Analyst price target implies share price upside of 160% for Elixir
Analysts at K1 Capital recently ran the ruler across Elixir Energy Limited (ASX:EXR) after the company last week released an updated prospective resource for its 100% owned Nomgon IX CBM PSC project.
The independent reserve auditor ERCE Equipoise (ERCE) appraised the project following Elixir’s successful 2020 drilling campaign where seven CBM exploration and appraisal wells were drilled spanning a distance of 62 kilometres. Notably, all of the wells intersected coal.
An initial contingent resource estimate for the Nomgon sub-basin discovery area will be prepared and issued once all of the data from the appraisal drilling program has been compiled, modelled and analysed.
In the interim, a summary of the prospective resource range is outlined below:
It is important to note that the estimated quantities of petroleum that may be potentially recovered by the application of a future development project relate to undiscovered accumulations.
These estimates have both an associated risk of discovery and a risk of development.
However, taking into account these provisions, K1 Capital analyst John Young was impressed with the updated prospective resource, increasing his valuation from 27 cents per share to 29 cents per share, implying upside of 18 cents per share or 160% to the company’s current share price.
In part, Young said, ‘’The increase recognises greater gas in place and higher geological chance of success (30% vs. 19% prev.), based on recent drilling.
"Results from the two core holes indicate high gas content (8.6-8.9 m3/t DAF) and fully saturated coals, indicating good CBM potential.
"With cash at bank and in-the-money options due by end December, Elixir is funded to continue exploration and appraisal in 2021.’’
Analyst highlights catalysts in 2021
Another important issue that Young touched on was the fact that Elixir’s PSC covers approximately 30,000 square kilometres adjacent to the border with China, and with leaders openly stating that they are aiming to reduce emissions, the country could be a source of demand.
An initial contingent/discovered resource estimate for the Nomgon sub-basin should be established in 2021 following further analysis of drilling data.
Young said that independent confirmation of suitable CBM coals would reduce project risk and contingent volumes should increase with ongoing drilling.
He noted that gas content permeability and seam thickness results to date indicate the Nomgon project area is potentially attractive for CBM development.
With Elixir planning for a pilot test next year to determine well deliverability parameters it is easy to see that the company is shaping up as a news flow driven story.
Young sees the prospect of extensional drilling and an expansion of exploration drilling to other sub-basins as potential share price catalysts in the next 12 months.