Helium One breezed through its funding target with an initial £5mln ask drawing significant demand.
The oversubscribed placing saw investors pledge around £8.5mln before the company settled for a £6mln share issue. That’s despite the pandemic and the year’s persistently low crude pricing.
Low crude prices may, in fact, be one factor in the high level of demand.
Helium One is not a hydrocarbon play – actually it is not remotely an energy story at all – but the methods and technologies used to find and extract helium are very similar.
Simply put, it is an investment story that oil investors can intuitively follow and at the same time it is detached from the crude market turmoil, and the decarbonisation lobby too.
Helium is an essential and irreplaceable ingredient in a number of high technology applications. The business case is far removed from party balloons or high-pitched party tricks.
The inert gas has many uses, not least as an irreplaceable element in vital products such as MRI systems and microscopes (among many others).
It is an important natural resource because of its chemical properties – for example, it has a low boiling point and it behaves as a superfluid – but, it has been and continues to be undersupplied across the global marketplace.
Primary sources of helium are rare and most commercial Helium production comes as a by-product of natural gas extraction.
The US accounts for about 55% of the world’s supply, followed by Qatar which provides just over 30%, after that Algeria and Australia yield 6% and 3% respectively. Most of that is associated with natural gas extraction. Stockpiles exist in US, Russia, Qatar, Algeria, and Iran. Meanwhile, newer and growing supplies are seen in Australia, Canada, and Tanzania.
Open supplies are tight and that presents an attractive backdrop for Helium One which has a commanding acreage position in Tanzania.
Rukwa is the flagship in Helium One’s portfolio. The project spans some 3,590 square kilometres in south western Tanzania.
The project is said to be the largest known primary helium resource in the world. The assertion is based on more than 1,000km of seismic data, high resolution gravity surveying, micro-seep and macro-seep analysis. But, has not been tested with a well.
Arriving on the London Stock Exchange as a ‘drill ready’ explorer the company’s goal is to confirm and de-risk the Rukwa deposits.
This begins with a 2021 drill programme comprising three wells, funded by the AIM float.
Rukwa is presently seen to have some 21 prospects and 4 leads – together representing 138bn cubic feet of resource potential – and the first of three wells will kick off by around mid-2021.
Success with these wells would provide a major catalyst for the company’s shares.
In theory, the company intends to quickly advance Rukwa from an exciting and novel geology project into a profitable commercial operation.
There are two very significant economic points to make at this stage, helium is priced far higher than natural gas - around US$280 per thousand cubic feet (mcf) versus about US$2.7 per mcf - and it is easier, and therefore cheaper, to process.
Chief executive David Minchin highlighted to Proactive that only cUS$50mln of upfront capital could fund a helium plant capable of handling some 350,000 mcf (3.5mln cubic feet) of annual helium production, which would in turn generate something like US$95mln in sales. Operating costs, meanwhile, have been estimated at about US$15 to US$20 per mcf and Minchin says most of that would be power costs.
“One of the advantages we have over hydrocarbons is that the capital costs of project development are infinitesimal, that’s because the gas is just a helium and nitrogen mix,” Minchin said in an interview with Proactive.
“It’s really pure and you can simply vent nitrogen into the atmosphere, which is already 70% nitrogen.”
Moreover, it is also comparatively simple and cheap to transport the high-value gas cargo for export.
In the case of Rukwa, Minchin explains that a trucking operation (which could see each truck carry over half a million dollars of helium, or around 1,000 mcf) would be sufficient to move the product to the port at Dar es Salaam for export.
“It doesn’t require the intensive infrastructure costs that you’d have with liquid nitrogen, natural gas or a remote oil field,” he highlighted.
These models, of course, remain conceptual at present. Aside from anything else Helium One must first confirm the valuable gas deposits are indeed where the geologists believe they are.
First an exploration well will seek to achieve this discovery. The plan would then be to follow-up with an appraisal in an offset location, to enable effective production testing, before detailed 3D seismic is deployed to accurately define the dimensions of the deposits.
Thereafter, the company expects to have the technical insights and wherewithal to advance a more comprehensive field development plan and feasibility study.
In terms of timelines, Minchin reckons a discovery well in mid-2021 could put the company on a track to have the development by mid-2022 and possibly see production from the first helium plant by 2023.
Rarely are any exploration projects as straightforward or linear. Ultimately several wells may be required, and plainly in a success scenario more capital will be needed to execute the plan.
Nonetheless, Helium One appears to present a novel and attractive proposition for speculative investors and, perhaps crucially, it offers an active campaign through 2021 which should provide newsflow and value catalysts aplenty.
Perhaps it is no wonder Helium One’s placing, late in 2020, garnered such demand. The AIM-market has a new exploration story that should be closely watched through the new year.