“Radioactive” Stock: Tiny Aussie Company Sitting on Multi...

“Radioactive” Stock: Tiny Aussie Company Sitting on Multi Billion Dollar Cash Source
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Your second tip this month is an extension of the
energy theme I have pursued in the Australian Small
Cap Investigator. But this one is different.
In some ways it’s a lot riskier than some of the stocks
in the portfolio that are developing ‘alternative’
energy.
However, this tiny small cap has big potential.
Because, with a $16 million market capitalization, as
energy plays go, this one is at the ‘really risky’ end
of the risky scale.
The reason this stock makes the grade is that I like
the idea of introducing you to a tiny explorer that
could either hit the big time or bite the dust. To
be honest with you, this stock is so risky that if we
didn’t have a Radioactive section to the newsletter I
probably wouldn’t even profile it, let alone tip it.
This one’s more than a tip – it’s a punt, a bet and a
gamble all rolled into one.
But despite the risk, I believe there is a real chance
this tiny gas explorer could hit the big time.
And it could happen even sooner than I think…
The company is Eastern Corporation Ltd [ASX:
ECU]. Let me give you my thinking on this…
I’ve been following this stock since December last
year. Eastern Corp is another Queensland based
gas explorer. It specialises in one of the hottest
topics in energy, coal seam gas (CSG). Eastern Corp
holds a 68% ownership in the Galilee Energy project
located in central Queensland.
It’s the light blue area in the middle of the map at
the bottom left of this page.
You may have heard of the Bowen Basin and Surat
Basin coal, oil and gas fields in Queensland. But
you may not have heard about the Galilee Basin.
Well, it’s next to the gas rich Bowen Basin. And it is
just several hundred kilometres from the area that
Linc Energy had explored so successfully with the
Emerald ‘Teresa’ coal tenement.
The reason this is a gamble is Eastern are still at the
early stages of developing the project. But that
hasn’t stopped Australia’s leading energy provider,
AGL, from a commitment to invest $37 million in
Eastern’s CSG project at Rodney Creek.
This is a project that consultants JR Holland &
Associates have reported as having a 97% methane
content and a Gas in Place estimate of more than
20 trillion cubic feet. Just to put that in context, the
Gorgon Project operated by Chevron is estimated
to have a resource of 40 trillion cubic feet.
Bottom line: If this project reaches its potential we
are potentially looking at a very big return. How
big? Remember, this is still early days for Eastern
and a lot can happen.
But let’s draw on some real numbers that have been
used elsewhere in the industry. When BG Group
attempted to takeover Origin Energy it valued the
reserves at about 60 cents per gigajoule. But that
was trumped when ConocoPhillips offered Origin
the equivalent of $1.88 per gigajoule for a
joint venture stake.
Eastern’s 20tcf of Gas in Place equates to 20
billion gigajoules. That would put a potential
value on the entire asset of $12 billion if we
took the lower 60 cent per gigajoule figure.
And the impact on the share price? Well,
after BG Group switched its attention to
QGC, the share price of QGC doubled. But
it had much of the upside built in already.
Three years ago and QGC was trading at a
similar price to where Eastern Corporation is now.
A similar price move by Eastern could potentially
result in a 1500% increase. Imagine that!
That would put the share price at $3.52.
But that’s the difference between the two projects.
Eastern’s project could end up nothing more than abig hole in the ground. Yet, providing the company
can stay on track and continue to invest with the
help of joint venture partners AGL, this is one
company that you could end up either losing your
shirt, or gaining a wardrobe.
Action to take: Speculative Buy Eastern
Corporation Ltd [ASX: ECU], recent price $0.22.