RE:RE:i'm a eternal optimistExcellent post Guesstimate! I'm not a numbers guy.. I see the big picture and if the share price come close to what I want.. I'm a happy camper. Your breakdown is a pretty good realistic view...of course I'm more optimistic :) . I see AOI going on way.. thats UP.. how high?? I'm sure most of use will stick around to see how high!
Guesstimate wrote:
The problem with blue-sky SP predictions is that they don't reflect the reality of financing the exploration. We can say that, when the current cash runs out sometime in 2015, AOI will have spent about $700m on exploration, of which say $500m on the Lokichar. In order to get another 4 basins to the same standard of discovery then, AOI would have to spend another $2bn. Since the only way they can raise that at the moment is through equity, AOI would have to issue another 316m shares ($2bn/$6.32). If they were lucky then, and found another 4 basins each worth say $4bn each (like Kenya1's numbers for the Lokichar), AOIs enterprise value would be 5x$4bn, or $20bn market cap, but the SP would still only be $31 ($20bn/(316m+328m)). Such is the effect of equity dilution.
Of course if you participated in each placing, buying shares in the open market at or below the placing prices (which has been quite feasible in AOIs recent history), you would have a vast undiluted stake in AOI worth many millions, but not many of us can afford to do that!
What could they realistically do? Let's say they manage to farm-in on Sala, the major paying AOIs share of development costs, so when the ink has dried AOI has another $400m to fund a drilling campaign into 2016. They start drilling in the Kerio basin and strike lucky again, both North and South Kerio basins and the Western Turkana basin in 10BA are all hits. While the South Kerio is as big as Lokichar, North Kerio is half the size but Western Turkana is bigger. Suddenly AOI is sitting on the equivalent of 4 basins the size of Lokichar. They'd only be able to afford three or four holes in each basin on $400m, so they wouldn't be proved up to the current 600mmbo of the Lokichar, but they could perhaps get a sign-off on 300mmbo 2C in each basin. Now you're talking. Without another placing, they've increased their 2C from 300 to 750mmbo before KGBIR. Even if we accept the current market valuation of the Lokichar as $2bn, the valuation of the new bigger 2C would give us a market cap of $5.2bn, or just under $16. If we take Kenya1's valuation at $12.48 a barrel, it gives us $9bn, or $28.
Those are blue-sky numbers that are actually plausible, within two years, if all the ducks lined up. (They also serve as a bit of a reality check. They show that to get above a $20 SP, some things would start having to go seriously right with AOIs drilling campaign, and we would have been able to fund the entire explo with a Sala farm-in on pretty good terms. Nothing's impossible, but it's not happened yet.)