Sintana Energy Inc. (SEI.V) (SEUSF) has been on fire so far in 2023, rising from $0.11 at the start of the year to a $0.27 close today. It has risen on the strength of its offshore oil interests in Namibia, an area of great speculation at the moment thanks to multiple billion barrel finds over the past year. SEI's business model limits cash burn and further dilution as larger partners will be spending the money to drill on the interests. What makes the opportunity even more special is the cheap leveraged upside available to traders. Warrants under the symbol SEI.WT have a strike price of $0.25 and expire in nine months but trade at only $0.05. We are going to focus on the multiple bagger potential of these warrants. We are up to 1,019 followers on our ValueTrades blog despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can also follow this blog by clicking the follow button on the top of the left hand panel. We have 120 followers so far on here. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.
Sintana has oil interests in Colombia, but by far the most prospective opportunity is its multiple onshore and offshore holdings in and around the Orange Basin in Namibia. Two multi-billion barrel discoveries were made last year, but it was the third discovery announced in March by state-owned NAMCOR and its partners Shell and QatarEnergy that appeared to be the catalyst for SEI's recent rise in stock price as its potentially the biggest discovery to date.
Reviewing the company's corporate presentation, you get a good sense of where its interests lie relative to these three discoveries. Jonker-1X sits between Graff-1X and Venus-1X, even closer to PEL-83 and PEL-90:
Both are carried by larger players with drilling expected in 2023. However, given how SEI reacted since the announcement of the Jonker-1X find, it doesn't even need news on its own interests to continue its run. Another discovery made in the region will almost certainly lift the stock price, and if it happens to be done by SEI's partners on PEL 83, 87 or 90, the stock will lift into the stratosphere. There are 270 million shares outstanding, 390 million fully diluted when considering all of the options and warrants. A major discovery would most certainly justify a valuation well above SEI's current fully diluted market cap of $105 million.
This is where the warrants come in. They only trade at $0.05 with a strike price of $0.25. They are already $0.02 in the money and the stock price only needs to move up $0.03, or 11% in the next nine months in order to break even on them. Anything higher than that is profit on the warrants. This chart summarizes the opportunity.
If the stock drops to $0.25 or less by next March, the warrants are worthless. However, if an owner of the warrants decides to sell their warrants before expiry, they are likely to recover something from them even if the stock price drops below $0.25. At $0.27, the warrants are worth $0.02. By $0.30 the warrants break even at $0.05. Anything above that and the leveraging opportunity of the warrants becomes apparent. At $0.35, only a 30% upside on the stock from $0.27, the warrants will double. We think that this outcome is very likely to occur given the trend and interest in the Namibian region as well as news of drilling. If the stock reaches $0.50, an 85% increase, the warrants return 400% or five times your money.
We think that these warrants should be worth at least $0.08 to $0.10 right now, based on the upside leveraging opportunity they provide and the volatility and near-term speculative upside potential of the stock. Three months ago, Canadianwarrants.com rated these warrants as a bargain and worth $0.04 back when the stock was trading at only $0.14 and the warrants were far out of the money. Now that the warrants are in the money, it's likely the website will value these warrants around the $0.10 mark as we do once they update their chart.
Disclosure: We are long SEI, SEI.WT.
