Royal Helium Ltd. (RHC:TSX.V; RHCCF:OTCQB), a small-cap helium exploration company with near-term production assets in the Canadian provinces of Saskatchewan and Alberta, just signed an offtake deal with a North American space launch company.
The name of the rocket launcher that signed the offtake agreement was not divulged by Royal Helium owing to a firm non-disclosure agreement.
The helium supply agreement will start in 2023, which coincides with the Q1/23 production launch at the Steveville helium property in Alberta.
Steveville was added to the fold when Royal announced in early May that it would acquire Imperial Helium in an arm’s length, all-share deal. The takeover became official in late July.
Production at the Climax acreage in southwestern Saskatchewan is also slated for Q1/23. The combined throughput for both the Climax and Steveville plants is slated to be 20,000 million cubic ft (MCF) per day.
Hannam & Partners gives Royal Helium a risked Net Asset Value of CA$0.58 per share, a 48% increase from the CA$0.39 close on August 26, 2022.
The helium in both reservoirs is carried primarily by nitrogen, which is not considered a greenhouse gas. This gives Royal’s operations a low carbon footprint, as most wells rely on natural gas to extract helium.
Chris Temple, editor and publisher of the National Investor newsletter, came out of the gate with the news. He owns the stock and understands the significance of the offtake agreement.
"As I understand it, this is the first time ever that a major supplier of helium has done a deal directly with an end user, rather than with one of the precious few helium/gas wholesalers in the world," Temple wrote.
He added, "Unlike virtually every other significant resource of helium in the world, Royal's is not associated with hydrocarbon production."
Meanwhile, Technical Analyst Clive Maund has been following the stock and sees promise in the company's six-month chart.
Maund wrote, "On the six-month chart, we can see that a potential base pattern has been forming in the stock since mid-May, and in the middle of this month, it ran at the resistance at the upper boundary of the suspected base on big volume, a positive sign, with a tight bull Flag forming since that has featured some big volume up days."
Maund says Royal Helium is rated an "immediate Speculative Buy as soon after the open as possible."
There are only a few companies in the space launch business, some of which are helmed by billionaire rocket men like Richard Branson (Virgin Galactic), Jeff Bezos (Blue Origin), and Elon Musk (SpaceX). The others include Arca Space Corp., Boeing, and of course, the National Aeronautics and Space Administration (NASA).
Pressure provided by expanding helium pushes fuel into the rocket engines at launch. The gas is optimal because it is inert, expands when heated, and won’t explode — handy attributes you’re dealing with extreme temperatures in a volatile environment.
Technical Anlayst Clive Maund says Royal Helium is rated an 'immediate Speculative Buy as soon after the open as possible.'
If helium wasn’t part of the process, the rocket fuel would not load fast enough, and the engine would fail.
Royal Helium has exploration permits and leases covering 348,908 hectares prospective for helium in southwestern and southeastern Saskatchewan. The province has well-developed infrastructure and is virtually void of geopolitical risk.
Saskatchewan produces about 1% of the world’s helium, but the provincial government has its sights set on 10% by 2030 and, as such, has introduced further production incentives for helium producers. The government is also paying for a portion of the Climax production plant.
In a report on helium published in late 2021, Haywood Securities Analyst Christopher Jones called Western Canada “one of the most attractive jurisdictions to explore, produce, and develop a booming helium industry … helium was declared a critical mineral in Canada which means it is considered essential to Canada's economic security."
Catalysts
Royal also announced that it has nearly finished engineering work on its helium processing facilities and is about to hand out contracts to builders.
Exploration drilling at Climax encountered 0.65% helium while drilling at the company’s Ogema discovery returned 0.76%. Typically, a commercial operation in Saskatchewan can be viable at 0.30% helium.
Royal Helium plans further drilling at Ogema once it receives the necessary permits.
Perhaps more importantly, the company has found a deeper, unconventional helium play at Climax called Nazare that is estimated to contain 2.5-6 billion cubic ft. (BCF) helium. Royal plans to drill a horizontal well to further test Nazare’s potential and derisk the resource.
A July 5 research report by London-based Hannam & Partners compares Nazare to the generous Montney shale that straddles northeastern British Columbia and Alberta and suggests that if Royal Helium were to define a 3 BCF helium resource at Nazare, it could be worth more than CA$0.50 per share.
Exploration drilling at Climax encountered 0.65% helium while drilling at the company’s Ogema discovery returned 0.76%. Typically, a commercial operation in Saskatchewan can be viable at 0.30% helium.
The current spot for helium exceeds $1,000/MCF — a 150% increase from $400/MCF Hannam & Partners uses in its base case modeling.
There is also potential for other commodities in the different shales, such as hydrogen, methane, and lithium.
Samples of brine water taken from the Climax-1 well, drilled in January 2021, demonstrated significant concentrations of lithium in brine, as much as 84.9 milligrams per liter. The company is now looking to secure the mineral rights for the 60,000-hectare Climax, which would make it the largest lithium project in western Canada.
“Climax is set to not only become a cash generative helium play but also now presents potential additional value to stakeholders with a lithium exploration and development project,” Royal Helium President and CEO Andrew Davidson said in a release.
The company is also seeking an AIM listing in London to boost liquidity.
Helium Demand Outlook
FutureMarketInsights.com reports that the helium market in the U.S. is worth almost $3 billion but will approach $5 billion within a decade.
The spot price for helium has skyrocketed in recent months and topped out above $2,000/MCF in May following a fire at a large helium development project in Russia and ongoing issues at the U.S. Bureau of Land Management’s Cliffside Gas Field, a helium repository in Texas.
Forget Mr. Fredricksen’s helium balloons in Disney’s Up or the countless helium-enhanced voice gags on Tik Tok; the lion’s share of helium production is used to purge fuel lines in space rockets.
It’s also used in semiconductors, MRI machines, and in helium-filled hard drives used by companies like Netflix. These drives have 50% more capacity than a typical hard drive and run cooler, so they’re cheaper to operate. And Tesla uses helium to detect lithium leaks in its battery banks in electric vehicles.
Hannam & Partners gives Royal Helium a risked Net Asset Value of CA$0.58 per share, a 48% increase from the CA$0.39 close on August 26, 2022.
Bloomberg reports that Royal Helium’s top five shareholders include Kyler Hardy with 2.72% of Royal Helium or 5.45 million shares; 49 North Resources with just less than 1% at 1.94 million shares; Jeff Sheppard, 0.70% or 1.4 million shares; TMM Portfolio, 0.4% or 911,152 shares; while Davidson owns 1.04% or 2.08 million shares.
At the end of Q1/22, the company had about CA$4.5 million in working capital.
Royal Helium has about 206.6 million shares issued, with more than half of those free-floating. The company also has about 53 million warrants outstanding at an average strike price of CA$0.58. It trades in a 52-week range of CA$0.59 and CA$0.28.
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CliveMaund.com Disclosures
The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.
