elk valuation

IMO, it is quite obvious now that the company did not generate sufficient interest in our other assets to form any JVs or to attract any debt funding at this point in time. Understandable to a certain extent given the current economic climate and global uncertainty.

Whilst I agree that a capital raising at 19cents is disappointing, I feel that it is necessary and better than doing nothing until Grieve comes online. I suspect that if the company did nothing, the share price would most likely have drifted even lower over time.

Below is the valuation performed by Strachan Corporate on the 18 July 2011:

RISKED VALUATION
Grieve $ 0.35
Niobrara $ 0.15
Other $ 0.04
Cash (post issue) $ 0.06
Corporate -$ 0.04
TOTAL $ 0.57

UPSIDE VALUATION
Grieve $ 0 .44
Niobrara $ 0 .38
Other $ 0 .13
Cash $0 .06
Corporate -$ 0.04
TOTAL $ 0 .97

It is important to remember that even after the capital raising, ELK will have a market cap of only $29m. This means that the current share price doesn't even fully incorporate a risked valuation of Grieve ($37m net of corporate and cash) and definitely doesn't include any value whatsoever for our other assets. Based on this, at least the downside from here is limited IMO.

The upside on the otherhand is difficult to assess at the moment as we have not been given sufficient details on this so called 'high risk, high return' venture.

However, the small outlay required to obtain fresh core materials for Ash Creek could go a long way in unlocking some value if the results are positive so I suspect that this may/ should be the first step for the company. Preliminary results already appear positive and i'm hopeful that this may stir some renewed interest in the company. I'm a realist though so I don't expect that the impact on the share price will be a 'significant' one due to a lack of knowledge and understanding of EORs but it should be positive nonetheless.

Niobrara is another difficult one to assess as the results to date from other oil companies targeting the Niobrara have been patchy. The nearterm upside from here will most likely be dependent on any new successful drilling by companies in close proximity to ELK which could spur some speculative interest as has been the case at other shale plays like Marcellus, Eagle Ford and Bakken. IMO Niobrara is a high risk play and should be valued as such.

Good luck fellow holders and here's hoping the company uses the funds raised wisely and efficiently this time.