(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long ATU.V and MMV.V)
Last night Altura Energy (ATU.V, last at $0.34) reported Q4 2017 and year-end results and everything was in line with what I was hoping to see. The company's extended reach horizontal (ERH) wells at its 400 million barrel Leduc-Woodbend project (internal company estimate) continue to exceed management's expectations. I think that this asset will ultimately become the focus of the company and the market.
I'll include some quotes from Altura's press release to put things in context:
"Since acquiring its initial land position in 2015 and drilling its first horizontal well in August 2016, Altura has accumulated 66 sections of 100% working interest land in this Upper Mannville Rex oil pool. Altura believes this pool to be one of the largest conventional oil pools discovered in the Western Canada Sedimentary Basin within the last 20 years. The Corporation is in the very early stages of drilling its large oil-weighted well inventory, with only five horizontal wells drilled to date."
"Current production rates from all three ERH wells (13-14, 03-02, and 02-02) are exceeding management's expectations. With limited production history to date, Altura is modeling each well to average approximately 160 boe per day over the first 12 months of production and exit the 12-month period at 105 boe per day. For more detailed information, please refer to Altura's corporate presentation on the Corporation's website at www.alturaenergy.ca."
"For the remainder of 2018, Altura plans to drill two additional ERH wells at Leduc-Woodbend. Guidance remains as previously announced with capital expenditures of approximately $15 million for 2018. The capital development program is split approximately 60% to drilling, completion, equipping and tie-in ("DCET") capital and 40% to infrastructure and other capital. The significant weighting to infrastructure investment positions Altura to continue to reduce operating costs and grow production profitably as it develops its Leduc-Woodbend oil pool."
My thesis on Altura is simple. The company is extremely well managed and is in the early stages of developing the 400 million barrel OOIP Leduc-Woodbend oil pool. Initial indications are that this development will be a profitable endeavour with significant running room. Even at just a 10% primary recovery factor, the pool could represent a ~40 million barrel opportunity for a company that currently has a market cap of around $35 million with minimal debt. Right now, Altura is slowly building production as the company spends within its financial means so as not to dilute shareholders unnecessarily. I think that one day Altura will monetize one of its non-core assets and dump that capital right into Leduc Woodbend, which will result in a step change in the company's growth profile and market outlook. As long as oil holds together, I think there's a good chance that an asset sale will happen within the next 12 months. In the meantime, I am happy to own Altura as an attractive small-cap value situation that is below the radar of most investors, but has the potential to attract significant interest given the scale of the Leduc-Woodbend asset. When the story gets "lit" from a market perspective is hard to know, but I think my risk-reward in the meantime remains very attractive as I can see scenarios whereby ATU will trade at multiples of its current market cap once Leduc-Woodbend gains momentum.
Mineral Mountain Resources
Back in November, I had pointed out Mineral Mountain Resources (MMV.V, last at $0.65) as an interesting small-cap gold speculation. The stock was 24 cents at the time and is now trading in the mid-60's as the market is starting to come around to the potential that's on the table at its Rochford Gold Project in South Dakota. The targets of interest are in geological terrain that bears many similarities to the legendary Homestake district 25 kilometres to the north. The area in which MMV is drilling has only seen limited prior exploration (and mining) over its history, but gold has been discovered from surface all the way down to around 1,500 metres depth in the area of interest. Mineral Mountain's goal is to show that the historic results represent the potential for the discovery of multiple Homestake-like orebodies on its lands at depth in the folded iron formations known to host gold mineralization in the region. Mineral Mountain is the first company to have aggregated the mineral claims in the area into one coherent project and is also the first company to have integrated all of the available historical data into one project model. Having the benefit of a modern magnetic survey and a technical team with a lot of experience in the district, MMV is probably the best equipped explorer in modern times to see what's been overlooked here. Assays are likely due within the next couple of weeks and if MMV starts coming up with the goods, there will be good reason for the market to take notice. The stock remains speculative, but should be watched closely right now in my view. If the company starts turning out good grades over good widths (5-10 metres at 6-10 g/t would be a good start) the market's eye could quickly turn to the story... at that point, the real speculation can begin.
Time will tell.