Hannam & Partners initiated coverage on Royal Helium Ltd. (RHC:TSX.V; RHCCF:OTCQB) with a risked net asset value of CA$0.58 per share because it owns multiple helium plays in an attractive jurisdiction, and is in the middle of acquiring another helium firm and has numerous catalysts on the horizon, reported analyst Anish Kapadia in a July 5, 2022 research note.
Kapadia of Hannam & Partners added, "Royal Helium stands out against the peer group given that it has been involved in helium exploration for many years, longer than most, and we expect it to be one of the first to achieve commercial helium production."
Royal is currently trading at around CA$0.41 per share.
Kapadia added, "Royal Helium stands out against the peer group given that it has been involved in helium exploration for many years, longer than most, and we expect it to be one of the first to achieve commercial helium production."
The analyst discussed the compelling aspects of this investment story.
He highlighted that Royal has a substantial portfolio of helium properties, spanning 1,000,000 acres and comprising more than 10 different "potential helium fairways." Two benefits of such an extensive portfolio are overall risk reduction and supply that is reliable and thus can garner higher prices.
Royal's assets are in Saskatchewan, one of the world's most attractive jurisdictions for helium exploration and production, Kapadia pointed out. Its geopolitical risk is minimal, its taxes and royalties are low and stable, and its government, aiming to increase the province's contribution to global helium supply to 10% from its current 1%, is supportive. With its recent acquisition of Imperial Helium, Royal will gain the proven Steveville assets in Alberta, slated for a Q1/23 production start.
To date, Royal has drilled its Climax and Ogema plays, encountering 0.65% and 0.76% helium at them, respectively, concentrations exceeding the 0.3% industry-cited commercial threshold, Kapadia indicated. Climax, where production is targeted to start in Q1/23, and Nazare, a deeper unconventional play like the Canadian Montney, have a potential 2,500,000,000–6,000,000,000 cubic feet of helium in place each. Plus, the energy company's extensive land package offers additional exploration upside.
Kapadia highlighted that Royal, which last raised capital last year, has a strong balance sheet. As of March 31, 2022, it had CA$4.5 million ($4.5M) in cash and working capital and no debt. Imperial Helium, also debt free, had CA$1.3M in cash adjusted for working capital. Together, Royal and Imperial had CA$5.8M in cash and working capital.
Royal has 143,000,000 shares in issue, with management owning around 3% of them.
Leading Royal's team is Founder, President, and CEO Andrew Davidson, with extensive junior resource development experience, particularly in financial management, capital structuring, and moving quality projects from exploration to production. Jeff Sheppard, a chartered professional accountant with nearly a decade of experience in the junior resource sector, is Royal's chief financial officer. Vice President of Exploration Stephen Halabura is a professional geoscientist well known for Saskatchewan's natural resource development.
"Royal runs a lean management team with relatively low cash outgoings," noted Kapadia.
Near-term catalysts for Royal, Kapadia wrote, include the closing of the Imperial acquisition, release of Val Marie spudding results, both in July, and signing of a helium offtake agreement soon.
Finally, Royal benefits from helium's current positive market fundamentals, Kapadia wrote.
The helium market, he indicated, is expected to remain "severely undersupplied" throughout the rest of this year and next, and demand is expected to remain strong and keep growing. Recent and ongoing production issues in Russia and at the U.S. Bureau of Land Management's Cliffside facility mean "end users are willing to pay higher prices for reliable low-risk supply." Also, the market's concentration affords the companies in it a competitive advantage.
Kapadia noted helium is essential for many applications, and its price is 50 to 100 times higher than that of natural gas. This means even small amounts or low concentrations of helium can be highly economic.
"Helium extraction is an exciting growth industry for this increasingly valuable commodity," Kapadia wrote.
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