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Empire Energy: Building an Empire of Oil and Zinc

Also, see Technical Analysis Charts by Roy Martens

Empire Energy (EEGC.OB)

Website: http://empireenergy.com/

The Great South Land Minerals Website is more easily navigated, and contains much more information (see below).

Stock Quote: http://finance.yahoo.com/q?s=eegc.ob
Current Price: $.15
Shares Outstanding: 113 million
Fully Diluted: approx. 120 million
Market Capitalization: $18 million (120 million x $.15)
Insider ownership: 15%-20% (Malcolm Bendall, CEO of Empire Energy, acquired over 7 million shares as a result of the merger with GSLM in 2005: http://finance.yahoo.com/q/it?s=EEGC.OB
SEC filings for EEGC: http://www.sec.gov/ ...

Great South Land Minerals (100% owned subsidiary of Empire Energy)

Website: http://www.greatsouthlandminerals.com/
Company’s Directors: http://www.greatsouthlandminerals.com/main/corporate/45/

Zeehan Zinc (37.5% owned subsidiary of Empire Energy)

Website: http://www.zeehanzinc.com/

Jilin Jimei Foods Ltd. (soon to be a 51% owned subsidiary)

Jimei Foods is a 15 year old China based company with an established history of brand development and food processing, specializing in shelf stable food products in China for both domestic and export markets.

Tad Ballantyne (recently appointed as a Director of Empire Energy) helped Jimei Foods save face and turned it back into a healthy company. Since the Chinese are in great need of this sort of help, Ted’s actions have created a valuable inroad into China. As a result, important Chinese contacts and powerful friends have become well aware of the oil prospects in Tasmania.

Website: http://www.jimeifoods.com.cn/main/english_corp.asp

A Brief History of EEGC

For most of its history, Empire Energy was a poorly managed company without much in the lines of a solid business plan. As a result, old management was eventually forced to face the music and change the company’s direction in 2002. The decision involved a merger with Great South Land Minerals (GSLM). On March 29, 2004, the merger was finally completed, and new management took the helm of Empire Energy.

"During 2002, the Board of Directors approved a change in the Company's direction, because of significant operating losses, continued cash flow challenges, its depressed stock price, and the inability to raise either debt or equity capital. The Company adopted a plan to dispose of assets to reduce liabilities and merge with a company that would be beneficial to the stockholders. As of September 30, 2003, the Company has disposed of the major portion of the oil and gas properties and is currently in the process of disposing of the remainder."

Above: http://www.sec.gov/Archives/edgar/data/788206/000110889003000394/empire10q093003.txt

Prior to becoming CEO of Empire Energy (EEGC), Malcolm Bendall presided as Chairman over Great South Land Minerals (GSLM) for almost 30 years.

At the time of the merger, EEGC had a little over 30 million shares outstanding, but shortly after the merger agreement, a 1:10 reverse split was carried out reducing the share count to about 3 million (April 2004). Since then the share price has fallen about 85%, despite a sharp but brief rally in March of 2005. I believe this has largely been the result of relentless selling pressure by an unnamed hedge fund. This selling pressure combined with the likely existence of large naked short positions has led to an almost 8-month long consolidation in the $.10-$.20/share range (See chart below). However, there is reason to believe that the hedge fund will cease to be a problem in the near future, and I myself predict that if a large naked short position does indeed exist, then they’ll soon be covering.


www.bigcharts.com

If you now look at the chart below for a long term comparison, the drop from the $1.00 level down to the $.10 level beginning in June of 2004 was but the continuation of a much larger and prolonged drop beginning several years prior, while Empire Energy was still under old management.


www.bigcharts.com

As part of the merger agreement with GSLM in March 2004, Empire Energy carried out a reverse acquisition. This means that 100% of GSLM shares, numbering some 62 million, were to be acquired by Empire Energy, which had only about 3 million shares outstanding at the time. Full acquisition was finally completed in June 2005, after which EEGC had about 72 million shares outstanding. This explains the huge upsurge in volume on the charts above.

In August of 2005, Empire Energy purchased a 37.5% ownership interest in Zeehan Zinc (ZZ), a Tasmanian mining company, in exchange for 37.5 million common shares of Empire Energy. This brought the fully diluted share count to almost 110 million. In the future, Empire Energy intends to acquire the remaining interests in Zeehan Zinc.

Currently, progress is under way to acquire additional financing through the issuance of an additional 20-30 million common shares. This money will be put towards the final developmental work at the Zeehan Zinc mine in order to bring it back into production later this year. Once financing is secured, production could commence in as little as 120 days. This would allow 60 days to finish construction of the mill ($3-$4 million) and then 60 days to move the mill into place.

Also of note, seismic work is expected to recommence this march on the over 30,000 square kilometer exploration zone licensed to GSLM. This licensed area (SEL 13/98) covers nearly half the state of Tasmania (See Below)!

GSLM and its predecessor companies have been researching and exploring the onshore Tasmania Basin for over 18 years. As a result they have successfully demonstrated that the Basin is prospective for oil and gas, as confirmed by independent geologist reports.

During 2001, GSLM successfully completed the first major regional seismic program ever undertaken on onshore Tasmania. GSLM’s contractual license for this area was extended for another 5 years in October of 2004.

More recently, a preliminary report from a $700,000 study by the University of Tasmania’s School of Earth Sciences, funded by the Australian Government and GSLM, revealed that 4.9 billion barrels of oil is potentially contained in the onshore Tasmania basin. This amount of oil is worth almost $300 billion at today’s prices.

Why Empire Energy, Why Now?

December 1, 2005

Anderson & Schwab Australia Limited determined a business value for Zeehan Zinc of between $83 Million and $140 Million, and a gross in ground resource value of $1.01 billion. This conclusion was based upon substantial geological and financial modeling of the business (Indications are that this figure could double as more confirmatory work is completed).

“Mining operations are intended to commence during 2006 subject to funding, completion of a flotation plant and the review of mining and environmental permits. Currently there are 3,300 tonnes of hand sorted ore stockpiled on site that have been mined and are ready for processing or sale.”

“An independent consultant has reported a measured and inferred resource totaling 6,765,670 tonnes of ore, as set out in the JORC code, containing grades of 5.2% Lead (Pb), 4.8% Zinc (Zn) and 52 grams/tonne of Silver (Ag). Based on an expected maximum modeled production rate of up to 400,000 tonnes of ore per annum, the mines should see at least 10 years of production.”

Implications:

Assuming the above figures are accurate and describe an economic resource, below I have calculated potential revenues to be generated from the lead, zinc, and silver.

Production Rate:
400,000 tonnes annually x .80 (assuming 80% recovery) = 320,000 tonnes

Yearly Lead Production:
320,000 tonnes x 2,204.6 lbs. x .052 (percent lead) = 36.7 million pounds

Market Value:
36.7 million pounds x $.58/lb = $21.3 million

Yearly Zinc Production:
320,000 tonnes x 2,204.6 lbs. x .048 (percent zinc) = 33.9 million pounds

Market Value:
33.9 million x $.92/lb = $31.2 million

Yearly Silver Production:
320,000 tonnes x 52 grams x .032154 troy ounces per gram = .5 million ounces

Market Value:
.5 million x $9.33/ounce = $4.7 million

Even if the profit margin of Zeehan Zinc was only 20%, this would still represent yearly profits of over $11 million. Multiply this by 37.5% (percent owned by Empire Energy) and the figure is $4.3 million. At a P/E of 10, market capitalization realized from the zinc mine alone should be $43 million! And if Empire Energy soon acquires its 100% interest in the Zeehan Zinc, then this figure jumps to $110 million. This translates into a price of $.36/share and $.92/share respectively*.

*I’ve divided the market capitalizations of $43 million and $110 million respectively by the number of fully diluted shares, 120 million, to arrive at these numbers.

(Above): http://biz.yahoo.com/bw/051201/20051201005570.html?.v=1

December 22, 2005

Empire Energy announced that Zeehan Zinc has engaged law firm Atlantic Law LLP to facilitate its listing on the Alternative Investment Market (AIM) of the London Stock Exchange.

“This action follows the completion and tabling of several resource reports, including a compiled summary by the prestigious Anderson & Schwab Australia Limited” (See Above).

“The AIM listing is expected to be achieved by late March 2006.”

Assuming all goes as planned, the money raised from this IPO could easily finance start-up operations at the Zeehan Zinc mine in Tasmania.

Above: http://biz.yahoo.com/bw/051222/20051222005296.html?.v=1

December 21, 2005

Empire Energy formed an agreement with M R Associates LLP (MRA), headquartered in the UK, in order to accelerate exploration, seismic, and drilling activities in Tasmania.

The agreement allows MRA to acquire a 95% joint venture interest on an 840 square kilometer area in Northern Tazmania. This may seem like a give-away, but the important thing to recognize is that the area covered by this agreement is less than 4% of the total area licensed to GSLM. Thus, I expect that this move was merely a way to gain more exposure and show the world what Tasmania has to offer in terms of oil reserves. It finally looks as if Empire Energy can and will begin drilling areas that were previously identified to house large oil and gas structures according to seismic work conducted in 2001.

The plan is to drill at least 4 wells in the next four years through this MRA joint venture.

Above: http://biz.yahoo.com/bw/051221/20051221005558.html?.v=1

December 22, 2005

Empire Energy entered into an agreement with Expedia Limited, headquartered in Hong Kong, to acquire an exciting new piece of equipment, a nano-key ball mill. Not only is this new mill expected to dramatically improve the costs associated with ore processing at the Zeehan Zinc mine once operational, but it is in fact possible that this new technology could lead to an industry-wide revolution.

“The nano-key ball mill is a device utilizing kinetic energy, electricity and ultrasonics to process a wide range of granular materials down to sub-micron sized particles and facilitate mass/chemical reactions requiring high pressures and temperatures. It works by a combination of ultrasonic energy, rapid energy dissipation, and applied voltages of selected frequency and waveform. This combination results in an order of magnitude reduction of capital and operating milling costs for granular material compared with that of conventional ball and rod mills. It hence appears to have the potential to restructure the production processes in industries where comminution is important and expensive.”

Above: http://biz.yahoo.com/bw/051222/20051222005283.html?.v=1

January 17, 2006

Empire Energy announced that it had entered into an agreement to acquire 51% of Jilin Jimei Foods. The price was $1.8 million, and it is to be paid in Empire Energy’s common stock, with a floor price of $0.20/share and a ceiling of $0.50/share. In other words, a maximum of 9 million shares and a minimum of 3.6 million shares will be issued to complete the above transaction. This should be executed by February 17.

The obvious significance of this acquisition is the price at which shares will be offered in payment. On the date that this agreement was announced, EEGC closed at $.14/share, meaning that the shares to be made in payment at a $.20-$.50/share range would be worth considerably less than the $1.8 million dollar price tag if they didn’t rise to significantly higher levels. Apparently someone either showed poor judgment, was desperate to make a deal, or more than likely, knew something the general public didn’t.

Details here: http://biz.yahoo.com/bw/060117/20060117005709.html?.v=1

January 23, 2006

Empire Energy announced that it entered into a 60-day* Exclusivity Period with a China-based oil company to allow those interests time to conduct their due diligence regarding the potential oil and gas in the 3,700,000-acre tenement in Tasmania, Australia held by Empire Energy.

*This means we could see monumental news released within 5 weeks!

Tad Ballantyne, recently appointed director of Empire, commented:

"It is important for the global economy that China's economic expansion continue and that access to potentially large frontier basins of oil and gas are made available to China. It only makes sense that one of the largest undeveloped frontier basins in the world be considered by one of the largest growing economies in the world. Empire is pleased to provide a China-based oil company with the time they need to assess the potential and we look forward to continuing our already good working relationship with its management."

Above: http://biz.yahoo.com/bw/060123/20060123005602.html?.v=1

January 31, 2006

“Concerning financing agreements, a U.S. director, Tad Ballantyne, recently reported from London today that he is pleased that the long process of identifying and selecting additional proper financial intermediaries to arrange both bridge capital and IPO capital has been completed and believes the engagement of the intermediaries will provide all the money necessary to bring the Zeehan Zinc Ltd (ZZ) and GSLM operations into cash flow.”

Libertas Capital (LC) is the nominated advisor and broker for the listing of Zeehan Zinc (ZZ) on the AIM. In addition, LC has also agreed to assist the company with the substantial fundraising required to accelerate the company's business plans.

It is anticipated that the admission of ZZ on the AIM and the related fundraising of $26.5 million will take place within the next few months.

Furthermore, Noble Trenham of First Global Securities (FG) stands ready to provide $5 million to fund the seismic survey. This seismic work originally was to be conducted in the summer of 2005, but unfortunately it was delayed because of an unavailability of equipment due to the commodities boom. FG has already funded the initial seismic planning work and eagerly awaits future progress.

Meanwhile, Empire Energy, in collaboration with the federal government, has improved its seismic data relating to their site’s oil-bearing potential.

Above: http://biz.yahoo.com/bw/060131/20060131006021.html?.v=1

Now, to sum it all up…

In just the past 2 months, Empire Energy has:

And yet the share price has remained static, as many remain skeptical of the future successes of Empire Energy. Only time will tell whether or not they missed an incredibly profitable opportunity.

Speculation of a 190,000% Return

Toward the beginning of this report I valued Empire Energy using only their Zeehan Zinc mining prospect. Future revenues from Jilin Jimei Foods were not considered, even though this venture could become a large money maker in the not too distant future as it grows. Secondly, future savings through the use of the nano-key ball mill at the ZZ mine were not considered, and thirdly, neither was the potential revenue that could result if indeed this device proves to be remarkably successful in its intended applications.

Finally, and most importantly, I have not evaluated what 4.9 billion barrels of oil looks like in terms of potential revenue flows. To do this, let’s first assume that only 3 billion barrels are commercially viable (a conservative assumption made by Great South Land Minerals). Then, let us assume they must engage in joint venture and relinquish a total of 50% of future revenues, cutting the oil reserves figure down to 1.5 billion barrels. We must also consider the 12% royalty tax to be paid back to the government, bringing the figure down further to about 1.2 billion barrels. Finally, let’s assume a steep production cost, including administrative expenses, of $45/barrel. What we are left with is a profit margin of about $13/barrel at today’s prices, which are expected to rise higher as most people are aware.

$13 x 1.2 billion barrels = $15.6 billion
$15.6 billion/ 30 (years of production) = $520 million
$520 million x a P/E of 10 = $5.2 billion

Even after assuming that by the time EEGC’s oil wells begin full production (est. 3- 6 years) dilution has raised the fully diluted share count of Empire Energy to 300 million, we still arrive at an amazing price of $17.33/share based upon the above $5.2 billion figure. In other words, a 119,000% increase over today’s closing price of $.145/share.

Empire Energy Contact Information:

Malcolm Bendall
Phone: 913-469-5615

Noble Trenham
Phone: 626-568-8800


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