Good tidings from Jembayan mine. Straits Asia Resources Ltd (SAR)has delivered another positive update, hot on the heels of its announcementlast week regarding the finalization of its refinancing arrangement. Thistime, the company has upgraded its Jembayan mine's available resourcesto 254Mt (from 138Mt) as continued exploration work had bore fruit. This isthe second upgrade of Jembayan's resource since SAR acquired the minein Dec 07, and management is optimistic that further drilling efforts will leadto more resource upgrades. On top of this, SAR has also raised itsexploration target for in-situ coal at Jembayan to 600Mt - 700Mt, substantiallyhigher than the 200Mt it had originally targeted.

Long-term cheer but no near-term earnings impact. The resourcesupgrade puts SAR in the position to raise its reserves and production outputin the long run, boosting its future revenue stream. However in the nearterm, capacity constraints remain, and as such, our projection stays intact.Our combined production target from Jembayan and Sebuku remains at9Mt for FY09 - the lower end of management's guidance. Of this, 73% hasbeen fully priced at US$114/ton (+62% YoY), leaving only the residual 27%of its output exposed to price volatility.

Bridge loan repaid in full. SAR also announced that it has drawn downUS$250m from its recently secured US$300m loan facility to repay itsbridge loan in full. This leaves the group with an additional US$50m ofuntapped facilities which we expect will be kept as cash buffer until itearmarks the funds for expansion and development plans. Management isconfident of meeting its repayment obligations, given its robust anticipatedearnings and healthy operating cash flow in FY08 and FY09, buoyed bystrong order book visibility.

Bear-case assumptions factored in. Maintain BUY. We are leaving ourestimates unchanged. Our numbers have already accounted for bear-casescenarios including weaker output from Sebuku following delays in obtainingthe relevant permits, as well as lower selling prices in FY10 and beyond inlight of falling energy prices. The stock has experienced volatility in recentweeks, possibly triggered by liquidation among funds, and we suspect thatthis could persist in the near term. Nevertheless, fundamentals of thecompany remain intact. As such, we reiterate our BUY rating and S$1.35fair value estimate.