Speculation: Likely(?) 4x+ Upside: Australian Junior Natural Gas E&P - Catalysts Within 6 Months
Maybe not as speculative as it first appears: multiple assets, significant 2C contingent resources already booked, management hints at deals in fall-winter 2024, good infrastructure access
…and yes, I suck at titles.
Introduction
Let’s be clear upfront: This is a junior company in Australia scouting for natural gas in coal seams. Coal Seam Gas (or Coal Bed Methane) is an unconventional natural gas resource, but commonly used in Australia. Currently, they have no revenues. However, the company has already booked a sizable 2C contingent resource and is working on increasing it. Repeatedly, the company stated explicitly that they seek “partners” for their assets, i.e. a deal of some sort (sale, farm-in/-out, JV). And they also repeatedly mentioned the back half of this year for that.
The company’s Australian operations are near the necessary infrastructure. Further, the Australian gas market is tight. Without investments in natural gas production, the Australian regulator predicts supply will not be able to meet the demand in the coming years. That situation should support natural gas prices and enhance the value of the company’s assets when (if?) a deal is struck. The directors hold close to 6% of the shares. Based on simple assumptions, my DCF with a discount rate of 15% values the company at 4x the current market capitalization - with only the current contingent resources producing and only assuming half the natural gas price of what currently is observed (which effectively disregards the regulator’s predicted gas market imbalance).
Additionally, the company has assets in another jurisdiction for which catalysts are lined up, too. I treat these assets as a safety line should the Australian asset’s catalysts not work out as I believe they will.
TL;DR
Just some of the catalysts need to play out for a sizable multi-bagger return from the company’s already booked contingent resources in Australia alone. Over the next weeks and months, we should learn if they are able to increase the potential upside even more.
The company is: