Edison Issues ADR Update on Liquefied Natural Gas Ltd (LNGLY US)
Liquefied Natural Gas Ltd (LNGL) has made progress in the last six months towards Final Investment Decision (FID). Signing binding tolling agreements is key and encouragingly, the company is in discussion with potential partners for over three times the 8mtpa capacity. Importantly, the project retains its (non-binding) offtake agreement with Meridian and a heads of agreement with Vessel Gasification Solutions (VGS). Technically, the project is in good shape, with certainty over costs (until June 2017) and non-FTA approval received, while discussions with Stonepeak over extension of equity funding are advancing and debt funding capacity should be available. We have tweaked our DCF-based valuation for actual cash levels and FX rates, resulting in a broadly unchanged value of US$3.84/ADR (or A$1.26/share).
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Our valuation is broadly unchanged at US$3.84/ADR (or A$1.26/share), after accounting for actual cash levels in December 2016 (of A$59.9m/US$45.7m). The company should be well funded to pursue its aggressive marketing strategy to get to FID, given that cash burn has been reduced. We note that our valuation has material room to grow as and when the Magnolia project receives binding offtake agreements and reaches FID (we currently risk the project at 60%), while we attribute limited value to Bear Head's contribution currently, despite its larger potential size and advanced permitting.
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