RE: Liberum pick4 Feb 2021 14:26
part 2
Since receiving its permits in 2015, Helium One has conducted significant geophysical and geochemical work and has identified 21 prospects and 4 leads from aerial gravity surveys and seismic data. With an independently estimated unrisked resource of 138Bcf, this is potentially the largest primary helium resource in the world. Surface seeps have found concentrations up to 10.6% and the base case for helium content is assumed to be 4.2%. This dwarfs typical helium grades where it is produced as a by-product of hydrocarbons at a concentration of 0.05-0.35%. Studies suggest Rukwa is in an ideal zone for helium generation, migration and trapping. The asset is well located, with the fifth-largest city in Tanzania 130km away and a highway and infrastructure already in place to support the project. Discovery drilling in Q2 2021 will be focused on three high-grade targets at Rukwa, with each well taking roughly a month to drill to a depth of 800- 1,200m. If helium occurrences are found, an evaluation programme will then characterise reservoir properties and trap geometry, by drilling evaluation boreholes and running a 3D seismic survey. Helium One also holds licences on two other prospective regions in Tanzania, where surface seeps of helium-nitrogen suggest an active helium system is present. These projects are less progressed than Rukwa however and lack the seismic data necessary to estimate resources from identified structural leads. Helium is a colourless, odourless, tasteless, non-toxic, inert gas with the lowest boiling point of all elements. It is produced by radioactive decay deep in the Earth’s crust and mantle. Importantly, it cannot be synthesised or manufactured and there are no substitutes. It has key uses in industrial, scientific and technological fields, with 20% of helium used in MRIs, 17% in welding and 10% in laboratories. Future growth in demand will likely come from Asia, particularly from electronics and semiconductors, as well as new applications such as space travel and quantum computing. The helium market is concentrated, with just a few companies involved in its supply, including Qatargas, Sonatrach and Exxon. Roughly 75% of global supply comes from the US and Qatar. The industrial gas companies are the principal buyers in the market, namely Air Liquide, Air Products and Linde. In summary, we believe that helium prices will be supported by both a supply shortage and from rising and price inelastic demand. If drilling in 2021 at Helium One’s Rukwa asset in Tanzania confirms the presence of economic concentrations of helium gas with potential for 350,000 Mcf/y of start-up production, this would mean $46m of annual FCF once operating. This equates to a payback period of 1.1 years on the plant using conservative price assumptions. We would expect the group to re-rate significantly from here if this is the case, since it infers a forward FCF yield of 92%.
Sign In
Follow the stocks
