing with logistical issues in South and Central Kalimantan while helping the project also in dealing with the local governments and local people. This deal confirms the company strategic direction to acquire world class Greenfield deposit rather than operating mine. Adaro remains our preferred pick in the sector and retain our BUY rating.