In a June 8 research note, Eight Capital analyst Phil Skolnick purported that Royal Helium Ltd.'s (RHC:TSX.V) stock offers a "key opportunity" for investors, nearly threebagger returns, for a number of reasons.
Despite significant recent news and other positive factors, the energy company's share price is down about 25% from its recent high, Skolnick highlighted. It is now about CA$0.62 per share whereas Eight Capital's target price on Royal Helium is CA$1.85 per share. The target takes into account the company's recently closed CA$17 million bought-deal secondary offering and increased drilling, he noted.
Skolnick presented five reasons Royal Helium warrants a higher valuation.
One, the company, through its Climax-3 wells, discovered a new 39 meter contiguous zone in the Regolith that, upon testing, showed high levels of helium and nitrogen, 0.55–0.65% and 71.97–95.95%, respectively. Royal Helium estimated the Regolith contains 2,500,000,000–6,000,000,000 cubic feet of helium and said its discovery could be one of the largest ever made in Saskatchewan.
The discovery represents "a potential material expansion to the company's opportunities," Skolnick wrote.
Two, testing of the newly discovered zone also showed the presence of hydrogen, 0.02%–14.97% with a 9% average, which could be another source of revenue for Royal Helium, particularly because hydrogen demand is growing thanks to the world's focus on clean energy.
Three, the helium present in the Deadwood, Souris River and Duperow formations offers additional upside, as it is not included in the estimated resource based on Climax-3. Results of Climax-2, in which the Regolith is also present and which Royal Helium will test, could also further expand the resource.
Four, the company intends to commence production at Climax in Q4/21 and is now planning that.
"This is also a key derisking event for the stock as it puts the company further down the path towards first cash flows," Skolnick wrote.
Five, Royal Helium's acreage is adjacent to that of North American Helium, which just made a helium discovery in the Cypress West area that is substantive enough that the company plans to build a third helium production facility. The implications of this discovery, Skolnick wrote, are positive for Royal Helium.
Eight Capital has a Buy rating on the energy company.
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