There are a few ways of looking at how this affects the valuation of AMU.
Very simplistically the A$7.15 million is worth about 5.9 cents for each fully paid currently on issue (or 4.76 cents fully diluted to take account of the AMUOBs on issue).
But the main value adding worth is as a result of it effectively eliminating the discount formerly attached to the valuation of the biodiesel business.
The Shaw Stockbroker report on the AMU site suggested that if the biodiesel project got up, then a valuation on AMU of around 65 to 75 cents was warranted. For a number of reasons that valuation should be viewed as conservative.
The reasons for this are that since then: 1. AMU has had a couple of successful oil wells on Red Creek. 2. A successful gas well that is saving around US$18,000 of gas purchases a month. 3 And the latest 2 successful gas wells on the Halletsville South prospect - of 2 drilled - for which production testing is underway.
If flow rates are around the 2-2.5 MMscf a day that was flagged as possible in AMUs announcement, each of those wells could well deliver A$1million profit over the next 12 months, and deliver for years and years to come. Do your own net present values of that (and of whatever success comes from the next 8-13 wells they have flagged for the H. South prospect) and however you look at it, it is worth a lot.
On top of this, there are two other reasons why the earlier Shaw valuation should be viewed as conservative. The first is that oil and gas prices facing AMU are significantly higher than those assumed in the valuation - and highly likely to stay that way, gas especially, for a while. These higher prices will drop straight to the bottom line and must result in a higher valuation.
The second is that the Shaw valuation assumed a 40,000,000 litre per annum plant. But the capital grant of A$7.15 million (based on 16 cents a litre of annual production) tells us that the biodiesel plant will actually be producing 44.6 million litres per annum. A little over 10% more. This should rack up the valuation commensurately.
All up the 65-75 cent valuation looks a bit skinny to me. My own valuations - taking into account likely future profits from oil/gas and biodiesel and asset backing - are closer to A$1.00+. (I have posted on AMUs likely valuations before so wont go into the details again).
AMU is only just starting to show some of the production and profit potential it will deliver in the very near future. However, as I hold them I am biased, so do your own research.
AMU Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
