Prairie Mining (ASX:PDZ) reported an administrative court in Warsaw has rejected the complaints made by Bogdanka about the exploration concessions on the tenements owned by Prairie Mining. Bogdanka said it should have been awarded the mining concession, but the Warsaw court has now confirmed both the company and the Polish Ministry of Environment have done everything right and there’s absolutely no reason why Prairie’s concessions would be invalid.
It gets even better, as the judge specifically said that granting Bogdanka the mining license would be ‘a serious violation of Poland’s mining law’ and would even violate the Polish constitution. Bogdanka did not and does not have any legal basis to claim the mining concessions whatsoever.
Bogdanka obviously wanted to secure the mining rights to the Lublin coal deposit to increase its reserves and to extend its mine life, and the company’s previous CEO publicly said Bogdanka would be able to generate substantial efficiency gains by blending Bogdanka’s coal with the high quality coal from Prairie’s 391 seam.
As the court has now confirmed Prairie’s licenses are valid, the only way out for Bogdanka seems to be acquiring Prairie Mining. And the cheaper Prairie Mining becomes, the more likely this scenario is. Despite posting a net loss of 280M zloty, Bogdanka was free cash flow positive in 2015, as the net loss was caused by a substantial (non-cash) impairment charge.
In fact, Bogdanka’s operating cash flow increased to 716M PLN, and as the total capex decreased compared to FY 2014, Bogdanka generated a positive free cash flow of 279M PLN, which is approximately A$95M (or almost 5 times Prairie’s market capitalization).
So, there’s nothing stopping Bogdanka from buying out Prairie Mining and capturing the synergy benefits associated with operating a consolidated mine (with access to Prairie’s zones from Bogdanka’s existing shafts) and the net benefit from blending the two coal types.
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The author has no position in Prairie Mining but will initiate one soon. Please read the disclaimer
