Analyst Research

Hannam & Partners: Updating our NAV on higher risked resource

Increasing our risked NAV to 25p/sh on lower risking and extra prospect

We have updated our NAV to incorporate an additional prospect, Tai, which Helium One now intends to drill as its first prospect in early July. We have also doubled the exploration chance of success on the prospects to 21% on average and we have lowered our discount rate to 12% from 14% to factor in a lower cost of capital for helium companies relative to oil and gas companies given the investor appetite for the sector and the higher percentage of debt funding at the development stage. We have also updated our USD/GBP exchange rate to $1.40 from $1.35, which has an offsetting negative impact. In aggregate this leads to an increase in our risked NAV to 25p/sh from 11p/sh previously.

Encouraging results from Helium One’s 2D seismic campaign

HE1 completed an extended 200km 2D seismic shoot in early May, which focussed on areas of known prospectivity to provide greater clarity over subsurface structures, which HE1 believed to have the highest chances of successfully discovering helium. This modern seismic data is of a higher quality than earlier work, resulting in a better understanding of the subsurface and reassessment of geological risk across its portfolio. The company has not updated the chance of success on the prospects; however, we believe that the chance of success will have increased and as a result we have doubled the chance of success used by the reserves consultants. Initial data interpretation has upgraded and expanded the Tai prospect, which was poorly defined on legacy seismic data, but now clearly demonstrates a faulted 3-way dip closure concurrent with a gravity high. We assume a 6bcf prospect (in line with the average of the other planned prospects), which we see as worth 39p/sh unrisked.

Updates to global helium supply and demand data: bullish data points

We have updated our global supply outlook to factor in recent data and news flow. The USGS reported that US helium production (the world’s largest supplier) was down 10% last year and helium supply out of the BLM storage was down 38% – in total US helium supply was 2.7bcf/d (-17% y/y). US helium exports fell 5%. Supply out of La Barge in the US fell by 8.5% versus 2018 to 1.3bcf/d. Algerian supplies into Europe were down 30% y/y in 2020, on the back of lower gas production. In terms of new capacity Russia’s Amur plant seems unlikely to have any impact in 2021 given delays and Qatar’s new capacity is likely to only ramp up slowly. The US BLM volumes are likely to be down sharply again this year with potential reservoir issues being flagged up also at the Cliffside field used for storage. Import data from early 2021 shows demand is picking up in Europe and Asia.

Market developments: strong stock performance and robust helium pricing

Listed helium companies soared in value over 2020. This trend has continued in 2021 with strong performance from companies such as Desert Mountain Energy (+194% ytd), Avanti Energy (+490%), Renergen (+74%) and Royal Helium (+41%) – Helium One is up 198% year to date. There have been several capital raises by helium focused companies also and three more companies coming to market in Canada: Global Helium, Imperial Helium and Royal Helium. This demonstrates the strong market appetite for helium investment, with Helium One the only listed helium company in the UK. Looking at updated pricing and volume data suggests that helium prices have remaining robust into 2021. Data from Asia implies helium import pricing of >US$300/mcf from Qatar.

Valuation: ~6x upside on an unrisked basis

In our base case scenario, we use a helium price of US$250/mcf long-term flat from 2021 and a 12% discount rate from 1/1/2021. Our risked NAV is 25p/sh, which implies 25% upside from the current share price. On an unrisked basis, we have a NAV of £1.33/sh or ~6x upside. Further to this are the follow-on prospects that are not included in our NAV and its other exploration areas. A US$50/mcf increase in the helium price would increase our risked NAV by 6p/sh and unrisked by 33p/sh.

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Helium One Global | Updating our NAV on higher risked resource

Hannam & Partners: Oversubscribed equity raise will allow acceleration of development on exploration success

Helium One raises £10mm in placement to potentially accelerate development

Helium One last week raised £10mm in a significantly oversubscribed placing at 10p/sh. The main reason for the raise was to put the funds in place for HE1 to move quickly in the event of a discovery with its upcoming 3 well drilling campaign. This will save time and money on the appraisal and development planning process. Exploration drilling is expected to commence in around a month’s time. As a result of the raise, we have factored in a derisking of the commercialisation of the project and have increased our chance of commercialisation to 85% from 75%. Over all this offsets the dilution from the raise so our risked NAV remains unchanged at 11p/sh.

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.

Helium market investment dynamics versus oil & gas

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.

Valuation: >7x upside on an unrisked basis; peers +650% in 2020

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 5% upside from the current share price. On an unrisked basis, we have a NAV of £0.88/sh or >7x 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% in 2020, demonstrating the market’s interest in the helium sector. Also a US$50/mcf increase in the helium price would increase our risked NAV by 2p/sh.

Please click on the below link to read more:

Helium One Global | Oversubscribed equity raise will allow acceleration of development on exploration success

Hannam & Partners: Commencement of seismic acquisition on the Rukwa licence

Following the mobilisation of the seismic crew in mid-February, Helium One has commenced seismic data acquisition with mobilisation of vibroseis trucks and geophones to its Rukwa Project (100%) in Tanzania. 150km of infill 2D seismic will be shot targeting multiple trapping styles and will define the optimal well locations to be drilled in Q2’21. This should provide greater clarity on the subsurface and help to reduce the exploration risk. It is targeting shallow trap structures identified from the interpretation of historic seismic and recent gravity gradient data. It is also positive to see that Helium One has further strengthened its management team by adding Lorna Blaisse as Principal Geologist, who has 15 years’ experience, managing exploration campaigns across Africa, including working with similar rift basin geology to Tanzania.

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. It is also currently carrying out geochemical exploration at the Eyasi Project (Helium One 100%), evaluating historic seep locations as well as identifying potential new seep locations at the southern end of the project area.

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.

Helium market investment dynamics versus oil & gas

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.

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% in 2020, demonstrating the market’s interest in the helium sector.

Please click on the below link to read more:

Helium One Global | Seismic gathering commenced ahead of Q2 drilling

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 link to read more:

8 December 2020 – finnCap  – Helium One admission to AIM