International Frontier Resources (IFR-V) continues to trade upwards since the TSX News alert on August 18th. The stock has risen 100% in less than a month on increased oil prices and speculation based on the land auctions for petroleum exploration licences in the Central Mackenzie Valley (CMV) within the Northwest Territories. The bidding process closes on September 17th.
As seen in IFR's corporate presentation from the June AGM, the company owns 11,490 net acres within the CMV of which IFR management has stated an interest to sell. The bidding on the land set to close next week will further restrict supply in the CMV and create a valuation floor for these holdings.
A letter to the shareholders was sent out in April which outlined IFR's intentions with their CMV holdings as seen in this excerpt:
"There have been numerous deals done in the Bakken, Duvernay, Eagle Ford, Horn River, Marcellus and Montney plays where prices paid per acre range from $5,000 to $35,000. In Canada, prices paid at land sales and in corporate acreage deals range from $1,500 to $15,000 per acre. The price per acre depends on if the play is oil, gas & liquids or dry gas and at what phase of development you sell. Our CMV assets include seismic, a proven gas condensate discovery and a dry gas discovery both of which are held under Significant Discovery Licenses. In addition the Company has 11,490 net acres that are prospective for the emerging shale plays. Given the foregoing the Company should be able to realize a price in the mid price per acre range. If the Board decides that it is in the best interest of shareholders to sell our CMV assets, and we conclude a sale, we will pay shareholders a well deserved dividend."
Given that it is very likely that IFR will sell these holdings, it is easier to come up with a price target for the company. They have $2.9M in cash and 15,200 acres in Montana they purchased for $170 per acre in January 2013 when oil prices were less than $100 a barrel. Assuming no change to the value of this land despite the increase in the oil price, its total worth is $2.6M. Between its working capital and the land in Montana, IFR has a base value of $5.5M or 9.2 cents a share.
PRD Energy sold 2,000 acres in the NWT for $1.05M in 2012, or $525 an acre. If IFR were to pull a similar deal for $525/acre for its 11,490 acres, that would bring in over $6M for the company. The total market cap would be worth $11.5M or 19.3 cents per share with up to 10 cents of that being paid out as a dividend. Even if IFR were to give away the CMV lands for such a low amount, its stock price would still nearly double.
If IFR management were to sell at the lower end of the Canadian acreage deal range of $1,500 an acre, IFR's CMV holdings would be worth $17.2M or 29 cents a share. Taking the high end of that range of $15,000 an acre means IFR's CMV holdings would be worth $172.4M or $2.89 a share. The mid-range of those two numbers is $8,250 an acre which would value IFR's CMV holdings at $1.59 a share.
The company's CEO claims that they should be able to sell their CMV land at the mid-range price through the letter to the shareholders. Adding 9 cents of value in IFR's cash and Montana holdings to the $1.59 they would realize under this scenario leads to a price target of $1.68 a share. Since the CEO himself claims that IFR can achieve a mid-range price per acre in the sale, a $1.68 stock price appears to be a reasonable target. No matter what scenario one chooses to value IFR's CMV lands, at 11 cents the company is underpriced in all of them. It comes at no surprise that insiders purchased shares on the open market in August given the likelihood that they will soon see a cash payout well in excess of the stock's current 11 cent price.
tsxnews.blogspot.ca |
