In a June 1 research note, analyst Phil Skolnick reported that Eight Capital initiated coverage on Imperial Helium Corp. (IHC:TSX.V) with a Buy rating and a CA$1 per share target. The current share price is CA$0.34.
The investment firm is bullish on Imperial Helium, Skolnick noted, because it has numerous advantages that help derisk its development plan and position it for success.
Imperial Helium is an exploration and development company focused on past producing assets in Alberta and British Columbia. Through an extensive, four-year analysis of about 650,000 drilled wells in those two provinces, it identified key helium targets and amassed a sizable database, Skolnick relayed.
"Imperial's analysis is truly proprietary," wrote Skolnick.
He explained that the company has a lower-risk, twofold strategy. One part is exploration. The other is securing and re-drilling assets in areas of previous helium discoveries, starting with the Steveville in southern Alberta.
"We expect Imperial Helium to continue to seek further helium project development opportunities," Skolnick commented.
Imperial's two land lease packages in Alberta, which encompass Steveville, span 95 square miles and contain an estimated 1.1 billion cubic feet of recoverable helium. The well bores on the property show an average helium concentration of 0.63%.
The British Columbia-based company plans to produce 99.999% pure helium using pressure swing absorption technology, Skolnick added. This approach will allow it to garner a premium price for its helium and, potentially, to monetize other gases like nitrogen.
As for a timeline, indicated Skolnick, Imperial intends to start producing and generating cash from up to three wells by Q4/22. It then would commence development construction in late 2023/early 2024 and achieve peak production of 40 million cubic feet of raw gas per day a year later.
Skolnick highlighted that Eight Capital's financial calculations on Imperial indicate strong free cash flow, with payout taking place 2.75 years after first production, and a 62% full cycle internal rate of return.
"The potential economics of Imperial's expected development plan look attractive," Skolnick wrote.
In addition to production, Imperial aims to build a centralized helium separation and purification hub in Alberta, which would allow other gas producers to make money off of the helium they vent into the air.
Also, Skolnick highlighted that Imperial has strategic alliances in place with various companies: "A key to IHC's expected success is that it has created strategic alliances with various players that have expertise in all areas of a fully integrated helium business: Cronin Capital, Petrel Robertson, ON2 Solutions and Uniper Trading."
Skolnick noted, too, that Imperial is advantaged with a strong management team and board of directors, composed of individuals with extensive relevant experience and expertise. For instance, CEO David Johnson has experience in Canadian exploration and production (35 years' worth) and in business development, operations, geoscience research and the technical aspects of exploration and production. The list of companies he has worked for include Shell Canada, ExxonMobil, Husky Energy, Kuwait Oil Co. and KUFPEC.
Editor's Note: On July 5, Imperial Helium announced the spud of initial well at the Steveville property.
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Disclosures from Eight Capital, Imperial Helium Corp., June 1, 2021
Conflicts of Interest: Eight Capital has written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research and other businesses. The compensation of each Research Analyst/Associate involved in the preparation of this research report is based competitively upon several criteria, including performance assessment criteria, the quality of research and the value of the services they provide to clients of Eight Capital. The Research Analyst compensation pool includes revenues from several sources, including sales, trading and investment banking. Research analysts and associates do not receive compensation based upon revenues from specific investment banking transactions.
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Eight Capital and/or its affiliated companies have provided investment banking services to Imperial Helium Corp. in the past 12 months.
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