Despite a continuous stream of positive developments, the share price of Helium One Global (LSE:HE1) has remained relatively stagnant over the past few months. This suggests that investors may be holding out for a significant event that could impact the company’s trajectory. Although production at the Galactica-Pegasus project in Colorado, where Helium One holds a 50% stake, is set to begin in the fourth quarter, this particular find is considered modest. The key focus for the organization, however, lies in its Tanzanian mine, where the finalization of legal documents—including the government’s confirmation of a 17% minority stake—is anticipated soon.
Once the paperwork is complete, the real challenge begins, which involves securing the estimated $75 million to $100 million required to bring production to fruition. A central question remains: what is the actual value of the helium? Answering this question is crucial for determining the company’s overall worth.
Understanding Reserves
Mining is inherently complex, and a recent report from an international reserves auditor assessing the Rukwa mine’s potential underscores this complexity. Among the various statistics presented, I am particularly drawn to the estimated contingent resource, which refers to gas that could be recovered from known sources but is not yet deemed ready for commercial exploitation due to specific uncertainties. In Helium One’s case, a notable uncertainty stems from the fact that the helium is not found in typical dry gas formations; rather, it exists within water aquifers. The company’s CEO describes this as a “unique play,” raising questions about the feasibility of extraction.
To arrive at a valuation, I will utilize what is characterized as the “best” or “most realistic” estimate of helium reserves. For this classification, there must be at least a 50% probability that the actual reserves will exceed this estimate. It is also important to focus solely on the helium that is anticipated to be extracted within the initial ten-year licensing period, as there are no assurances that the current agreement will continue beyond that timeframe. Based on these considerations, it is estimated that there are approximately 78,668 Mscf (thousand standard cubic feet) of gas potentially available.
Valuing Helium
To determine the potential worth of this helium, we must first assess its market value. Currently, conditions are favorable for sellers. The gas’s distinct characteristics, particularly its application in cooling technologies, render it highly valuable in the medical sector. Presently, demand exceeds supply, and since helium cannot be synthesized, prices are expected to remain elevated. Interestingly, the helium market lacks a standardized spot price; instead, individual contracts are negotiated. I have encountered price estimates ranging from $200 to $2,500 per Mscf. For the sake of this analysis, let’s consider $1,000 per Mscf as a typical value. Based on this figure, the gas could be valued at approximately $78.7 million. It’s essential to note that this figure represents the retail value and does not factor in production costs or the government’s share, which might explain the company’s uninspiring share price performance.
Potential for Growth
Nonetheless, I believe that the company’s share price could rise if investors are presented with convincing evidence that additional gas can be extracted. In an optimistic scenario, the prospective resource—defined as gas that could potentially be recovered from undiscovered sources through future development efforts—might reach as high as 3,227,556 Mscf. This figure includes helium outside the current license boundaries and could yield a retail value exceeding $3.2 billion, far surpassing Helium One’s current market capitalization of £58 million. The valuation could be even higher if my price estimates are conservative. However, given the level of uncertainty involved, I would consider investing in this venture too risky at this time.
