Magnolia LNG, page-2

Thanks Motivated. Just what ferrets love ...

READY TO PULL THE TRIGGER ON MAGNOLIA

Liquefied Natural Gas Ltd (LNGL) is a developer of LNG liquefaction facilities and holds patent-protected technology that promises lower-cost, highly efficient LNG across many global markets. The company is finalizing offtake and awaiting a final DoE non-FTA export order to proceed before it can reach financial close at the Magnolia project. Binding EPC contracts mean that costs of development should be contained, while production (if sanctioned soon) could start up in 2022 as the global LNG markets tighten from the current glut. We believe uncertainty over the projects is a major reason behind the current share price, which has the
potential to re-rate strongly if and when the project(s) are sanctioned. Our current risked DCF approach values LNGL at A1.3$/share (US$3.9/ADR), but this could grow very materially.

LNG markets in surplus, rebalancing by 2021-23
Investment decisions for LNG developments need to look beyond the current surplus to the picture in 2021-23 when markets should tighten. New LNG supplies will need to be available and LNGL’s two projects and technology can, if sanctioned in next the 12 months, provide additional low-cost, low-risk supply. Only a limited number of other projects can be ready in this timeframe, according to the company.

Magnolia financial close/sanction expected in 2017
MLNG is a shovel-ready 8mtpa (or greater) project in Louisiana accessing the massive US natural gas network. It is awaiting the FERC Notice to Proceed (NTP), the finalization of offtake agreements for the final 6mtpa (it already has agreement for up to 2mtpa) and confirmation of project financing. These are major hurdles, but ones that we believe are achievable. The Bear Head project can provide an additional 12mtpa, which should be particularly attractive to European markets.

Valuation: Project sanction should drive re-rating
If/when MLNG starts up, it should produce material cash flows that could push the shares to levels approaching or exceeding A$5/share (US$15/ADR), based on DCF and peer multiples analysis. Our current valuation revolves around an estimation of the risks to project sanction, which the current share price implies are substantial. We risk our DCF-derived valuation to arrive at a current valuation estimate of A$1.3/share (US$3.9/ADR), but if milestones towards project sanction are reached, it could drive shares much higher. We note that a FERC NTP could be issued before year-end, enabling the company to more aggressively pursue the other milestones (financing, tolling agreements).

And on page 2 ...

We currently value LNGL at A$1.3/share (US$3.9/ADR), using a 60% risk to Magnolia, 20% to Bear Head and 0% to Fisherman’s Landing. Assuming just Magnolia starts up, this may increase to over A$3/share (US$9/ADR) once the projects start (on our DCF). Using P/E, EV/EBITDA and dividend yield metrics imply that Magnolia LNG could fuel a company valuation of up to A$4-5/share (US$12- 15/ADR) once cash flows start up. Adding Bear Head cash flows could move the valuation to A$10- 15/share (US$30-45/ADR).

http://www.edisoninvestmentresearch.com/?ACT=18&ID=17344&LANG=

Go LNG!