Reconnaissance Energy (Africa) Ltd V.RECO

re: RECAF============TARGET$7

[kanemochi777]

ReconAfrica Ltd.

(RECO-V, RECAF-OTCQX, 0XD – Frankfurt)

SECTOR: Energy

STOCK PRICE RATING
TARGET PRICE ↑ Previous

$4.08 BUY $7.00 $4.00

COMPANY UPDATE

Second Catalyst Delivered in as Many Weeks; Increasing Target to $7.

OUR TAKE – POSITIVE: Sunday evening, ReconAfrica issued an operations update in which the Company confirmed it has contracted Polaris Natural Resources Inc. to execute 450 sq km of 2D seismic in NE Namibia. Polaris is a Canadian seismic company with more than 1,000 projects completed since 1996. The Company’s patented Polaris Explorer 860 has been used repeatability since January 2004. The total cost of the program is anticipated to cost ~$2 MM and will tie in with RECO’s current fully funded three exploration well program along with future wells to develop a better interpretation of the formations and help reduce exploration risk going forward.

KEY HIGHLIGHTS

•  450 sq km of 2D seismic acquisition underway. RECO has engaged the services of Polaris

  Natural Resources Inc. to complete 450 sq km 2D seismic survey in NE Namibia. The proposed seismic survey will be conducted along existing right of ways as to minimize the impact to the environment. Currently in the Environmental Impact Assessment stage, results of the program should be available in early Summer.

•  All the ingredients to establish and exploit the potential of the Kavango Basin. In our view, the Company has all the ingredients to establish the presence of an active petroleum system in the Kavango Basin. These include 1) a fully funded three well program; 2) high working interest in acreage across a vast previously undiscovered basin; 3) straight forward land access; 4) a committed/capable management and technical team; 5) stable governments with attractive fiscal terms; 6) a strong social licence, and finally 7) forthcoming 2D seismic coverage.

  In addition to the above elements, the Company has 32.8 MM warrants priced at $1 that are subject to an acceleration clause of the expiry date to a date 30 calendar days following notice to holders should the 20-day WVAP equal or exceed $3 a share, which would usher in ~$33 MM in proceeds. We believe all these factors emphasizes the team’s ability to relatively quickly de- risk the basin. On exploration success the scale of the opportunity should attract further industry interest in H2/21, potentially bringing forward shareholder value while minimizing dilution.

  RECOMMENDED ACTION

  Buy Ahead of drilling/evaluating new flows in H1/2021

 We view the initial acquisition and subsequent processing of 2D seismic as a key catalyst for the stock, and despite the recent run in the share price since the Company announced that drilling has started (see our January 11/20 note here), we would still be buyers at these levels. With that, we are increasing our target price to $7.00 (from $4.00) which reflects strong visibility to more fully funded exploration drilling which drives an improvement in our heavily risked NAV estimate.

PROJECTED RETURN RISK FACTOR SCENARIO ANALYSIS

KEY STATISTICS AND METRICS

72% Very Company Update: Second Catalyst Delivered in as Many Weeks  

Downside Scenario

$0.00 100%

Current Price Price

Price Target Target

$4.08 7.00

72%

$3.25