Can Helium One still get off the ground?
“…Investors can take some solace in the fact that the company seems well financed to press on with the next phase of its programme…”
Since joining AIM last year Helium One (AIM:HE1) has enticed the small cap natural resources market with its aspirations to turn ‘the largest listed primary helium deposit in the world’ into a significant supplier in the market for one of the international economy’s most enigmatic and valuable elements.
The company’s share price climbed steadily in the months after listing from an IPO price of 4.25p to more than 27p at at the outset of its maiden drilling programme in June. But that momentum has juddered to a halt over the last few weeks after the campaign failed to live up to expectations. Here, we try to step back from the swirl of often confusing commentary generated by Helium One’s performance so far, looking in detail at what concrete progress the campaign has actually made, and what grounds it may offer for future success.
The world’s demand for helium
As we discussed in our previous articles on Helium One, helium has a surprisingly wide range of exceptional qualities that make it essential for many of today’s most advanced technologies. To recap: it is well known for its extreme lightness – the second lightest element after hydrogen – but is also colourless, odourless, and, unlike hydrogen, inert, one of the ‘noble’ gases that does not react with other substances. Helium has the lowest boiling point of any element, only changing from a liquid to a gas at a temperature close to absolute zero. It is best known for its use for powering airships, as a breathing gas for deep sea divers, and, of course, for inflating balloons. But it is also essential for a wide range of cryogenic, scientific and manufacturing processes.
Helium’s low boiling point makes it ideal for cooling superconducting magnets used in the magnetic resonance imaging (MRI) machines ever more widely deployed in modern medical diagnosis. It also facilitates the low temperature environments necessary for research in fields like particle physics and space flight. Helium is used to maintain the ultra low temperatures that facilitate operations of the Large Hadron Collider and the pressurisation of rocket propulsion systems: it was employed, for example, to cool the liquid oxygen and hydrogen that powered the Apollo moon missions. Helium facilitates the inert, sterile, super-clean conditions required for the manufacture of semiconductors and optic fibres, and serves as a shielding gas in industrial manufacturing processes.
These and other specialist applications make it one of the world’s most critical elements, generating a global market estimated to be worth more than $6bn a year. But although is the second most abundant element in the universe – again, after hydrogen – it is relatively scarce on Earth. Formed by the decay of radioactive rocks in the world’s crust, helium accumulates in natural gas deposits, and if it escapes to the earth’s atmosphere it is rapidly lost to space and gone forever. That matters, because it cannot be manufactured artificially.
Like other critical materials, such as lithium, cobalt, vanadium, helium’s supply depends on a few key producers. Perhaps surprisingly, until very recently the primary supplier was the US government, which from time-to-time has auctioned quotas from a strategic reserve originally intended for its military airships. The world’s dependence on this facility was vividly demonstrated in 2019 when the most recent auction forced a doubling of helium’s price as industrial users rushed in to guarantee their future stocks. At times helium prices have been 30 to 50 times those of natural gas.
The US reserve is soon to close, leaving helium buyers dependent on a handful of plants concentrated in Qatar and Algeria, which produce helium as a by-product of liquid natural gas. The vulnerability of Qatar – which accounts for a third of this production – as a supplier was demonstrated by the 2017 diplomatic crisis that temporarily cut off its economy. Although some significant helium projects are underway, notably a new Gazprom facility, the door is open for aspiring market entrants such as Helium One.
Helium One’s assets
The company has 18 prospecting licences in Tanzania, covering more than 4,512 km2 in three project areas at Rukwa, Balangida and Eyasi. Rukwa is currently by far the most significant. An independent analysis published in 2019 estimated that the 3,448 km2 field contains an un-risked prospective Helium P50 resource of 138 billion cubic feet (bcf), with potential outcomes ranging from 30 bcf to 521 bcf. Helium concentrations of up to 10.6pc have been recorded in the field’s surface seeps – the helium grade associated with hydrocarbon byproduct production is typically around 0.1 to 0.3pc. On paper, as Helium One’s marketing material readily proclaims, Rukwa is a world-class resource with ‘potentially strategic global implications’ promising ‘to significantly resolve helium supply/demand issues.’
Eyasi and Balangida are at much earlier stages of development. The 804 km2 Eyasi Project is some 600km to the north of the Rukwa, but has numerous geological similarities. High-grade helium has been measured at surface and structural leads have been identified from surface geochemical exploration carried out early this year. Balangida is a single prospecting licence covering an area of approximately 260 km2 that has not yet been explored. Founded five years ago, the company is led by CEO David Minchin, a geologist and Executive Director at multi-commodity exploration company ScandiVanadium Ltd, and Non-Executive Chairman Ian Stalker, a former CEO of UraMin Inc and LSC Lithium.
An inconclusive summer
Helium One was admitted to AIM last December, raising £6m to fund a maiden exploration programme this summer, building on years of analysis of Rukwa’s historic drilling data, reprocessed seismic lines, high resolution gravity surveys, and surface seep studies. A seismic campaign undertaken this February defined a multi-well exploration programme targeting shallow trap structures to a maximum depth of 1,200 metres, and the company’s drilling programme duly got underway on 14 June, employing micro gas chromatograph and mini mass spectrometer to identify helium shows, and wireline logs to identify reservoir and seal units and confirm promising zones.
The following week the company reported that the programme had got off to a positive start, chromatograph data showing helium concentrations of up to 22,084ppm (2.2pc) in drilling mud encountered while drilling the first well, Tai-1. Further helium shows were reported the following month, in zones from 552 metres to 561 metres above the well’s primary targets. The same update said that drilling operations had had to be suspended when the lower part of the drill pipe was lost, but that they could resume by sidetracking from above the lost pipe to access the target horizons below.
But the next announcement a few weeks later offered a somewhat more confusing picture of progress. The company was confident its operations had revealed ‘the presence of a working helium system in the Rukwa Basin’. Well Tai-1A had been completed to a depth of 1,121 metres with helium shows identified in all three target formations. Helium shows were encountered over five intervals in the Karoo formation, and a 130m thick claystone unit had been encountered above the formation’s top sands, indicating good seal presence for its reservoir. Wireline logging of Karoo’s uppermost part indicated good reservoir potential with 15 to 20pc porosities.
But petrophysical analysis had indicated no free gas in the uppermost thinly bedded Karoo sands associated with helium shows, and, worse, ‘poor and deteriorating hole conditions, including large washouts across much of the Karoo’ had prevented the company from running wireline tools downhole beyond 882 metres, thereby preventing it from logging the helium shows that had been detected within the deeper and thicker sandstone units of the reservoir. Indeed, the update stated that Tai ‘may need to be redrilled to test identified targets’.
The next update, on 19 August, reported that drilling operations had begun at the the second exploration well, Tai-2, located around 20m from Tai-1, and were focused on the prospective Lake Bed stratigraphy that had been identified but not fully evaluated in Tai-1. But a week later, another rather enigmatic update reported that the 2021 exploration campaign had been completed ‘without identifying helium gas’ at Tai-2.
The company nevertheless insisted that exploration at the two wells had ‘significantly de-risked the Rukwa Basin by demonstrating a working helium system’. Greater knowledge of the prospect’s helium geology had allowed the team to identify ‘Shallow’ and ‘Deep’ target types for ‘Phase 2 Exploration’. ‘Shallow’ targets offer open opportunities for low-cost exploration and drilling, and ‘Deep’ structural targets beneath the Karoo seal can be investigated by 2D infill seismic on defined gravity targets. In CEO David Minchin’s summary: ‘Results from Tai-1 have shown a prolific basin with helium shows identified at multiple levels from near surface to basement. Tai-2 has verified the potential for development of newly identified ‘Shallow’ traps within the Lake Bed Formation, which has the capacity to open a pathway to low cost exploration and development of near surface gas deposits.’ The company is investigating ‘the potential to mobilise infill seismic’ before seasonal rains begin in November, work that would inform the design of a deep drilling programme in 2022 to test the targets with an appropriately sized drilling rig. It may also be possible to drill shallow traps using a light-weight water-rig over the wet season.
Can Helium One still get off the ground?
Suffice to say, an expectant market has been unimpressed by progress. Helium One’s share price leapt from 8p to 27p in a matter of weeks at the outset of the campaign, before plunging to 11p after the inconclusive end of drilling at Tai-1 well. The price briefly rallied to 17p before collapsing to 6p after the campaign concluded. It has since recovered slightly to 9p.
Investors can take some solace in the fact that the company seems well financed to press on with the next phase of its programme. Helium One raised another £10m in April shortly before the campaign, to allow it ‘to save significant time and costs by keeping drilling equipment in the field to carry out appraisal work immediately following intended exploration success’. Keeping the rig on site would save several months of drilling downtime and around $0.5m in rig mobilisation and demobilisation costs. It would also allow contracting of 3D seismic over any discovery, maximising resource to reserve conversion, and completion of the majority of the field appraisal programme before the end of 2021. How the inconclusive results so far from the campaign affect these arrangements is unclear.
Helium One’s most recent set of interim results, for the six months ended 31 December 2020, reported a net cash balance of $6,584,886, as against $577,997 the previous year. The company’s pre-tax losses were $3,886,357 (six months ended 31 December 2019: $1,594,765).
That money may be able to unlock something from Rukwa’s ‘derisked’ helium system, and the area still has 3,500 km2 of untested licences. But Helium One now finds itself snared in the communications net that entangles so many natural resources small caps: defending an asset that it has talked up and which has – so far – failed to deliver. As its share price and the dismay on social media and other forums testify, the company is perilously close to losing investor confidence. The company still has money in the bank for further exploration. But it faces a long hard road to restore trust in a once compelling narrative.
