Buru Energy (ASX: BRU) is putting an updated game plan into play to focus on its flagship Rafael gas project in Western Australia’s Canning Basin. It has wasted no time in selling off non-core assets by inking a deal to offload its 50 per cent stake in the Barbwire Terrace base metal project to joint venture partner Sipa Resources (ASX: SRI).
The sale settled yesterday and is subject to the usual regulatory approvals. It hands full control of the project’s two tenements to Sipa in exchange for a 0.6 per cent net royalty on any future production from the project.
The deal gives Buru long-term exposure to any success in the project, although Sipa can opt to buy back the royalty for a cool $600,000.
This transaction enables Buru to focus its activities and capital on the development of the Rafael project.
Buru Energy CEO Thomas Nador
Rafael was discovered in 2021 and holds a massive estimated recoverable gas resource of one trillion cubic feet and more than 20 million barrels of condensate.
Put simply, a project this size has the potential to supply Western Australia's entire retail gas market for 30 years, making it one of the more significant onshore discoveries in recent years.
Strengthening the project's credibility, recent extensive 3D seismic studies then enabled the company to announce an initial contingent resource of 85 billion cubic feet (Bcf) of gas and 1.8 million barrels of condensate in July.
It seems a smart move for Buru to focus more time and cash on Rafael given its fully commissioned production is forecast to generate annual cash flows of more than the company’s $40 million market capitalisation.
Production is set to kick off in less than three years.
In addition to shedding its base metals project, Buru will ditch 97 of its exploration permits and production licence areas in WA’s Canning Basin, reducing the company’s landholding by almost 60 per cent from 13,200 square kilometres to 5440 square kilometres.
Its portfolio of 17 hydrogen and helium (2H) licences, covering 70,000 square kilometres dotted around South Australia, WA and Tasmania, is also on the chopping block.
Management says several domestic and international parties have shown early interest in the 2H licences and are undertaking due diligence, providing the company with the confidence of some up-coming sales.
By shedding old legacy leases which can attract significant annual fees, levies and surcharges, the company expects to reduce its cash burn by $3m a year, preserving its dollars to ensure the future success of its prized Rafael project.
The company has also reduced its staff headcount by 40 per cent, cut its director fees and withdrawn the chief executive officer’s 2024 short-term incentive program.
Buru was sitting pretty with $7.9m in cash at the end of 2024 and still has plenty of headroom for incidental costs. Pressing the refresh button isn’t just about cutting fat. It appears to be a calculated move to showcase some razor-sharp financial discipline.
With the clock ticking toward a final investment decision on Rafael, Buru seems to be sending out a clear message: It’s running a tight ship and playing for keeps.
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