broker report

From Intersuisse today. Note "conservative valuation" at $1.45 and total absence of takeover talk.



Hardman Resources (HDR)
December Quarter Production Update
Accumulate
$1.18

Mauritania remains the key
In the Dec 03q the Woodada Gas Field (HDR 75%) produced 354,430GJ (397,154GJ) of gas and 269bbls (372bbls) of condensate. The average daily production of natural gas was 3,852GJ, down 10% from 4,273GJ in the previous quarter. HDRs share of gross revenue from gas and condensate sales for the quarter was unchanged from the previous quarter at A$1.20m. In addition, HDRs 22.376% share of production from the Jingemia-1 well was 13,235bbls or 378bopd (11,700bbls or 325bopd), generating a further A$0.42 (A$0.47m) of revenue.
In Mauritania, HDR has purchased its pro-rata entitlement share of ENI-Agips 35% interest in PSCs Area A and Area B, increasing its equity to from 24.3% to 37.38% and from 21.6% to 33.23% respectively. The cost was US$33m in cash.

Impact
Mauritania has delivered several potentially company-making oil and gas discoveries to HDR. The Chinguetti discovery has been declared commercial and Tiof is likely to follow.
Chinguetti could launch HDR from a modest, Perth Basin producer to a company with equity production approximating 25,000bopd and annualized earnings in the vicinity of A$100m in the early years.
We currently derive a conservative valuation for HDR of $1.45/share, although this could increase substantially as production draws nearer, reserves increase and new discoveries are made.
As stated before, HDR is not without risks. In particular, with the vast majority of the current valuation derived from Mauritanian interests, sovereign risk is a concern. In addition, the current market cap is reflecting production expectations which are still a number of years off and funding risk is implicit.
However, we see a substantial shift in the HDR shareholder base taking place, with increased institutional investor interest now that Mauritanian production is a likelihood. With a drilling hiatus until H2 2004, we recommend HDR as an ACCUMULATE on any weakness.