canaccord comments - tgt $0.45Longford Energy (LFD : TSX-V : C
.25) - Speculative Buy - Target:C
.45
A step in the right direction
Q1/11 results: Longford reported financial results on May 31 while we were restricted due to the company's financing. G&A expenses were below our estimates at
.4 million versus
.8 million, which contributed to the better-than-expected cash position at quarter end of
.7 million. Negative cash flow of
.4 million (
.00/share) and a loss of $1.0 million (
.00/share) were fairly immaterial. Drilling permit received, appraisal location finalized. With approval in hand from the Kurdistan Regional Government (KRG), Longford has confirmed a drilling location for the Chia Surkh-10 appraisal well, twinning a legacy 4,875 bbl/d discovery on its operated Chia Surkh PSC. The company expects to spud the well in Q3/11 at a cost of $15-$20 million gross ($9.5-$12 million net). Financing sets stage for drilling. With completion of the recent $7.5 million financing ($7.1 million net proceeds), Longford has a sufficient cash balance of approximately $8 million to begin drilling the CS-10 well.
We expect the company will raise additional capital of $15 million over the quarter to complete and test the CS-10 well and prepare for early production upon success. This dilution is factored into our valuation estimates. We maintain our SPECULATIVE BUY rating and C
.45 12-month target. We utilize a risked-exploration valuation approach to arrive at a risked exploration upside of
.55/share and $1.98/share unrisked based on a $100 flat real price deck. Adjusting for dilution from the expected financing, we arrive at risked portfolio NAV of
.48 per share to underpin our target price.