remember this--price target .91c

Investment Research

MARTIN PLACE SECURITIES
PTY LIMITED
KEY POINTS
�� Granted permits covering 3,921km2 in France and Italy. A further
4,268km2 under application. Each area highly prospective for CBM.
�� Attributable high confidence gas-in-place resource of 743BCF.
�� Nearby substantial pipeline infrastructure and a large advanced
market to facilitate development of EPG’s permits.
�� Appraised value of A$133m or A$0.91ps fully diluted.
�� Growing gas demand from European Union members to support
higher gas prices in the foreseeable future.
�� Gas prices in Europe are currently £5.90 per MCF (or A$13.95)
versus A$2.00 to A$3.00 per MCF in Australia.
EPG aims to become a major Coal Bed Methane producer from its highly
prospective hydrocarbon permits in France and Italy. The Company has
changed its strategic focus from the Canning Basin of Western Australia to the
much more attractive European natural gas market.
Bleue Lorraine Project, France (EPG earning 75%): Attributable gas-in-place
resource of 743BCF for an in-situ value of A$8.9billion using gas prices of
£5.0/MCF and forex of 0.42. Current resource covers 68km2 or 15% of the
permit of 460km2 and comprises the Alsting and Saint Avold areas, where net
coal averages 35m from depths between 500 to 1500m. Core drilling is planned
for the JQ06 with a pilot production program scheduled for 2H06.
Other European Projects: 7,729km2 acreage holding comprising 6 granted
permits and 3 under application licences in France and Italy. Several licences
cover the entirety of historic coal mining regions and potential exists for both
coal bed methane (CBM) and coal mine methane (CMM).
Australian Portfolio: Comprises 30,000km2 in exploration permits, two
production licenses, rights over the Kolascai oil solidification process and some
petroleum infrastructure. TSX-listed Golden Dynasty Resources to acquire up to
80% of EPG’s subsidiary Terratek by spending A$3.5m over the next 24 months
in a JV. EPG is in process of divesting or reducing its exposure to all other
Australian exploration assets.
Natural Gas Market: Growing concerns towards energy supply security and
Europe’s increasing dependence on Russian natural gas generates good
opportunity for smaller players to supply local markets, particularly from gassy
coal seams within large historic mining areas.
Risks & Valuation: Major risks for project success include exploration, CBM
properties, water disposal and commercial development. Further analysis,
including gas content determination, core drilling and well testing, is required to
properly map the reservoir, start pilot production and determine the percentage
of the Lorraine resource that can be commercially recovered.
Valuation: Considering the likelihood of EPG achieving its exploration and
development goals, MPS Research has valued the Company at A$133m or
A$0.91ps fully diluted. This valuation considers the recovery of only 20% of
EPG’s GIP estimate and does not incorporate any value for all the other
CBM/CMM projects in Europe.
Capitalised at A$46m or 0.5% of its share of the GIP resources, EPG has
an attractive portfolio of growth assets where, despite the recent share
price re-rating, there still scope for significant capital appreciation.
Mario Maia
Research Analyst
[email protected]
Monday, 13 February 2006
VALUATION
Initial Coverage Spec Buy
Stock Price A$0.325
Valuation Price A$0.91
12-Month Price Target A$0.91
Liquidity Risk High
Market Risk High
Exploration Risk High
Development Risk Medium - High
Commodity Price Risk Medium
Source: MPS Research
CAPITAL STRUCTURE
ASX Code EPG
Share price A$0.325
Market cap.1 A$45.53m
Issued ordinary shares 140.00m
Unquoted options2 6.65m
6-mth low-high 0.045– 0.42
12-mth volume 161.7m
1Undiluted. Source: Iress
2Various expiry dates and strike prices (7.5 to 20cps).
DIRECTORS
Executive Director Anthony J McClure
Executive Director Alan J Flavelle
Non Exec Director Terence V Willsteed
Source: EPG
MAJOR SHAREHOLDERS
Nefco Nominees Pty Ltd 11.9%
Westpac Custodian Nominees 4.8%
ANZ Nominees Limited 3.3%
Top 20 shareholders 39.0%
Source: EPG
REGISTERED OFFICE
Suite 12b 573 Canning Highway
Alfred Cove, WA 6154
Telephone:
Facsimile:
Email:
Website:
+61 (0)8 9330 9121
+61 (0)8 9330 8896
[email protected]
www.europeangas.com.au
Source: EPG
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Source: Iress
AFSL 247404
CBM explorer & developer in Western Europe.
European Gas Limited (EPG)