Zodiac Exploration (TSX:V.ZEX
, Stock Forum
) should be giving swimming lessons, as no company has been treading water as furiously as the $20m market cap land-holder.
Just about every day for the last two months, Zodiac has consistently been among the most traded stocks on the Venture exchange, but the share price has barely moved more than half a cent in any direction during that time.
Why? Because 340 million shares outstanding is a lot of shares. And because while Zodiac is holding a good chunk of prized oil and gas land in three locations, it's not actually doing a lot of drilling. In fact, the company more closely resembles a real estate play than an oil play at the moment.
Zodiac is hated by day traders because there’s no ‘big drilling news’ coming out of them any time soon. A recent three day trade halt had everyone on tenterhooks
, but the news that followed was about the company having picked up more land (CHEAP!)
, not that they’d discovered anything or sold some of that land for a bonanza dividend.
So a lot of people bailed. And with every passing day, more follow.
Funny thing: A lot of people are also buying. And they’re buying every day, in large numbers. At a crazy cheap price.
How crazy? Zodiac has $19m cash in hand with no debt. And their market cap at the current $0.065 share price puts them at a $20m valuation.
So, if that market valuation is right, the Zodiac land holdings in California’s Monterey Shale, where the big dogs are feasting, and in Alberta in the crazy promising Duvernay and Nordegg formations, and the deal they’re finalizing to pick up land in Montana… is only worth a million bucks put together?
That’s nuts. But it’s also – right now – true. The company isn’t worth more than the cash in hand UNTIL IT MAKES A MOVE.
When Zodiac decides to sell their California land holding to an Exxon or a Shell (and they’re in the midst of an auction to do something like that right now), they’ll likely (and I’m not a realtor here, so take my valuation with a grain of salt) bring in somewhere between $20m and $40m for the rights.
$30 million for 300 million shares? You can do the math on what that might do to the share price.
Zodiac has taken it’s time completing the auction they’re holding for this land, they say, because interest is high and lots of due diligence is being taken. I'll add they're also likely hard at work on what's next following the land sale, as nobody's going to enjoy seeing a big share jump followed by a big sell-off. Zodiac management are smart - they know they need to parlay any gains into a bigger deal.
Like maybe acquisition of another property? Maybe a producing property?
But, again, right now, it’s a 'company with some land.' So the short term players despise it, and those who have been waiting for that auction to happen are seeing the drip-drip-drip of a half cent drop here and a half cent drop there as reason to cut their losses.
To be clear, Zodiac could sit on its existing holdings until the second coming and they’ll be just fine. Low cash burn, money in hand – this is a patience play.
And they may decide, at some point, to plunge a well and get revenue in. But there’s no rush.
So, right now, Zodiac is a cheap cheap shale play with massive potential upside, but it might take a while to get there. Your bet, should you choose to make one, is whether you go all in today at an undervalued price and wait it out, or you watch diligently and try to catch it right before whatever news is coming… comes.
I will say, with 10% more shares about to be added to the outstanding pile through the most recent land acquisition, I REALLY wish Zodiac would consolidate some stock and get out of its current puddle. At the present price, every half cent nudge downwards as the day traders flee is a big percentage drop.
That said, it’s also a big percentage increase when things get hot. And insiders are buying
, so that’s nice.
Full disclosure: Zodiac is a Stockhouse Publishing client - and I’m in. I’ve been accumulating Zodiac stock whenever I have a few cents left over after lunch, fairly consistently for the last few weeks. I figure, with all that land and no debt and cash at the ready, really, if there’s a zero-downside opportunity out there in the market today, Zodiac is pretty close to it.
Unless California and Alberta fall into the ocean. Then I’m screwed.
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