Analysts at Research Capital have maintained their ‘Speculative Buy’ rating for Royal Helium Ltd (TSX-V:RHC, OTCQB:RHCCF) on the “positive” news that it has commenced the start-up of its Steveville helium purification facility after completing the commissioning phase.
They have also stuck to their $1.15 price target for the stock.
Royal Helium’s shares jumped 17% to C$0.34 by early afternoon in Toronto.
With start-up now achieved, the analysts noted that Royal Helium is the first publicly traded helium producer in Canada.
“The Steveville project is expected to generate a stable cash flow stream, enabling reinvestment into the development of the company's other helium projects across Saskatchewan and Alberta,” the analysts wrote in a note to clients.
“In addition, the company has assembled a strong team that have the skills and connections to complete additional projects as well as expand into new promising ventures.”
The plant is designed to process 15 million cubic feet per day of raw gas, which is expected to produce approximately 22,000 mcf (thousand cubic feet) of 99.999% pure helium per year.
“The plant captures all byproducts, including CO2 and condensate, while only nitrogen will be safely vented to the atmosphere, resulting in zero negative environmental impacts,” the analysts wrote.
“In addition, the small amount of methane that is produced is sufficient to power the plant resulting in low operating costs and high margins.”
According to the analysts, Royal considers the Steveville facility as a proof-of-concept project, and based on the knowledge and experience gained, the company intends to replicate similar helium development projects at an accelerated pace.
“The decision on when to construct the next facility will somewhat depend on results of the upcoming well recompletion and drilling program,” they added.
Contact the author at stephen.gunnion@proactiveinvestors.com