A Good Summary, page-31

Here you go John ... some light reading for you.... Just a few extracts... I'd post the link but HC don't allow it..

I will say some numbers are conservative and likely to be upgraded as BNL execute on their strategy

Gator


HIGH GRADE HELIUM RESOURCE VALUE ADD FOR BNL
Blue Star Helium Limited has strategically rotated out of the energy price exposed US oil and
gas sector into the helium business. The barriers to entry into helium production are principally
access to a high grade helium source, and the company is moving rapidly on that front. Its
lease portfolio is located along structure from the Model Dome helium field in Colorado USA,
which historically was one of the world’s highest grade helium producers. This report uses
US oil and gas industry volume units (M=thousand and MM= million). There is an appendix
detailing abbreviations and conversions in the back of this report.
KEY POINTS
Highly prospective geology – Blue Star is building a land package around the Model Dome
field which produced a nitrogen/helium gas at around 8% helium. The US Geological Survey
surveyed their database of US wells drilled and found 13,684 wells containing traces of helium.
Of those, only 0.5% contained more than 6% helium, and 0.2% more than 8%. Blue Star
believes their leases contain the same reservoir and seal strata, and sources gas from the same
source as Model Dome. Reservoir consultant Sproule estimates Net Prospective Resources of
1U 641MMscf, 2U 3021 MMscf, and 3U 6391 MMscf of recoverable helium net to Blue Star.
This Resource is contained in under 20% of BNL’s lease portfolio.
Land package is appreciating in value – Bidding for leases in the Las Animas region where
Blue Star is exploring has become more competitive in the March 2020 quarter, following
ownership changes at two helium producing companies in the region. The new owners are
likely to be more growth oriented, and also more asset acquisitive.
Low cost drilling commencing shortly – The target reservoir strata are shallow at 1000 feet
or 300 metres below surface. Vertical exploration wells are expected to cost US$300,000 for
a dry hole and US$400,000 for a completed producer. The first successful hole should result
in a significant re-rating in the company’s share price. Based on Model Dome well production
history, we estimate that a 2Mscf/day starter project could be supplied by up to five wells at a
total cost of US$2 million. Subject to shareholder approval, cash on hand in July 2020 should
be around A$2.5 million plus an additional A$1 million if 1cps options are exercised.
Excellent drilling and logistical support services available – The US Mid West is home to
an oil and gas industry of long standing, and there is existing helium industry infrastructure,
including technical consultants, drilling and logistical contractors available at relatively short
notice, and with considerable experience and competence. This human infrastructure
considerably reduces the risk to a junior company entering the industry.
Processing plants available for lease – There is also considerable physical infrastructure in
place, particularly in the region starting 100 miles to the east of Blue Star’s leases. There
are existing dedicated helium pipelines, helium separators and liquifiers with spare capacity,
and specialty companies that build and lease helium separation plants to third parties. This
means that once Blue Star has the well network in place, the balance of the capital equipment
required can be leased rather than purchased, reducing pre-production capital costs.
The business is scalable – Depending on the reserves and the market demand, this business
can be grown in size without being constrained by supply of capital. The critical factor is the
operating cost and competitive position of the business as a reliable supplier. This will be
underwritten by the high helium content, if it proves up as expected. The valuation leverage to
increasing project size is considerable.
Potentially strong competitive position – There is some significant supply scheduled to
come on line between now and 2026, and forecasting the impact on price will depend on the
strength of demand, which has experienced supply shortages for a number of years. In this
environment, we believe it is important to emphasise the competitive strength of any project
that manages to find 8% Helium. If the Prospective Resource grade proves up, we expect Blue
Star to be a low cost producer, with little debt on its balance sheet, making it a durable and
profitable business, throughout the price cycle.
The investment opinion in this report is current as at the date of
publication. Investors and advisers should be aware that over time
the circumstances of the issuer and/or product may change which
may affect our investment opinion.
2
Blue Star Helium Limited (ASX:BNL)
Independent Investment Research
VALUATION
At this early stage of development, we are not able to value Blue Star. We cannot value
Prospective Resources and there are no easily comparable pure play helium companies that
can be used as valuation comparisons. We have constructed a Indicative Financial Model of
what a project would look like based on reserves the same size as the announced Prospective
Resource. At an ex-field selling price of US$200/Mscf for A Grade helium, that Indicative Project
would be worth between US$18 million and US$176 million, with a pre-production capital cost
we estimate of US$5 million (Table 8). The NPV/Capex ratio is 3.6x to 35x. We believe we have
been conservative in our cost estimates.
INVESTMENT PROPOSITION
LOW PRE-PRODUCTION CAPEX ENTRY TO LONG TERM CASH FLOW
This is an appropriate business for Blue Star to be in
The pre-production capital cost to enter the business is low (we estimate $3M).
Exploring for gas is risky, but in this case, the well depths will be 1000 feet or 300 metres,
making each exploration hole cheap at US$0.3 million per dry hole.
The support infrastructure is considerable, which significantly reduces the technical risks
relating to exploration, construction and operation, with a large community of contractors,
consultants and equipment providers.
Discoveries are scalable. Blue Star can start small and grow on the back of cash flow.
If the expected helium grade of 8% is realised, Blue Star will have one of the highest grade
helium resources in the world, and with that comes a competitive cost position that will
allow it to maintain cash flow throughout the price cycle.
There are a number of offtake parties, and the market, while opaque, is highly developed,
with a number of producers signed up on long term contracts with specialty gas
corporations.
Helium price outlook - COVID-19 is a significant demand disruption, and forecasting the
recovery adds difficulty. Before the virus impact, spot helium prices anecdotally appeared
to be strong (ie around US$400/Mscf) and the supply demand balance favoured producers.
The forecast in the public domain vary, but the implication was that supply would remain
tight until 2022 when significant new capacity from the Amur project in Russia starts
coming on line.
We are comfortable that the current contractual market for helium in the US is between
US$200/Mscf and US$300/Mscf, and there are likely spot prices above that level. We have
assumed US$200/Mscf in our Indicative Financial Model, which we believe is conservative
enough to avoid potential for significant disappointment, and possibly have room for the
company to achieve higher prices.
Value adding stages
Blue Star Helium has to deliver on a number of steps, each of which should be rewarded
by the market, subject to general market conditions outside Blue Star’s control.
Step 1 is to convert the prospective resource into a reserve. This is likely to require
2-3 successful wells confirming delivery of helium to surface, and supporting positive
economics. The cost would be US$0.3 million to US$0.4 million for each well, or US$0.8-
1.2 million, plus evaluation costs.
Step 2 is to deliver a Feasibility Study combined with offtake contracts. Other small
capitalization project developers have demonstrated that major gas companies are
prepared to offer offtake contracts at the project stage.
Step 3 is funding, with considerable likelihood that the plant is leased from the
manufacturer, and transport capital is funded by haulage contractors. We expect that Blue
Star will have to provide the capital for the drilling and well completion, the access roads
support buildings and general support infrastructure, and start up working capital. Some of
this may be funded by debt, but for now we assume the only source of funding is equity.
3
Blue Star Helium Limited (ASX:BNL)
Independent Investment Research
Step 4 is project execution into full production.
Step 5 is to upscale and grow the business, using operating cash flow to further exploration,
and adding additional production modules to increase sales volumes. This would be low
risk organic growth, supported by the lease portfolio the company has been accumulating.
VALUATION
So far we have not found any listed helium pure play producers to use as a value yardstick
to assess what Blue Star would be worth if it drilled out a commercial reserve and
commenced production. Most comparisons that are listed produce or plan to produce
significant hydrocarbons. The pure helium producers we know of are unlisted, with no
visible market valuation.
As an alternative, we have attempted to develop an Indicative Financial Model for a target
project, which suggests that if Blue Star can deliver Reserves in line with the Prospective
Resources, it will own an asset worth between A$17.9M and A$176.1M at a selling price of
US$200/Mscf. We emphasise that this is not a valuation of Blue Star’s project, but one that
can be used by investors as a starting point against which to assess Blue Star’s progress.
The last BLM helium auction sale occurred in August 2018 at US$280/Mscf, and there
have been no auctions since. This US$280/Mscf is still a much talked about price level, so
we have provided our model value at that price. However, to be on the conservative side,
we are using US$200/Mscf as our base case. Renergen announces a US$200/Mscf long
term offtake price for its project, providing a clear benchmark for a Blue Star project.
Blue Star has published an unrisked Prospective Resource. This is an exploration target,
but one with sufficient data to allow the size of the prospective target to be dimensioned.
However, until the target is drilled, there is no certainty of the existence of helium, the
quantity, the quality, nor the flow rate, all of which are required as the basis for an evaluation.
However, owning a share in Blue Star is to effectively own an option on the company’s
potential success. Again we will have trouble valuing the option, but we can provide some
clarity on the parameters of a potential project.
Indicative helium operation as a benchmark
We have reviewed the publicly available information available on helium operations in the
US Mid West, and have generated estimates of the economics of an indicative helium
operation in the region. Those assumptions and the sources behind them are detailed in
the Economics section.
We have run a model based on assuming the Prospective Resources in the Blue Star
announcement of 27 May 2020 are converted unchanged into Reserves. We repeat that
Prospective Resources can fail to appear when drilled. However, the Indicative Financial
Model’s purpose is to an approximate answer the question: “what if drilling proves up a
Reserve somewhere between 1U 641MMscf and 3U 6391MMscf of recoverable Helium
net to Blue Star”.
Table 1 NPV of indicative helium operation in US$M
Helium Price 150 200 250 280 400
Reserve MMscf
Equivalent to 1U 641 MMscf 9.2 17.9 26.5 31.7 52.4
Equivalent to 2U 3021 MMscf 50.8 91.5 132.1 156.5 253.9
Equivalent to 3U 6391 MMscf 99.6 176.1 252.6 298.4 482.0
Source IIR Estimates
Our estimation and modelling suggest that any project is sensitive to both the size of the
Reserve and the long term helium price, but with the bias to the upside for the Blue Star
share price. Blue Star appears to have made a strategically sound decision to invest in this
industry, and is executing that strategy in a competent manner.
Determining the current helium price is difficult, and the future price more so. Renergen
(ASX:RLT) signed an offtake contract for US$200/Mscf escalating with US CPI over time for
A Grade (98% He) product contracted in either second half of 2018 or first half of 2019. This
sets the centre of our valuation table, and we have run sensitivities of minus US$50/Mscf,
and plus US$80/Mscf. The higher price captures the last BLM auction price. The positive
cash flow and NPV at the lower price demonstrates an ability to survive downturns.
4
Blue Star Helium Limited (ASX:BNL)
Independent Investment Research
There are anecdotes suggesting the current spot price is closer to US$400/Mscf, and if
that turned out to be the long term price, the valuation range would be US$52 million to
US$482 million, depending on the size of the reserves.
The table below shows the financials for the life of reserve that generates the NPV’s in the
table above at US$200/Mscf selling price.
We have determined a discount rate of 11.2% based on the Capital Asset Pricing Model
formula and the market assumptions as detailed in Table 10 as appropriate for valuing this
company.
Given the currently high level of volatility in the AUDUSD rate, all financial numbers in this
report are in USD, and the reader can convert at whatever the rate is at the time of reading.
In this report, when we convert values into AUD we use an AUDUSD rate of 0.69.
We believe we have been conservative on costs and operating parameters
The reader will see a number of sensitivities later in this report. We include a quick
summary here.
Our Base case is a selling price of US$200/Mscf vs indications that the current market is
closer to US$300/Mscf.
Average well production is assumed to be 500Mscf/d declining a 5%, where initial
production could be 1000Mscf.
Operation costs are assumed to be US$70/Mscf on a gross basis, or US$82/Mscf on a net
of royalties basis. The US$70/Mscf could be lower than US$50/Mscf.
We cost in additional three additional wells (eight vs five) to allow for failures.
Table 2 Life of operating financial metrics at US$200/Mscf selling price and different Reserves
Assumed Net Reserve MMscf Helium 641 3021 6391
Revenue Calculation
Selling Price at Spiggot US$/Mscf 200.0 200.0 200.0
Gross Gas Sold MMscf 738.2 3428.5 7393.4
Gross Revenue US$ million 147.6 685.7 1478.7
Royalty US$ million -22.1 -102.9 -221.8
Net Revenue US$ million 125.5 582.9 1256.9
Financials US$ million
Net Revenue 125.5 582.9 1256.9
Opex -51.4 -238.6 -514.5
D&A -3.2 -6.4 -6.4
EBIT 70.9 337.9 736.0
Tax (BNL has tax losses, which are not accounted for) -19.5 -92.9 -202.4
NPAT 51.4 245.0 533.6
Cash Flow US$ million
Pre Production Capex -3.2 -3.2 -3.2
Sustaining Capex 0.0 -3.2 -3.2
Free Cash Flow 51.4 245.0 533.6
NPV 17.9 91.4 176.1
Operating Assumptions
Helium Sales MMscf/yr 51.0 277.3 500.0
Production Wells 4.0 12.0 22.0
Well Flow Rate Mscf/d 500.0 1000.0 1000.0
Sources: IIR estimates (see Economics section of this report)
How to think about these numbers
Blue Star has a market capitalization of A$11 million, which means that the company’s
share price is factoring in a probability of delivering the 3021 MMscf reserve and US$200.
Mscf price of US$91.4 million outcome as 12%. The implied factors of success for the
other scenarios see Table 3.
5
Blue Star Helium Limited (ASX:BNL)
Independent Investment Research
The Prospective Resources are categorized as 1U if there is a 90% chance it exists, 2U if
there is a 50% chance, and 3U if there is a 10% chance. The odds are related to the height
of the gas column in the trap structure. If the structure seal has failed there could be no
gas, and the probability assessment does not capture that aspect of risk.
Table 3 Probability of delivering the NPV for each scenario implied by the current share price
of Blue Star
Helium Price 150 200 250 280 400
Reserve MMscf
Equivalent to 1U 641 MMscf NA 56% 38% 31% 19%
Equivalent to 2U 3021 MMscf 20% 11% 8% 6% 4%
Equivalent to 3U 6391 MMscf 10% 6% 4% 3% 2%
Source: IIR estimates (see Economics section of this report)
Corporate interest in the sector is picking up
The March 2020 quarterly, the company noted that there had been a marked increase in
competition for acreage in Las Animas County. On average, Blue Star has seen a doubling
to the bid prices for leases in its region since December 2019, with some leases seeing a
10x increase, presumably due to either high prospectivity or strategic value.
The timing of increased interest coincides with ownership changes of some pure play
helium producers that may now have stronger growth ambitions supported by stronger
balance sheets. We note that the increased competition started after Tumbleweed
Midstream completed the purchase of DCP’s Ladder Creek helium production network.
Another US helium pure play called Tacitus LLC has had a major change in it shareholder
base, and may also be on a more aggressive acquisition strategy.

LAS AMINAS HELIUM PROJECTLocation – Close to significant helium processing infrastructure and expertiseFigure 1 Location of US Helium ResourcesSource: https://www.nap.edu/read/12844/chapter/7#75 The Blue Star lease portfolio is near the town on Model in Las Animas County, Colorado,and is 173 miles or 3 hours drive south west of the Ladder Creek oilfield that has extensivehelium processing infrastructure, and 250 miles or a four hour drive to the major heliumstorage and processing facilities of the US Bureau of Land Management at the CliffsideField near Amarillo, Texas. The helium production corridor running from western Kansas to north western Texas isresponsible for around 40% of the worlds helium production. There is a highly developedcommunity of specialist contractors available to support all the production aspects of thehelium business in the region, significantly reducing the start up risk a junior companywould normally experience. There are 14 helium refining operations in the US, including two in Colorado, five in Kansas,and four in Texas, with more distant plants in Arizona (1), Oklahoma (1) and Wyoming (1).The Kansas and Oklahoma plants have a history of toll treating the raw helium gas fromthird parties to any market specification and there are a number of haulage contractorsable to supply transport, many associated with or owned by the major gas buyers.Figure 2 Route from Model to Ladder Creek Helium Processing InfrastructureSource: Google Maps7Blue Star Helium Limited (ASX:BNL)Independent Investment ResearchFigure 3 Ladder Creek helium collection and processing networkSource: https://www.tumbleweedmidstream.com/ladder-creek-system The Ladder Creek assets were recently purchased by Tumbleweed Midstream from DCPMidstream in January 2020. The CEO of Tumbleweed is Durell J. Johnson, who wasproject engineer during the original construction of the network. It is reasonable to expecthe plans to grow the business, and a processing deal with Blue Star should be possible. Current processing capacity at the Ladder Creek cryogenic processing plant is 40 millioncubic feet of natural gas per day (MMcf/d), easily expandable to 50 MMcf/d. The plant has the capacity to extract and liquefy 1.5 MMcf/d of helium, with extraction andliquefaction to purity levels of 99.999 percent. Blue Star’s initial production is planned tobe 0.14MMscf/d.PROSPECTIVE RESOURCEWhen it comes to helium deposits, what is an exciting resource? In this report, we try to demonstrate that helium is a business that a small company likeBlue Star can enter, because of the huge skill base in the oil and gas industry available atcall from contractors, and the capital intensive plant required to purify the helium gas canbe leased. The main barrier to entering the business is having a helium resource. An exciting helium resource is one with a high percentage of helium, and preferable havingwaste gas components that can vent to atmosphere (ie nitrogen). Waste gas containingsulphide or methane requires extra processing, because those gasses cannot be vented,and venting carbon dioxide will probably be restricted in due course. In 2018, the US Geological Survey reviewed the entire USGS and Bureau of LandManagement (BLM) US drill hole database and found 13,648 wells which flowed gascontaining traces of helium.Table 4 Helium Concentration distribution within the USGS well databaseEqual or more than Trace 1% 2% 3% 6% 8%Number of Wells 13648 1236 479 209 66 29Percentage 100% 9.06% 3.51% 1.53% 0.48% 0.21%Source: Helium concentrations in United States wells Of all the 13,648 wells the USGS found that contained helium, only 0.48% contained morethan 6% helium and 0.21% more than 8%. These percentages would be lower if all USwells drilled were included.8Blue Star Helium Limited (ASX:BNL)Independent Investment ResearchFigure 4 USGS Well Survey - Helium Concentration v Depth for highest grade wells(Model Dome wells circled)Source: Helium concentrations in United States wells A major cost of developing a gas field is the drilling of exploration, then development,wells, so the shallower the target, the lower cost the drilling program will be. In the figureabove, there are a number of wells encountering helium at good concentrations, only 1000feet below surface, Fields of this nature would be relatively low cost to develop. The sweet spot when looking for a helium deposit would therefore be to generateexploration wells that plotted in the lower right hand quadrant of the figure above. The Model Dome field would be an example of an excellent target for development. Itshelium grade is around 8%, and typical well depth is 1000 feet. The Blue Star Enterprise and Galileo prospects are six miles (10 Km) to the west of ModelDome, and at a similar depth. They have the same reservoir and seal formations, and thesame helium source rocks.Figure 5 Relationship between the Model Dome Helium Field and Blue Star’s Enterpriseand Galileo prospectsSource: BNL presentation 1 June 2020Exploration target between 641MMcf and 6391MMcf at first two targets Blue Star’s Prospective Resource is the result of evaluation work by consultancy groupSproule, and signed off by Blue Star Executive Director Trent Spry.9Blue Star Helium Limited (ASX:BNL)Independent Investment ResearchTable 5 Unrisked Prospective Resource1U (P90) 2U (P50) 3U (P10)Net Recoverable Helium (MMscf)Enterprise 372 2296 5003Galileo 270 725 1389Total 641 3021 6391Weighted average RoyaltyEnterprise 15.0% 14.4% 14.6%Galileo 12.5% 12.6% 13.6%Total 14.1% 13.9% 14.4%Gross Recoverable Helium (MMscf)Enterprise 438 2681 5861Galileo 309 829 1607Total 746 3510 7469Gross Recoverable Raw Gas @ 8% (MMscf)Enterprise 5473 33512 73263Galileo 3857 10364 20093Total 9330 43877 93356Source: BNL release 27 May 2020 While this is a prospective resource, and therefore an exploration target requiring drillingto confirm existence, the statements directors make in respect of such targets are tightlycontrolled by the market regulatory authorities. The company’s release provides clarity ona number of factors that support the prospective estimate.Figure 6 Leases over Enterprise and Galileo Prospects, and location of Model Dome helium reservoirSource: BNL release 27 May 2020Factors supporting the Prospective Resource The Enterprise and Galileo prospects are close to the Model Dome Helium Field thatproduced before World War II. That field produced at a helium concentration of around 8%at rates of between 500Mcf/day and 1000Mcf/d per well. The target gas bearing strata is the Lyons Formation. Blue Star and Sproule have accessto the well logs drilled within and without the company’s leases, as well as gravity andmagnetic surveys over the leases, that have allowed Sproule to estimate 200-250 feet ofstructural closure at the top of the Lyons Formation. Soil samples have detected traces of helium (the red dots in the figure above), which isa highly positive sign that there is helium in the strata below. All gas traps leak to someextent, particularly around the edges of interpreted trap structures. Helium traces can onlybe sourced from subsurface helium, ie from the radioactive decay of uranium and thorium.Methane traces can be produced by plant and bacterial activity in the topsoil, giving falsereadings, whereas helium cannot. 10Blue Star Helium Limited (ASX:BNL)Independent Investment Research The difference between 1U, 2U and 3U Resources is uncertaintyver the height of the gas
column in the structure. The more gas that is caught in the structure, the higher the vertical
column of gas and the larger the Resource.
Risks include the failure of the top of the structure to seal, which would have allowed the
gas to escape. The presence of traces still in the soil suggest escape is still continuing, and
there is still gas in the structure below.
Other risks include low porosity (reducing the total gas volume in place), low permeability
(reducing the flow rate without more expensive drilling), and low gas pressure (reducing
the flow rate without more expensive water or gas injection to increase drive). These
variables have been estimated from the Model Dome core, wireline logs and the drill
stem tests (pressure and flow rates) from the surrounding wells, including those at Model
Dome.
Helium fields have a fundamental difference to conventional methane producing gas
fields, in that helium is the smallest molecule of any element or compound, and it main
companion Nitrogen (N2) is also much smaller than a methane molecule, so helium fields
can produce more gas at a faster rate than a methane field with the same permeability

Lease portfolio growing quickly
As at 30 March 2020, Blue Star had a gross land package of 121,086 acres, and 64,924
acres net.
Figure 8 Total lease portfolio at 30 March 2020 – Resources apply to Enterprise/Galileo only
Source: BNL presentation 1 June 2020
The lease tenure varies depending on whether the owner of the mineral rights is a local
landowner (Private), State land (State), or Federal land (BLM).
The local landowners and the Bureau of Land Management which handles access to
Federal lands appear to be settling for a 12.5% royalty and a 5 year plus right to renew for
5 more years in the case of Private deals, and 10 years in the case of the BLM.
The State of Colorado is settling for a 20% royalty.
Blue Star will also be paying an annual rental averaging US$2/acre across the lease
portfolio.
Once in production, the leases can be “held by production” which means as long as there
is production and royalty payments are being made, the leases remain with the lease
holder. Production of helium can be sufficient to satisfy the “held by production” criteria

INDICATIVE HELIUM PRODUCTION ECONOMICS AND FINANCING
Blue Star project development plan
In a release dated 26 November 2019, Blue Star management provided guidance as to
how they see the project developing. The plan includes:
– Design, permit and drill 5 wells. In the release of 27 May 2020 the cost of these wells
was estimated to be US$300,000 for a dry well and US$400,000 for a well completed
for production.
– Commercial production would require the installation of a separation plant to produce
A Grade Helium (ie over 97.5% He). This is most likely to be a standard modular
Pressure Swing Adsorption (PSA) plant supplied in 2 MMscf/d capacity units capable
of processing 5-10% He input gas into a 98% product stream. These plants are
available for lease from the manufacturer (eg IACX).
The time line into production requires drilling permit approval, which we expect will be
completed by September, then a month of drilling in October, subject to the success of
the initial wells, followed by feasibility study of up to three months, then mobilization,
which the company presentation of 1 June 2020 says would take around 6 months. All up,
from today, Blue Star could be in production in 6-12 months time, ie some time between
January and June 2021.

Helium Contract Pricing
Helium pricing is opaque, with no spot market, and no systematic disclosure of contract
pricing. With the bulk of production subject to long term contracts, including base price/
escalation, even the average realised selling prices of existing producers is not a good
guide to current price levels.
Sales Contracts are typically 10 years or more, with the producer having the right to market
around one in every 10 or 12 trailers, to get a first hand feel for market pricing. The sales
point could be at the spigot or outlet tap at the production site, or the producer could
deliver tube trailers of compressed or liquified gas to end customers.
Renergen (ASX:RLT) is building a LNG plant in South Africa with a helium byproduct. It
announced a contract with Linde on the following terms, which were probably set with
respect to market conditions in late 2018 or early 2019 (Source: Renergen Prospectus 6
June 2019 p29,p132).
– US$200/Mscf base price
– Escalating at US CPI
– Take or pay up to 24MMscf/yr
– Contract term, sales point not published, but contract is likely to be long term ie 5-10
years, and sales point is in South Africa, so close to the local market but a long way
from major demand centres, and hubs of global price formation.
Tacitus LLC is a Helium pure play currently producing in the US and it through a major
change of shareholders in early 2020. While it is unlisted, the general market commentary
at the time the interest was being marketed in late 2019 suggested that its new contracts
would be priced at closer to US$400/Mscf, while its legacy contracts were at lower price

HELIUM INDUSTRY OVERVIEW
When the US Geological Survey refers to helium by volume, it is referring to a standardized
gas measured at 101.325 kilopascals absolute (14.696 psia) and 15 °C.
27.737 cubic meters of helium = 1,000 cubic feet of helium at 70 °F and 14.7 psia. This
tends to be the defacto standard worldwide.
The gas can be crude helium, which is between 50% and 80% helium and the balance
nitrogen, or A Grade helium which is typically over 97.5% helium, and the balance nitrogen.
SUPPLY DEMAND BALANCE
We have included two supply demand forecasts prepared by Mercury Carbon and Edison.
Mercury Carbon is forecasting 9Bscf/yr supply capacity from 2022 vs the Edison Base
Case of 6.5Bscf of production, presumably at full capacity. The difference is large, but
difficult to pinpoint without both groups providing more data.
The difference probably relates to the Edison assumptions regarding the likely declines of
existing US and Polish production. Both forecasters assume lower releases from the BLM
stockpile including after the stockpile is sold in 2021.
The two forecasts also diverge on whether there will be an oversupply or not from 2022.
On the Mercury Carbon forecast, the implication is that 2020 sould be seeing a decline in
capacity utilization, and therefore a fall in price, but the reverse appeared to be happening
up to April when the Corona Virus hit. The virus adds significant uncertainty to the demand
outlook.
Corona Virus aside, if demand returns to normal, the anecdotal price action at the start of
this year suggests the Edison’s forecast of a deficit for this year and next may be closer to
the mark than the Mercury Carbon study, which also undermines Mercury Carbon’s view
of the longer term.
Longer term demand growth is the other major variable. Edison use three growth scenarios
(0%, 1.5%pa and 3%pa). The 3% scenario results in deficits, the 1.5% a generally balanced
market with some undersupplied periods. Mercury Carbon uses a 2%pa growth rate.
Given we have been through a period of shortage in the last few years, apparent demand
may have been depressed by the lack of supply, and if there is a demand rebound as more
supply comes on line, the effect could be to reset the demand base at a higher level,
shifting the supply demand balance to deficit, even at the higher production levels.
If the Helium market remains tight even after the addition of significant supply (Qatar
and Amur), then the outlook for helium pricing would be very strong. If not, we believe
a business based on an 8% helium grade will be cost competitive throughout the price
cycle.

HELIUM PRICES
Figure 14 Price points in an opaque market
Source: BNL presentation 1 June 2020
The dots on the figure above are derived from anecdotal reports available to Blue Star
management, and represent indications of where the spot price may have been at those
times.
Th figure below are time series for Bureau of Land Management auction prices, and
more recently BLM estimates of where the contract market might be. The BLM series
is for crude helium which can be between 50% and 80% helium, and in need of further
processing to be saleable. As such is would be a discount to the A Grade product that Blue
Star intends to produce.
Of the two time series ending in 2016, the A Grade helium in tube trailers is the price and
product category that Blue Star is aiming for.
The Qatar Petroleum annual report notes that the average sale price for liquid 99.99%
helium from Ras Laffan was US$174/Mscf in CY2018 and US$169/Mscf in CY2017. We
would expect that price to be discounted by the freight required to get to market, and
would be contract prices, set in 2003 and 2006, when the plants were being financed.

HELIUM SUPPLY
Most of the worlds helium supply comes from either helium produced as a by-product
of natural gas production, or from the rundown of the US helium stockpile stored in the
Cliffside facility near Amarillo Texas and administered by the Bureau of Land Management,
a US government agency.
Production of helium as the main or sole product is unusual. Most of the expansion
in capacity forecast is coming from large LNG projects such as RasGas in Qatar, and
Gazprom’s Amur LNG project in eastern Siberia