We are initiating coverage on Stanmore Resources (SMR) with a BUY recommendation and set a A$4.00 price target. The acquisition of South Walker Creek and Poitrel has significantly transformed the production profile, seeing a nearly 500% increase in saleable coal production (CY20 vs CY24). SMR has not merely purchased growth, but has debottlenecked operations and has seen an increase in production and efficiency under its stewardship. Production upside remains from the expansion of South Walker Creek and the ongoing strong performance from Isaac Plains. With contingent payments now complete, we expect strong free cash flow from SMR and forecast it to return to a net cash position in the near-term, allowing it to increase capital returns to shareholders. We are bullish on the medium-term price outlook for coking coal and note that SMR has significant leverage to coal prices.
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