LONDON, April 26, 2016 /PRNewswire/ --
Liquefied Natural Gas Ltd (LNGL) has continued to progress the Magnolia project, with EPC contracts signed in recent months that put the project on a much firmer footing and effectively fix costs for the development (now out to 31 December 2016). Although the contracts call for a higher capital cost than previously guided, Magnolia should still be at the lower end of LNG development costs and have lower operating costs, encouraging investment by tolling partners. We expect tolling agreements to be signed in 2016 to enable financial close (the FERC order has just been received). Given the low costs and continued need for global LNG supply, we continue to believe that Magnolia should proceed, albeit in a tougher environment. We have substantially re-modelled the projects given the new information, resulting in a new NAV of A$1.0/share (US$2.8/ADR).
After the increased capital costs implied by the turnkey EPC contracts, we have remodelled the projects. Although we see evidence that the projects should be able to command higher tolling fees than we had previously modelled, we see a drop in value vs previous estimates on a DCF basis. We note that as the Magnolia project is sanctioned and first LNG approaches, investors are likely to start looking at the cash flow metrics of utility peers, which allows for substantial increases in the share price over time. This means that, should investors be confident that a project will get the go-ahead, the shares could represent good long-term value. The company is well financed to see out any short-term delays.
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