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Eco Atlantic: Are February’s placement participants creating a massive buying opportunity? ECO

In February, Eco Atlantic (LSE:ECO) came to AIM. This Canadian company sought a dual listing in London to improve liquidity in its stock and to gain access to greater fundraising potential. It raised £5.09million at 16p, which gave it an £18.9million valuation. Until mid-October the share price performed reasonably well, but then suddenly went on a rip. This culminated on Monday with a C$14million (£8.3million) subscription from Africa Oil (TSX:AOI) at 29p per share (a 29% premium to the prevailing price). Today you can buy Eco on the offer at 24.5p. This pricing disparity seems at odds with the company’s progress and potential. There is a strong chance the market will not remain so generous for much longer.

At 24p on the bid, anyone who participated in February’s placement is able to lock in a 50% gain in the stock. The volume is there and the return is very decent for a 9-month turnaround. Profit taking is understandable, but this could well be opening up a significant opportunity for private investors willing to take a punt on Eco’s performance in 2018.

One of the issues Eco has faced since it listed is that its story hasn’t really gained much traction among retail investors. This has been a bit of a theme over the last 6 months on, as we’ve identified a numbers of stocks (TXP, IRON, NTOG) that have been overlooked by social media, but have all delivered solid returns. Eco is now the latest on our list and we’ve been picking up some shares over recent days.

Here’s why.

I recently caught up with Gil Holzman, CEO of Eco. To be honest I wish I’d got my act together and written this piece when we first spoke as the company’s share price was quite a bit lower than where it is today. Despite this, the timing, price and size of Africa Oil’s subscription has further strengthened what already looked like a fundamentally strong play with a great deal of blue sky potential.

Understandably (as we now know why!) Holzman was very bullish on his company’s prospects. According to him Eco is, “sitting on some of the world’s most promising offshore oil exploration assets with two very big, very beautiful targets”. Eco was already “fully-funded and free carried” and Holzman estimated the company’s underlying value was about 35p-36p. It’s no wonder that Africa Oil was prepared to pay such a premium to take a sizeable stake in this company.

Africa Oil’s enthusiasm for Eco is easily explained. The company has pursued a smart acquisition policy over recent years, initially acquiring significant stakes in promising, offshore oil provinces, at a time when demand was subdued because of the turbulence in the market. As conditions improved, Eco partnered up with major players, reducing its overall exposure while maintaining plenty of free-carried upside.

Over the course of 2018 this strategy could yield significant results, as Eco is free carried and fully funded through up to 3 high impact exploration wells.

Off the cost of Guyana, South America, Eco’s partner is Tullow Oil (LSE:TLW). In early September, Eco announced that the partners had completed a 2,500km2 3D Seismic survey in the Orinduik Block. Eco holds a 40% stake in Orinduik and according to Holzman a successful drill there could add 400million barrels of oils to the company’s reserves. Results are currently being processed from the 3D survey, but on 26 September oil giant Total (NYSE:TOT) signed up to complete its option on Orinduik. Together with this week’s subscription from Africa Oil, these announcements could be an indicator of genuine excitement at the potential here. Obviously it remains to be seen how this plays out, but on Orinduik the stars might well be aligning.

The fact that ExxonMobil in March (NYSE:XOM) announced a 2.8billion barrel discovery just 6km north east of Orinduik simply adds to the sense of anticipation.

Meanwhile off the coast of Namibia, Africa, Eco has signed up to four licenses.

Of these, Cooper 2012A looks the most mature one for drilling. Again Eco has partnered up with Tullow, which will fully fund the first exploration well at an agreed upon cap. Success here could add 200million barrels to Eco’s reserves and the expectation is that the first well will be drilled in 2018, along side at least 2 other wells in the basin – one by Tullow and ONGC, the other by Chariot.

It’s no wonder Holzman is as optimistic about Eco as he is; “for a company of our size, we are walking with giants. 2018 holds a great deal of promise for us. Working with such high calibre partners as Tullow and Total we couldn’t be better positioned. After several years of hard work, we are all very excited about what the next year could bring.”

At 24.5p, grabbing a piece of this excitement could be a very intelligent play.

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