Comment & Recommendation
Today’s RNS from Horse Hill is a significant event for Alba and could reverse the recent share price decline experienced in the last few weeks, that appears to be in response to fears about the outcome of the final well test approval.
The testing work programme seems very comprehensive in its scope and could subsequently trigger several high impact news-flow announcements over the coming months, as potential ‘declaration of commerciality’ events are revealed. The announcement suggested that the first declaration of commerciality could come from the Portland, with “late Summer 2018’ identified as a “realistic possibility”. With Portland production costs estimated at $20 to $25 p/b by the consortium management, and oil currently trading at around $75 p/b, the profits margins look extremely healthy. Investors may start to take a keener interest in Alba, given the prospect of oil production in 2019 and a re-assessment of the Horse-Hill licences following the tests.
To remind readers, Alba also has several potential company maker projects outside the oil and gas world, including its Greenland interests, most notably the ilmenite project at Thule Black Sands, which lies adjacent to a potential look-a-like deposit being advanced by Bluejay Mining. Another project worth highlighting is Clogau, where a development strategy to re-open the mine is being formulated that could lead to the production and sale of premium priced branded ‘Welsh’ gold.
We continue to rate Alba Mineral Resources as a ‘ Buy’, with a ‘Base Case’ price target of 5.0p. This is adjusted from our previous 6.0p price target, due to the share dilution impact from the March and May placings, that raised £1.55m in total. At the same time our risked valuation for Thule Black Sands has improved from $54.7m to $58.6m due to project de-risking, following the significant resource upgrade from Bluejay Mining’s project in April. Around 67% ($127m) of our total ($189m) risked valuation for Alba remains attributed to the Horse Hill licences. Indeed, our price target could be revised upwards upon successful well test results and subsequent resource/reserve estimate upgrades. Given today’s approval news at Horse Hill, with a funded project budget and strengthened balance sheet following recent placings, Alba is in a much stronger position than our last recommendation on 9 February, when the shares traded at 0.385p.