An agreement for Royal Helium Ltd. (RHC:TSX.V; RHCCF:OTCQB) to acquire Imperial Helium Corp. (IHC:TSX.V; IMPHF:OTCQB) announced this week could create one of the largest diversified helium companies listed on a Canadian stock exchange at a time when the global helium supply is in jeopardy and being disrupted by several factors, including Russia's war on Ukraine and COVID-19.
The transaction should provide diversification and boost the investment profile of the combined companies, Auctus Advisors founding partner Stephane Foucaud told Streetwise Reports.
"The new entity will benefit from a better balance sheet than Imperial’s," Foucaud said. "This cash position combined with the larger scale of the company should allow better access to capital at a lower cost."
The new Royal will have a robust portfolio of helium wells, including ones ready to produce, along with many exploration opportunities.
"The combined company will be very well positioned to offer stable supply of helium to the world's largest market at a time when existing supplies are challenged by geopolitical events," Imperial Co-Chairman Kyler Hardy said in the release.
The new company will be better positioned to access capital and expedite offtake discussions and other ways to monetize assets. It also will allow Royal to generate cash flow sooner and benefit from general and administrative cost synergies.
"This acquisition would allow Royal to initiate production and significant cash flow from multiple fields near term, accelerate its production profile and enhance future growth for all shareholders," Royal President and Chief Executive Officer Andrew Davidson said in the release.
"The new entity will benefit from a better balance sheet than Imperial’s. This cash position combined with the larger scale of the company should allow better access to capital at a lower cost."
—Auctus Advisors analyst Stephane Foucaud
Imperial Chief Executive Officer David Johnson said he could not comment on the agreement when contacted by Streetwise Reports.
With Royal acquiring all of Imperial's issued and outstanding shares, Imperial shareholders will receive 0.614 of a Royal common share for each Imperial common share they hold. Based on both companies' closing prices on April 29, 2022, this represents a 10.01% premium to Imperial shareholders.
Also with the transaction, Imperial shareholders will get to own shares of a larger, more liquid, publicly traded entity and may participate in growth upside, given Royal has 1 million acres of helium land into which more than $20 million has been invested.
The deal is expected to close shortly after a special meeting of Imperial shareholders scheduled for the latter part of June 2022, assuming they approve it. Upon acquisition closing, Royal will have 203,843,231 shares outstanding versus its current 142,741,726.
Helium, a byproduct of natural gas production, is employed in both gaseous and liquid forms for nuclear reactors, semiconductors, superconductivity, instrumentation, lasers, medical applications, magnetic resonance imaging, cryogenics, lightbulbs, and more.
Only a few countries produce the world's helium, including the United States, Qatar, Algeria, and Russia. Canada currently produces only about 1 percent.
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