Despite a consistent stream of positive developments surrounding Helium One Global (LSE:HE1), the company’s share price has remained relatively stable in recent months. It appears that investors are in a holding pattern, anticipating a significant event. The upcoming production at the Galactica-Pegasus project in Colorado, where the company holds a 50% stake, is expected to begin in the fourth quarter; however, this discovery is considered modest in scale. The real focus is on the company’s mining operations in Tanzania, where legal agreements, including the government’s acknowledgment of a 17% minority stake, are expected to be finalized soon.
Once these legalities are settled, the next phase will entail the challenging task of securing the estimated $75 million to $100 million required to bring production to fruition. A crucial factor in this process is determining the value of the helium itself. The answer to this question will provide insight into how the company should be appraised.
Understanding Helium Reserves
Mining is inherently complex, and a recent report from an international reserves auditor evaluating the Rukwa mine’s potential highlights this complexity. Amid the various metrics, the estimated contingent resource is of particular interest. This figure pertains to gas that is “potentially recoverable from known accumulations” but is not yet deemed commercially viable due to certain uncertainties. In Helium One’s case, one such uncertainty is that the helium is not found in conventional dry gas forms; instead, it exists within water aquifers. The company’s leadership describes this as a “unique play,” which raises questions about the feasibility of extracting the gas.
To establish a more grounded estimate of helium reserves, I will refer to what is considered the “best” or “most realistic” projection. For this classification, there must be at least a 50% likelihood that the actual reserves will exceed this figure. Additionally, I will only account for the helium expected to be extracted during the initial ten-year licensing period, as there’s no certainty that this agreement will be renewed. Based on these criteria, it is estimated that there are 78,668 Mscf (thousand standard cubic feet) of gas that could potentially be accessible.
Valuing Helium
To assess the potential value of this gas, we must first understand current helium market dynamics. At present, sellers benefit from favorable conditions due to the gas’s unique properties, particularly its applications in cooling and the medical field. Demand currently exceeds supply, and helium cannot be synthetically produced, which suggests that prices are likely to remain elevated. However, an intriguing aspect of the helium market is the absence of a standardized spot price; instead, prices are determined through individual negotiations. Estimates for helium pricing range from $200 to $2,500 per Mscf. If we assume a typical price of $1,000 per Mscf, the estimated worth of the gas amounts to approximately $78.7 million. It is important to note that this figure reflects retail value and does not factor in production costs or the government’s share, potentially explaining the company’s stagnant share price.
Future Potential
That said, there is potential for a significant upside if investors receive convincing evidence that more gas can be extracted. In an optimistic scenario, the prospective resource—defined as gas that could be recoverable from undiscovered reserves through future development efforts—could reach as high as 3,227,556 Mscf, including helium located outside the current license area. This would translate to a retail value exceeding $3.2 billion, vastly outpacing Helium One’s market capitalization of £58 million. If my pricing assumptions prove conservative, the potential value could be even higher. Nevertheless, due to the inherent uncertainties, I consider investing at this stage to be too risky.
