General chit chat thread., page-1551

Who remembers this great post ....


Why is EXR going to make me a millionaire? Because I have and you can't buy my shares (now stop asking for the DD, here it is)


DD
When I posted my paper gains of 40K to 160K (now up to 177K btw) the other week I got a lot of really nice replies from this community of people wanting to know more about the stocks I have remained invested in and so I wanted to put some effort into helping others in return, so I tried to reply to everyone.
But there were a lot of people who messaged me privately asking for DD on EXR specifically because it is a bit under the radar. If I was going to this much f*ing typing for any one of you, I thought I might as well share it publically with everyone. None of the below is meant to represent financial advice, smooth-brains. I just like the stock.
If I simplify things in places it is to make this easier to read and understand. I am happy to discuss any nuances or different interpretations with you in the comments if anything is unclear and I have linked to the source research that I felt was sufficient for me to make my investment decision based on.
I have always found that good stocks hold up strongly to genuine contrarian opinions, so I am looking forward to hearing what you think pro or con
My investment selection strategy involves three important factors which are opportunity, management and results. I would also add that time frames and risks are the next things that need to be understood and planned for but I'll expand on those below.
Opportunity
EXR is a coal seam gas (CSG) explorer in southern Mongolia near the Chinese border, where they have negotiated a huge production sharing contract (PSC) with the government there that lets them explore and produce methane from coal beds, in exchange for sharing some revenue from it, which provides an incentive for both parties to make sure that it succeeds.
Their stated (and well-underway) goal is to drill, lab test and progressively prove the quantity and recoverability of the methane gas within the 30,000 sqkm area they have secured. Their plan is to eventually sell the entire company to the highest bidder a few years down the line (likely 3-7 years) who will really scale up mass production and run the thing for the next 30 years (think Gazprom, Shell, or China).
That part is important when people bring up all the risks involved in getting it out of the ground, building pipelines, securing suppliers, etc.
To achieve their primary objective of selling the company for as much as possible, they don't need to get that much out of the ground to prove how much total gas is recoverable there. They just need to drill a lot of holes and a few wells.
Richard Cottee has already cracked this exact strategy before with QGC, and has joined the team because of the "eye-watering" potential but more on him later.
China is right there across the border and is the largest gas consumer in the world.
Gas demand is soaring and prices are rising. Gas is a MUCH cleaner and direct swap-in replacement for burning coal, and it is known as a transition fuel.
Transition fuels like gas will be critical to help STOP burning coal immediately (which we do even here in AU in huge quantities) and gradually make the change to full renewables across the globe. It will take 30-50 years to fully happen, at a minimum. Especially in the poorest areas and the largest industrial economies like China. Gas demand is only going up in the mid to long term.
The beauty of CSG, especially in a developing country like Mongolia is that you can do exploration drilling VERY cheaply. You never dig the coal up like a coal mine, you just drill shallow holes in it and get lab data.
That means anyone local can do the drill, grab the samples and email the results to the world's top experts back home to do the analysis part including well design & construction planning.
This has largely protected them from the worst of the COVID-19 issues (though only in hindsight - it did not stop their share price tanking on fear in March 2020 where I was -50% in the red but I held strong all the way because the strategy had not changed).
They have already struct a major (~14TCF) discovery at the Nomgrom sub-basin but have a HUGE amount more land to potentially unlock even bigger or similar results. In 2021 alone they have 13 wells to drill, fully funded, and a pilot production well to prove how easily they can extract the gas. This 14TCF amount of gas alone has been calculated at over 3.3 billion worth IN THE GROUND by some of the models I've read.
If you want to know how these numbers can be calculated, there is some incredibly detailed professional research summarised on this page on hotcopper some guy made to summarise info for the Reddit autists after I made my last post (if you REALLY want the full models done by a professional oil and gas planner in his spare time scroll down to the links that start with "EXR OilGasPlanning_Model_Pages..").
And of course, the company website has a good section on the PSC and what they have already found (note there is a bit that is out of date right now, the most recent assessment was upgraded to 14tcf from 7tcf)
Management
Ok, so there is an opportunity here to make some f*ing big money.
Do they have what it takes to pull it off?
LOOK at the pedigree here on their board of directors these are not fluffy bullshit aspirational profiles that you see from unproven startups, these are the factual histories of winners who have gotten up and pissed excellence in the world of coal seam gas every day for 20+ years.
Richard Cottee is known as the "godfather" of coal seam gas, he knows exactly how to run this play for maximum effect.
Mr Cottee was the Managing Director of coal seam gas (CSG) focused Queensland Gas Company (QGC) during its growth from a $20 million market capitalization junior explorer through to its acquisition by BG Group for $5.7 billion.
Are you paying attention? That's $0.20 to $6 folks. EXR is $0.22 today.
EXR has potentially just as much if not more gas in the ground than QGC. RC knows how to progressively scale a company from nothing to a massive takeover and the experience to do it better this time.
With a potentially much MORE gas-rich plot of land.
Right next to the main consumer of the project. This proximity makes EXR's profit margins are way better compared to existing gas suppliers because it costs a f*load to liquefy and ship LNG from QLD to China.
Ok so what about sovereign risk? Mongolia is far away and I'm scared of developing countries that speak a different language
Neil Young has spent since 2011 in Mongolia (then part of Golden Horde which EXR acquired in 2018) building relationships, gaining trust, signing agreements and getting this PSC up and running with some initial drills. He has a professional local management team in-country who are pros at what they do and understand the local operating conditions.
Neil is also the guy that runs the day to day, manages investors and presentations. He's a no-nonsense Scottish bloke whose experience comes through very strongly in the quality of announcements, interviews and presentations that he gives.
Why so confident they will keep finding more gas?
Because this wizard Stephen Kelemen, their technical director.
Stephen led Santos’ coal seam gas (CSG) team from its inception in 2004 and drove the growth in this area that allowed Santos to become one of Australia’s leading CSG companies. An engineering graduate from Adelaide University, Stephen served Santos for 38 years in multiple technical and leadership roles.
The guy who interprets the data is very, very good and has a VERY good track record of being able to identify great drilling targets. And he has a f*LOAD of historically coal rich land to work through.
How is a junior Aussie explorer going to convince a Gazprom or similar to just buy them out for billions of dollars?
Their newest director Anna Sloboda is a joint Belarussian/Australian citizen who has 20 years of experience managing commercial transactions in the oil/gas sector in regions like Russia and China and truly understands how to forge and build long term relationships that are required for a large transaction like that.
It will take years to finish all the drilling, but the current results in Nomgon are soo good that they have bought her onboard to start that relationship building and get EXR ready for a sale, once the maximum shareholder value is reached in the following years.
If they can sustain even a fraction of the current progress, they will be fending off takeover offers the whole way through the next few years creating a bidding war for their gas.
Results
The very first one flaked (they can't all be winners) but since then almost every drill has been bigger and more successful than the last. We're talking some real record holders here, 71 net metres of coal, gassy as f*, permeable. This means it has gas, high quality, lots of it, and it's likely extracted relatively.
Nomgon-1 (NOM NOM NOM haha) was the event that caused me to start paying attention and invest, back in early 2020. The amount of buzz around that announcement was massive, the results outstanding and for them to be able to keep repeating similar results through Nomgom-2 and now the more recent drills show that they know how to identify rich gas areas from their seismic data and manage the process of getting drills and labs done quickly and cheaply.
The result of the Nomgom drills have already provided the basis for an independently assessed prospective resource estimating the most likely (not high or low), fully risked amount of gas to be ~14TCF in their first explored sub-basin alone. After working out all the costs and risks at a buy out price there are models that show a valuation of over 3.3bn.
They have MANY of these sub-basins that are just as attractive.
They currently have a market cap of $162M. Anything under 1 billion is insanely cheap by the time they finish drilling and exploring the rest of this incredibly rich and gassy coal-bearing land. My personal belief is that this could be a 5-10 billion dollar buyout eventually if things progress at the current success rate.
Time-frames
I'm still rock hard with confidence, letting more money than I have ever had in my life ride on EXR because I know I will regret selling any of these shares before the takeover event that is almost certain in the future (remember they have already found AMAZING gassy and deep as f* coals, better than QGC even, so they will not ever go to $0 like a failed tech company might).
I am not selling a single share this year at least and more likely will try to hold all the way to the full takeover.
But if you can't wait 3+ years, here are the time frames that matter.
Short term people are waking up to the stock, sellers are drying up and it's building a new base of support over 0.20c. I think the days of buying below 20C are over. Look at weekly VWAP instead of daily close prices and you get a better idea of the true price people have been paying on average recently. There is a momentum trading opportunity here for EXR, but I think you will regret it if you day trade EXR and miss out on the full flow of announcements this year.
Near term the contingent resource report is the big one. This is where we get independently from a "maybe" estimate of the resources to a "probably" estimate. Since our last updated prospective report, we have had several good drills and more positive lab results. This bodes extremely well for the contingent report to improve based on both less risk and more identified gas resources. This will have a material impact on the share price, it's a big milestone for the exploration life cycle. I would not sell before this news event, it's unlikely to be bad. Price target over $0.40 (K1 capital already valued them over this target last year, before the latest good results).
Mid-term constant flow through the year as they do drill after drill. Some will be bad, some will be good. Stay focused on the end game, don't sell-off on one drill not hitting a great result. This will be a slow and steady rise as long as they even get 50% as good results as the past.
The big news event would be their pilot well where they do flow testing. This means they have to design and build a well that can suck out a decent amount of gas, work out the geology for that tiny region (CSG has MANY wells at scale 1-2km apart) and get it flowing. Flow testing is required to get the next upgrade from the contingent resource to a booked resource, which is where they would actually be able to find someone willing to straight-up buy the license for production.
If they achieve this pilot well successfully by the end of this year (which is their announced plan) this will be their catalyst to break through $1 and they are a realistic target for take-over from then on.
Long-term what will actually happen is that RC, the "godfather" of CSG will apply the same strategy he used in QGC and start selling gas right away to local power and transport companies to generate revenue. I mean, look at the f*ing line of trucks in this photo from the news article https://finfeed.com/small-caps/ener...cale-lng-plant-its-first-gas-offtake-project/
They will re-invest this revenue into more drills, more wells and more pilot production. This will take time to execute but it will be "relentless" results and news flow in 2021 from the team according to their latest ASX price-aware query & response (this is the same price query that ASX_Bets potentially caused the day after my sick gains post last time). The price target for a takeover is at least the same as QGC, maybe much more. $5-10 per share assuming no dilution in my personal opinion that is the figure it would take to make me sell early on-market. If we saw a crazy run on the stock as we saw with VUL that might happen sooner than expected.
So to give EXR time to maximise in value, we need to give them somewhere between 3-5 years to realistically cover this vast amount of land, explore it, drill it, ship gas, scale-up prove the value for a takeover. RC is very clear about this long term strategy and required patience in his interviews, although he uses some boomer analogies, like "you don't get born and run a marathon the next day" I respect his experience and perspective.
It will take TIME to achieve the results that are possible here.
But you do not make money without getting in early and taking on some of the risk.
Risks
Ok so let's talk risks.
1) Exploration or production failures
The main one that is real and the reason the share price is 0.22 instead of 2.22 is that they haven't finished drilling all their land and they haven't actually produced any gas yet.
They could have hit a freak pocket of perfect gas-bearing coals and never strike again. As a result, they might not hit these lofty price targets I have set and just go sideways into a much smaller valuation around the current MC.
Remember, they are not just drilling random holes, they are using seismic and other geological data to predict where the gassy coal would be.
The area they are drilling a few hundred meters underground was an incredibly dense rainforest during the Permian era millions of years ago, that is literally what coal is - it's carbon matter turned into rock and it releases f*load of methane. I'd like to say dinosaur farts but I'm not a geologist so cannot confirm.
It's highly likely that now that have the understanding of what below the ground looks like in this PSC they will do a much better job of interpreting the data they have and predicting where to put their next drills.
They are not just sitting back around Nomgom clinging onto their main find and trying to get bought out over that, they are instead forging ahead to new sub-basins that are "highly attractive" so they are confident they will find something worth the drilling time/money.
2) Sovereign risk
This one is bullshit and xenophobia based, but many people will try to scare you out of your shares by claiming this will be a problem. The Mongolian government part-owns the thing, Neil has spent almost a decade working closely with them, EXR invests heavily in local community relationships, donations and stuff and is a job creator.
Even if China blocked their gas from import they could still be valued in the billions just from selling gas to Mongolia domestically. Mongolia also needs it that badly, they have insanely bad air pollution from burning coal (because coal is so plentiful in Mongolia, WINK)
But you know what? China will not block any sale of gas from EXR because gas reserves are a NATIONAL STRATEGIC RESOURCE that they are currently suffering a massive shortage. China is more likely to buy EXR outright to take out the supply risk than they are to block the supply of gas.
3) Capital raising
EXR are fully funded for 2 years of operations and have a strategy around bootstrapping from small scale LNG sales, one that worked very well for QGC and preserved all of the shareholder value. It's the fact that EXR is unlikely to print a bunch of shares, have committed to NOT doing so for all of 2021 at the least, and the management team are MASSIVE HOLDERS that convinces me that my incentive as a holder and the management team is aligned. RC loves to talk about preserving shareholder value. This public commitment to preserving the current amount of shares on issue is WHAT MAKES STOCK PRICES GO UP AS PEOPLE FOMO!!
4) Gas prices go down
They've been down 5x from the all-time highs for ages, rock bottom since 2010, prices are almost certainly going to go up and could go as high as 5x from here. But EXR is already easily more profitable per given unit of gas produced compared to other countries because the drilling, labour and delivery costs are all WAY LOWER in Mongolia. This means they can suffer a huge drop in gas prices that would cause other producers to make a loss.
Let me know in the comments if you can think of some other risks, I'll be glad to be aware of them!
TL;DR: Least risky exploration play on the ASX with the biggest upside. Still cheap as f* if you can hold it and not touch it for at least a year to let them finish their 2021 schedule. Buy, hold, and forget - do not expect a pump because it is a real investment, not a meme stock.
Further reading
Check out their presentation from the end of last year
The EXR HotCopper thread is probably the least toxic on HC, please don't f* it up
The f*ing company website ok, they spent my shareholder money on updating it so at least read it please