Empyrean Energy PLC‘s (LON:EME) Jade and Topaz projects in China have been substantially de-risked and are estimated to have among the best geological chance of success (GCoS) of any prospects in the world, according to stockbroker Cenkos.
The stockbroker, in a note, repeated a ‘buy’ recommendation and highlighted a valuation that suggests significant upside potential for the AIM-quoted share.
Analyst James Mccormack has updated his view of Jade and Topaz valuing them at 15.3p and 9.7p, up from 11.9p and 6.3p respectively.
Both valuations are pitched significantly higher than Empyrean’s current price of 5.27p, 206% and 94% for Jade and Topaz respectively, suggesting success with either could prove to be a ‘game changer’ for the firm.
The stockbroker also upgraded its estimated GCoS for both prospects with Jade lifted to 41% from 32% and Topaz seen at 35% from 30%.
“Exploration by its very nature is high risk, with commercial exploration success rates worldwide estimated at between 30-40%,” Mccormack said.
“However, through the comprehensive technical work undertaken by the company, Empyrean has substantially de-risked both the Jade and Topaz prospects, with the respective GCoS’ amongst the highest of any prospect globally.”
Cenkos highlighted that Empyrean plans to drill the Jade well as soon as practicable. It noted that the company has until June 2022 to drill the well, and, that the operational weather window would dictate it is likely to be drilled between November 2021 and May 2022.
Discussing funding the project, Mccormack added: “Unlike many of its exploration focussed peers, Empyrean has a number of financing options when it comes to funding its initial well including debt/equity, a farm-out, an asset sale or a combination of all three.
“One potential funding route involves the farm-out of part of Empyrean’s 100% working interest in Block 29/11 in exchange for a carry/partial carry, with Empyrean confirming that it is in discussions with a number of parties interested in participating in the upcoming drilling programme.”
“Following the impact of COVID-19 on consumer demand and company balance sheets, M&A activity slumped to a four-year low in Q2/20. However, activity has subsequently picked-up, albeit with some degree of volatility on a month-to-month basis.”