Analyst Research

Hannam & Partners Initiation Note

Hannam & Partners Initiating coverage of Helium One with a risked NAV of 11p/sh (~50% upside) or a valuation: almost 15x upside on an unrisked basis; peers +650% over last year.

Initiation coverage with a risked NAV of 11p/sh (~50% upside)

Helium One Global Ltd (“Helium One”; ticker “HE1”) is a UK AIM-listed pure-play helium exploration company, with a first-mover advantage in developing helium assets in Tanzania. Founded in September 2015, its goal is to become a significant primary supplier of high-grade helium to industry. It owns exploration licences in three locations in Tanzania, where prospective resources have been identified with helium concentrations that are amongst the highest in the world. HE1 is the only listed company in the UK that enables investors to participate in the helium market. Having previously been a private company, HE1 raised an upsized GBP£6mm and amalgamated with Attis Oil and Gas in order to gain a London listing in early December 2020.

Helium market investment dynamics versus oil & gas

Alongside this report, we have also produced a comprehensive macro report on the helium sector. Helium has several unique properties that make it an essential element for many industries, which cannot be synthesised or manufactured, and with no substitutes. There has been a shortage of helium in recent years leading to a significant increase in prices. Helium is an extremely highly-valued commodity with a price around 100x that of natural gas, meaning even small amounts or low concentrations can be highly economic. Given the smaller footprint of a helium development, a standalone helium production facility can be developed quicker and much more cost effectively than a conventional greenfield oil and gas discovery that would normally take five-plus years and potentially cost billions of dollars to develop. A concentrated market also confers a competitive advantage to the current participants. HE1 expects to produce helium from resources that do not have associated hydrocarbon accumulations, allowing HE1 to produce carbon emission-free helium, unlike most of the global supply that is a by-product of natural gas operations. Listed helium companies have soared in value over the last year, in stark contrast to oil and gas companies.

Rukwa project has the potential to be a material helium producer

Helium One’s key asset is its Tanzanian licence, Rukwa, which is a globally unique large-scale, high-grade, primary helium project. Most helium is produced as a by-product in large gas developments but Rukwa is one of very few helium projects that could be produced from non-hydrocarbon sources. To put it in context each of the wells is targeting the equivalent of around a year’s global helium demand. The total prospect inventory is 138bcf unrisked (P50), the largest primary helium resource in the world. HE1 has a first mover advantage in Tanzania, with attractive fiscal terms for helium extraction and low exploration drilling costs.

Exploration drilling in Q2 2020 targeting 18bcf worth £1.02/sh unrisked

HE1 intends to drill three exploration wells (on the Kasuku, Itumbula and Mbuni prospects) within the Rukwa licence in Q2’21. Each well should take a month to drill but helium shows in the mudlogs could be reportable prior to hole completion. We carry 34p/sh of unrisked and 3p/sh of risked value on average for each well. A substantial part of the overall risking relates to the “play” risk, which is the same for all prospects. Therefore, if one well is successful, it would derisk HE1’s other targets. We estimate that it could double the overall chance of success for the other prospects.

Valuation: almost 15x upside on an unrisked basis; peers +650% over last year

In our base case scenario, we use a helium price of US$250/mcf long-term flat from 2021 and a 14% discount rate from 1/1/2021. Our risked NAV is 11p/sh, which implies ~50% upside from the current share price. On an unrisked basis, we have a NAV of £1.04/sh or almost 15x upside. Further to this are the follow-on prospects that are not included in our NAV and its other exploration areas. Helium focused E&P companies, especially those akin to Helium One that focus on primary helium have seen their shares rise by >650% over the last year, demonstrating the market’s interest in the helium sector.

Please click on the below links to read more:

Initiation of Coverage: Primary Helium Pure Play | Hannam And Partners

A super cool commodity | Hannam And Partners

finnCap commentary on Helium One upon its Admission to AIM

Please click on the below links to read more:

8 December 2020 – finnCap  – Helium One admission to AIM