Broker initiates coverage on the helium explorer, citing potential to prove up significant reserves in Colorado.
Oak Securities has initiated coverage of Quantum Helium Ltd (AIM:QHE) with a high-conviction 'buy' rating and a risked target price of 0.064p, implying upside of 113% from current levels.
The broker said the AIM-listed company had transformed over the past 18 months into a US-focused helium explorer concentrated on the Four Corners helium fairway in Colorado.
Oak argued that work now underway on these assets could prove up significant reserves and allow a development to begin, creating substantial shareholder value.
The note centres on two projects.
At Sagebrush, where Quantum holds a 90% working interest across 10,000 acres, the company has begun an extended production test on a well first drilled in 1993 that found helium at concentrations of 2.7%, well above the commercial threshold.
Oak said reserve consultant Sproule ERCE believed the structure could hold 2U helium resources of 131 million cubic feet, with management pointing to higher upside.
The current test has found gas of similar composition, with a helium concentration of 2.5%, and also identified oil in the Leadville formation, opening a new play.
At the neighbouring Coyote Wash project, where Quantum has acquired three-dimensional seismic data, the broker said six identified prospects could contain a combined 2U helium resource of 970 million cubic feet.
Drilling there is expected to follow completion of the Sagebrush testing.
Oak said the company had a relatively strong balance sheet after a £5 million gross placing in April, leaving proforma cash of more than $8 million to fund the testing programme and move towards drilling.
The broker derived its 0.064p valuation using a risked exploration net asset value, assuming a helium price of $500 per thousand cubic feet, which it described as conservative against prices being achieved across the industry.
Oak framed the timing as favourable, with helium supplies appearing tight while demand continues to rise.
It said the period should prove exciting for shareholders as Quantum looks to become a major US helium explorer and producer.
