City broker Dowgate Capital has slashed its forecasts for Alba Mineral Resources PLC (LON:ALBA), but still reckons the Horse Hill stakeholder is worth a whopping 30 times more than its current valuation.
Dowgate analyst Jason Robertson had previously slapped a 14.7p share price target on Alba’s head, but he’s now trimmed that to just 7p, which he expects it to hit by the end of next year.
To give you an idea of just how punchy that (reduced) figure is, the junior explorer's shares are currently changing hands for 0.22p.
Lower Horse Hill value
In his original ‘base case’ valuation, the analyst had estimated that Horse Hill – in which Alba has a 10% stake – was worth US$33.6mln to the company.
He’s now lowered this significantly, forecasting the ‘Gatwick Gusher’ – as Horse Hill is also known – to be worth around US$143.2mln to Alba.
“The reduced Horse Hill value is mostly due to a lower discovery value per oil barrel assumption, because of higher production costs estimates at US$21 per barrel (previously US$10 to US$20 p/b),” explained Robertson.
Brockham or Horse Hill?
Alba is the only listed company to have an interest in the Horse Hill and Brockham projects, both of which are located not too far from Gatwick Airport in a seemingly oil-rich part of the country.
In terms of regulatory approvals, Brockham is slightly ahead of Horse Hill, but Robertson thinks the latter has a much bigger potential.
“Despite Brockham’s production licence status and recent side-track well results, we value the Horse Hill licences at 2.7x that of Brockham on a peer-to-peer comparison due to the much larger size of Horse Hill’s licence acreage and production potential of the vast underlying oil rich Kimmeridge zone.”
What’s next at the Gatwick Gusher?
The next regulatory hurdle to be cleared at Horse Hill is to secure approval from Surrey County Council for long term production testing and further appraisal drilling, which Robertson thinks could happen within the next few weeks.
“This could be decided at a Council planning committee meeting in mid-July 2017, then leading to potential test operations starting in late 2017, once other approvals are secured, which are likely to be less onerous than the SCC decision.”
The analyst advises to keep an eye on the share price in the run-up to this planning decision, as he thinks shares have the potential to rally.
Slightly further down the line, and subject to the finance and approvals, Robertson reckons Production from both Kimmeridge and Portland pay zones at Horse Hill could commence at end of 2018.