Royal Helium Ltd. (RHC:TSX.V; RHCCF:OTCQB), with its acquisition of Imperial Helium Corp. (IHC:TSX.V; IMPHF:OTCQB), is ready to become a leading helium producer at a time when the market for this gas used in everything from semiconductors to health care is set to expand at least 8.3% over the next four years.
A recent industry report said there were six publicly listed helium pure plays active in North America, and two of them were Royal and Imperial, which both have properties close to production.
At a time when other sources of the gas are being strained by geopolitical pressures like the war in Ukraine and sanctions against Russia, a major producer, it’s essential that more of it is sourced locally, and Canada ranks fifth in the world in known helium resources.
“Unless we are bringing a lot of new helium atoms to market,” Royal Helium Chief Executive Officer Andrew Davidson said in a recent interview, “the world needs it, and they’re going to take it from wherever they can get it.”
Royal’s project at Climax in Saskatchewan is set to go into production in Q1 of 2023, while Imperial’s Steveville project in Alberta is set to start producing this fall. The consolidation enables Royal to have increased production sooner, said Campbell Becher, a director of both companies.
“The volume essentially doubles” by having both locations in production, Davidson said. “When you’re able to double volumes when you deliver to market in a time of rising prices, that just makes it too much to pass up.”
Royal’s merger with Imperial should provide diversification and boost the investment profile of the new company, 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."
Helium Shortage 4.0
Helium, often a byproduct of natural gas production, is the second most abundant element in the universe. It’s also the second lightest and has the lowest boiling point. Because of that, it’s perfect for cryogenic applications like the cooling of superconducting magnets in MRIs. It’s also used in nuclear reactors, semiconductors, superconductivity, instrumentation, lasers, medical applications, light bulbs, and more.
Only a few countries produce the world's helium, including the United States, Qatar, Algeria, and Russia. Canada has that sizeable reserve, but currently produces only about 1 percent of the world’s gas. Saskatchewan’s unique geology allows for helium to be extracted with a low greenhouse gas emissions profile, according to a research report by Haywood Capital Markets analyst Christopher Jones. The environmental impact is up to 99% less than with other helium-producing processes.
Saskatchewan hopes to increase the province’s output of the gas to 10% of the world’s supply by 2030 and has unveiled new incentives and tax credits to companies.
ResearchandMarkets.com forecasts that the global helium market will grow from $4.45 billion this year to $6.14 billion in 2026 at a compound annual growth rate of 8.3%.
The Haywood report counted six publicly listed helium pure plays active in North America: Royal Helium, Imperial Helium, Desert Mountain Energy Corp., First Helium Inc., Avanti Energy Inc., and Global Helium Corp., along with the privately held North American Helium Inc.
With its combined resources, the new Royal Helium will be “a leader in helium supply,” Imperial Executive Co-Chairman and Director Kyler Hardy said.
“There (have) not been any significant new supply sources in North America for years and the majority of growth is forecasted to come geopolitically unfavorable regions,” The Haywood report stated. “This has created an opportunity for Western Canadian producers to fill the void felt from the removal of the U.S. helium reserve in 2018.”
Helium is a finite resource on Earth, and the industry is in the midst of its fourth shortage since 2006, which some are calling Helium Shortage 4.0. The U.S. National Weather Service is cutting back on weather balloon observations, and the shortage is even affecting the birthday party balloon industry.
It is also difficult to store, which is one reason North American industries are seeking local suppliers.
“There’s going to be an abundance of helium in Canada,” Becher said. “We’ll just be feeding that U.S. market.”
Consolidation of Helium Industry ‘a Must’
The new company will have a robust portfolio of helium wells, including those ready to produce, along with exploration opportunities. The merger will help consolidate the industry, Hardy said.
“Consolidation in the helium industry is a must,” he said. “If there is going to be larger value creation in the sector, there must be a natural consolidator. This merger is the start of that consolidation process, where larger enterprises can then acquire multi-asset (exploration, development, and production) operators.”
The company will be better positioned to access capital and engage it offtake discussions. Davidson said the company is already in in negotiations with buyers. “It’s going to happen,” he said.
Exploration also continues for the company. Royal Helium recently announced that it is set to spud the initial well at its Val Marie project in Saskatchewan in on July 10.
Royal said it has received the results of its seismic program at its 13,000-hectare Val Marie project, which is at the heart of the Bowdoin Dome feature, which has hosted current and historic helium production. Using 35 kilometers of newly acquired and purchased trade data, Royal said it has identified a series of large structural features at the site and selected an initial drill target and five more high-priority targets.
With Royal acquiring all of Imperial's issued and outstanding shares in the merger, 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 July 12 in Vancouver, assuming they approve it. Upon acquisition closing, Royal will have 203,843,231 shares outstanding versus its current 142,741,726.
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