K1 Capital has estimated a mid-case valuation of $0.45/share for Elixir Energy Ltd (ASX:EXR) based on market trading metrics for its tight gas project in Queensland and CBM project in Mongolia, with further upside possible from the Gobi hydrogen project.
The company's shares are currently trading at $0.093.
Elixir’s ongoing Mongolian CBM (coal bed methane) results continue to be promising, with multiple areas demonstrating seam thickness, gas contents and gas composition potentially attractive for CBM development, according to K1 Capital.
The following is an extract from K1 Capital’s research report:
Overview
Elixir offers exposure to large scale unconventional gas appraisal in Queensland (tight gas) and Mongolia (CBM), combined with potential green hydrogen production to supply China from high quality Mongolian wind and solar resources (Gobi H2 project). Near term activity is focused on the October spudding of the Daydream-2 well in Queensland to build on the existing 395 bcf of contingent resources and demonstrate commercial potential in gas-short eastern Australia. We estimate a mid-case valuation of $0.45/share based on market trading metrics for CBM and tight gas resource projects, with further upside possible from the Gobi H2 project.
Key points
Queensland gas resource increase: Daydream-2 has a high chance of increasing the existing 395 bcf 2C contingent resources contained in tight gas sands, as well as converting the 1,200 bcf of prospective resources expected in adjacent fractured coal seams, providing future supply into energy short eastern Australia. Initial results should be known before year end, with flow tests and resource updates in 1H 2024.
Large scale gas prospective resource close to China: Elixir holds 100% of the Nomgon IX CBM production sharing contract (PSC), covering ~30,000 km2 ~400 km from China. The risked independent mid-case estimate of 14.6 Tcf recoverable gas can meet both domestic and export needs and is large enough to attract the interest of Chinese majors. The Nomgon pilot has delivered at flowrates of 200 kscf, encouraging for commercial potential.
High quality green hydrogen potential: The quality of renewable energy resources and proximity to market are the main drivers of green hydrogen competitiveness: on both fronts work undertaken indicatesthat Gobi H2 has world class potential. A June 2022 MOU and February 2023 JV term sheet with Japan’s Softbank Energy Corp, owners of the nearby 50 MW Tsetsii windfarm, now rests with Toyota Tsusho following SBE’s acquisition.
Likelihood of commercialization increasing: Ongoing Mongolian CBM results continue to be promising, with multiple areas demonstrating seam thickness, gas contents and gas composition potentially attractive for CBM development. Repeatability through further drilling and demonstration of well deliverability through pilot testing will continue to derisk a potential multi-tcf resource.
Funding: We expect Elixir will fund the cost of drilling, completing and stimulating the Daydream-2 well from existing cash reserves ($11m on 31st March 2023), fresh equity and loans secured against Federal Government R&D tax concessions (which will cover 43.5% of the well costs).
Price catalysts: (1) Daydream-2 well results (wireline logs Q4 2023, stimulation and flow testing H1 2024); (2) Mongolian CBM exploration results in further sub-basins: coal thickness, gas content, well repeatability (ongoing); (3) Nomgon area extensional drilling and pilot program results; (4) contingent resource upgrades in Australia and Mongolia (2024); (5) Toyota Tsusho progress to joint venture for Gobi H2 (FY24).