@jakspara - hotcopper glitch not linking back to your post which...

@jakspara - hotcopper glitch not linking back to your post which said “Scott and the BOD aren’t that stupid. A 600mill deal would never get over the line considering the value we’ve unlocked, regardless of what the currently manipulated share price is trying to imply.”

A$600m is about right if it’s proven that we have good quality reservoir and achieve decent flow rates in the order of 20-30mmscf/d per development well.

Scott has endorsed the 1.3 TCF recoverable resource estimate that Wood Mackenzie put out. So I think until we hear otherwise this is what we have to use as a basis for valuation.

After Zim government back in we’ve got 70% of 1.3TCF = 0.91TCF net to IVZ.

The takeover value for an Australian asset is approx. A$1B per TCF. I think it’s fair to assume a 30% discount in Zimbabwe (for political risk, emerging industry, etc) which would value our recoverable resources at A$700m per TCF on a takeover scenario. That works out to A$637m market cap on takeover.

But…And this is the big BUT. This is on the basis of proving good quality reservoir that flows well. We’re not there yet.

So if we back-track to our current position I think this valuation stacks up and justifies our current share price.

I work on the basis that a takeover will be at up to double what the shares are trading at before the takeover offer is made. So that would put us at 50% of A$637m market cap = A$319m based on potential in-ground resources. But, again that would only be after a successful flow test.

Prior to that I think we need to use a risk of around 50% that we’re likely to get a really good flow test result. And I personally think that’s generous without any positive technical data from the company on reservoir quality in particular before the flow test.

So a 50% risked value brings the market cap down from A$319m to A$159m. Which coincidentally is 8.3c per share based on 1.9B shares on issue (fully diluted). That’s where we are now which makes sense based on this approach.

Take away the risk of poor quality reservoir and we’re instantly back up to 16c per share though. Scott could potentially do this now but isn’t for some reason so we now have to wait for the flow test.

But on the downside is the future capital raising strategy and potential for more dilution. I think we have to realistically work on an average $10m spend per quarter this year (similar to last year with similar activities) which means we need another A$20m. If we follow Scott’s proven model and do this with 1 for 2 options at say 7c this means we’ll have 2.3B shares on issue fully diluted before the flow test results.

So A$159m current market cap becomes 7c per share (and this aligns with the capital raise price). Then on a successful flow test result we should hit 14c. And in an early takeover scenario we’re looking at 28c.

But if Mukuyu-2 doesn’t flow then we’re in real trouble. On the positive though, if recoverable resources increase above 1.3TCF then the numbers start looking a lot better.

My main concern (and I’m waiting to re-listen to the fireside chat to confirm) is that I think I heard Scott say that the reason the flow test design is so complicated is because they have “dozens of zones to test”. If this is the case then we’re talking about maybe 1m thick reservoir intervals interbedded with non-reservoir material. And if that’s the case then my confidence of a good flow rate is pretty low.

Happy to hear other thoughts on my valuation methodology but in my view it seems reasonable. Explains why we are where we are in my opinion.