The litigation for a claim of A$3.5 billion initiated by Perdaman Chemicals against Griffin Coal, Lanco Group and its officers, in the Supreme Court of Western Australia, is now at an end.

Lanco has agreed to pay Perdaman A$7.5 million plus legal costs to be taxed by the court, without admission of any of the allegations of Perdaman ? the settlement was reached pursuant to the rules of Supreme Court of Western Australia, which allows for early and cost-effective resolution of such claims.

Lanco has maintained that Perdaman?s action was baseless and without any merit. The purpose behind this nominal offer was to put an end to this litigation and move forward with the mine expansion plans and enhancement of export facilities at the Bunbury port.

We believe the settlement of this protracted litigation with Perdaman removes a major overhang on the business prospects of Griffin Coal and significant ?damages?, which might have arisen from the lawsuit in case of an adverse judgment. Post a discussion with the management, we understand that the total outgo linked to the settlement would likely be A$10-11 million and the case is

expected to be concluded within the current quarter.

As litigation-linked encumbrances relating to cash flows/borrowings cease, Lanco?s management would be in a better position to raise the ~A$1-billion funding required for the proposed capex to expand Griffin?s production from ~4mtpa in FY14 to 15mtpa in the next five years (until capacity is expanded, Griffin would continue to burn cash and require financial support from the parent, in our view).

We believe prospective strategic investors would now be open to examine Griffin as an

investment avenue.

Our earnings and cash flow estimates for Lanco

remain under review (currently, we do not assign any value to Griffin in target price). We maintain there have been positive developments for the stock in the past four months, but not enough to offset the liquidity risk faced by the parent entity; equity infusion remains critical for sustainability and execution of its project pipeline, we think.

On Friday?s closing price (R10.5/share), the stock trades at 0.6x P/B on Bloomberg consensus forecast for both FY13 and FY14.