Despite a consistent flow of positive updates, Helium One Global (LSE:HE1) has seen little movement in its share price recently. It appears that investors are biding their time, anticipating a significant development. While production at the Galactica-Pegasus project in Colorado, where the company holds a 50% stake, is slated to begin in the fourth quarter, this discovery is relatively minor in scale. The real game-changer for the company lies in its operations in Tanzania. Legal formalities, including the acknowledgment of the government’s 17% minority stake, are expected to be finalized soon.
Following this, the company will face the considerable task of securing the estimated $75 million to $100 million necessary to bring production to life. However, a critical question remains: what is the value of the helium? Understanding this will be key to accurately assessing the company’s worth.
Understanding Reserves
Mining is a complex endeavor, and a report from an international reserves auditor evaluating the Rukwa mine’s potential highlights this intricacy. Among the various metrics, I am particularly focused on the estimated contingent resource, which refers to gas that is “potentially recoverable from known accumulations but is not yet deemed mature enough for commercial development due to certain contingencies.” In Helium One’s case, one significant uncertainty is that the helium is not part of a conventional dry gas reservoir; rather, it is located within water aquifers. The company’s CEO describes this as a “unique play,” which introduces some questions regarding its recoverability.
To arrive at a valuation for helium reserves, I will utilize what is regarded as the “best” or “most realistic” estimate. This definition requires a minimum 50% probability that the actual reserves will surpass this figure. Additionally, I will only take into account the helium likely to be extracted during the initial ten-year licensing period, as there is no assurance that the current agreement will be renewed. Based on these criteria, the estimated amount of gas available is approximately 78,668 Mscf (thousand standard cubic feet).
Valuing Helium
To determine the potential worth of this gas, we need to assess the value of helium itself. Currently, market conditions favor sellers, as the gas’s unique attributes, particularly in cooling applications, make it highly sought after in the medical field. Demand is outpacing supply, and since helium cannot be synthesized, prices are expected to remain elevated. However, a notable aspect of the helium market is the absence of a standardized spot price; instead, prices are individually negotiated. Estimates for pricing vary widely, ranging from $200 to $2,500/Mscf. Assuming a typical price of $1,000/Mscf, the gas would be valued at around $78.7 million. It’s important to note that this figure reflects retail value and does not account for production costs or the government’s share, which might explain the company’s stagnant share price.
Future Prospects
Nevertheless, I believe that the share price could see significant appreciation if investors are presented with solid evidence indicating that more gas can be extracted. In an optimistic scenario, the prospective resource—defined as “potentially recoverable from undiscovered accumulations through future development initiatives”—could reach as much as 3,227,556 Mscf. This figure even includes helium outside the current license area. Such a resource would have a retail value exceeding $3.2 billion, vastly overshadowing Helium One’s current market capitalization of £58 million. Moreover, this valuation could rise if my price assumptions are conservative. However, due to the uncertainties involved, I find that investing at this stage presents a considerable risk.
