Deutsche Rohstoff’s (DRAG) organic investments, c $145m in FY17 and FY18, helped deliver more than 100% growth in FY18 revenues to €109.1m (€53.7m in FY17). Year-on-year sales growth was supported by a material increase in oil and gas production, which almost doubled to 9.4kboed (from 5.1kboed in FY17), combined with higher price realisations. EBITDA rose more than 250% to €97.9m (€36.1m in FY17), while net income (after minority interests) rose to €13.9m (€7.7m in FY17). DRAG’s key focus remains on its US oil and gas interests, with c $70m of organic and internally funded investment planned in 2019. As a result, DRAG guides to EBITDA in the €25–35m range in FY19 and €55–65m in FY20, reflecting recent divestments and underlying growth from Cub Creek Energy.
FY18 was marked by organic investment in development well locations and the sale of the bulk of the Salt Creek Oil & Gas asset base in North Dakota. Organic investment is to continue in FY19 with c $70m planned in DRAG’s US subsidiaries, and c $60m of the total being invested in Cub Creek Energy well locations.
Management’s EBITDA guidance for FY19 is based solely on current production and for FY20 on expected growth driven by investment in Cub Creek based on a $58/bbl WTI and $2.75/mcf price deck. Guidance excludes acquisitions or asset divestments, both of which remain a key component of DRAG’s strategy.
DRAG’s metals division reported a loss in FY18 due to asset write-downs at Hammer Metals and Devonian Metals. However, management sees a point of inflexion with Almonty Industries, DRAG’s most material metals investment, generating a profit in Q119, and nearing Sangdong mine financing.
DRAG’s most recent independent 1P and 2P valuation of its oil and gas assets totals €186.3m, including Elster Oil & Gas, Cub Creek Energy, Salt Creek Oil & Gas and the new subsidiary Bright Rock Energy. We assume the company’s mining assets are valued at book value, adding in end-2018 net debt. This amounts to a SOTP valuation of c €119.4m or €23.6/share, rising to €24.9/share including 2P reserves. DRAG currently trades at a 35% discount to its 1P reserve value and a 43% discount to its 2P reserve value on this basis.