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Blue Star Helium
(ASX:BNL)In the Sweet Spot for Primary Helium Extraction
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GICS sector Ticker Market cap 14-Oct-22 (US$mm) Share price 14-Oct-22 (AUDc) | Energy ASX: BNL 28 2.8 |
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We initiate coverage on Blue Star Helium with a risked NAV of A$0.15/shBlue Star Helium (BNL) is Australian listed (ASX:BNL | OTCQB: BSNLF) with assets in Colorado. Its strategy is to find and develop low cost, high grade primary helium in USA. BNL has built up a 300k gross acreage position from scratch, securing a dominant land position in the Las Animas, Colorado region. This is a proven helium fairway containing anomalously high helium concentrations, which makes for favourable economic extraction. Importantly, the region is located in the prime global market for helium with nearby demand and crucially the logistics in place to reach end-users. Several of its helium prospects have now been derisked by drilling and encountering helium concentrations of up to 9%, enabling primary helium production. |
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Large low-cost and low-risk helium resource base with strong economicsThere are various factors that drive the economics of a primary helium development and we see BNL being well positioned in most areas. BNL has 2C resource of 0.65bcf, a large prospective resource base 13.4bcf (P50) and low geological risk demonstrated by the well results to date. The Company has encountered high quality homogeneous reservoirs leading to attractive gas flow rates, and most importantly has found very high helium concentrations up to 30x higher than the commercial threshold. It has very low well costs (US$400k each), is located in a favourable market in terms of demand and low tax (~15% royalty and 21% corporate tax rate) and has the benefit of plenty of existing helium infrastructure, logistics and access to services. The gas contains virtually no hydrocarbons making it ESG friendly “green helium”. There is upside from the sequestering or sale of the produced CO2, which can generate tax credits worth ~US$5/mcf. This leads to strong economics (up to US$150/mcf NPV10) and a low break-even helium price required (<US$100/mcf on Voyager). |
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Positive helium market fundamentals leading to high pricingWe believe helium extraction is an exciting growth industry for this increasingly valuable commodity. Investor interest in helium companies has been increasing since 2020 with strong share price performance in 2021, several capital raises and new companies coming to market; although there has been a pullback in line with the wider market this year. The helium market is currently severely undersupplied (spot pricing well over US$1,000/mcf vs. our base case of US$450/mcf) with strong demand growth prospects. There have been production disappointments from Russia and the US BLM (key strategic storage), which means end users are willing to pay higher prices for reliable low risk supply. We believe that BNL is in a strong position to negotiate attractive term-contracts with end-users, which would reduce its cost of capital. |
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Catalysts: Drilling results, permitting, development FID and offtakeBNL has an active exploration programme over the coming months with wells planned at Voyager, Galactica/Pegasus and Enterprise and final results pending from the current well on Serenity. In 2023 there are likely to be further exploration wells targeting the likes of Argo, Galileo and Prometheus as well as deeper wells to explore new plays. The results of permitting are important as it has 56 wells currently going through the state permitting process. We expect the finalisation of a development plan for Voyager shortly, and expect BNL to sign a helium offtake agreement in the next few months. |
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Valuation: ~450% upside to our risked NAV of A$0.15/sh In our base case scenario, we use a helium price of US$450/mcf long-term flat and a 10% discount rate. Our risked NAV on a fully diluted basis is A$0.15/sh, which implies 390% upside from the current share price. On an unrisked basis, we have a NAV of A$0.46/sh i.e., >15x upside. A US$50/mcf increase in the helium price would increase our risked NAV by A$0.02/sh (+12%) and unrisked by A$0.05/sh. BNL’s 13.4bcf of resource at US$125/mcf NPV would be worth $1.7bn unrisked. Just from its drilled prospects (H&Pe: developing only ~2.5bcf of resource) we see the potential for >300mmcf/y of production (5% of global supply), which would generate ~US$125mm of EBITDA. In 2024 we see the potential for >US$30mm of EBITDA. BNL’s latest cash position was ~US$7.5mm, which provides funding for up to 10 further exploration wells. |
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