It has been a while since I last posted on this platform, in...

It has been a while since I last posted on this platform, in part because I have recently had some other distractions to attend to, but also on account of the fact that I was becoming a little disgruntled with the site, having noticed that a large number of 'smurf' accounts seem to have taken over one of the forums I had regularly followed (Footmax knows the one I am talking about).

So, a 'Hotcopper break' was well and truly in order. However, I am back now, and feeling refreshed.

It is by no means incidental that I have decided to re-emerge from the shadows on the Blue Star Forum, as my feeling is that the Blue Star share price is on the cusp of a significant leg-up. Why do I say so?

Part of the reason I say this is not in relation to any news from this company, but rather from an announcement released by another listed helium player, although one domiciled far from Australia's shores.

On Friday, Australian time, the TSXV listed company Avanti Helium announced that they had signed a midstream agreement to commercialise and achieve cashflow at their project, known as Greater Knappen, which is located by the Canadian border in the far north of the US State of Montana:

...Avanti has signed a binding midstream agreement with IACX Resources Montana LLC a subsidiary of industry leader IACX Energy (“IACX”) to build, finance and operate a Helium recovery plant to process the raw gas from Avanti’s Sweetgrass Helium pool...

The name of that company, IACX, will strike a chord with BNL shareholders, as of course this is the same outfit that executed an agreement with Blue Star exactly a month ago, at time of writing.

It is pretty rare for a junior resource company to transition into a producer. And yet, within the space of a month, we have two small exploration companies in the Western United States signing agreements that seem to put them on track to achieving that aspiration.

I think the inference here is obvious: helium is the go-to commodity in the United States at the moment.

Avanti had a good run in the lead up to the IACX news: It rose from a low of 0.46 on the 5th July to close at 0.73 on Friday.

The trigger for this run up wasn't so much anticipation around the news in relation to the agreement at the end of last week. I think it had more to do with another Canadian helium stock, Desert Mountain Energy, losing its 'star stock' credentials.

Early this month.oOn the 6th of July, Desert Mountain unexpectedly announced that they were putting their signature Arizona helium project on ice, instead focusing on a new recently acquired project across the border, in New Mexico, citing frustrations with the Arizona regulatory authorities for the shift.

Needless to say, this unpleasant surprise didn't go down well with the shareholder base, and the share price dived.

You'll notice that the Avanti Helium share price hit its low for the month the day before Desert Mountain announced their switcheroo, and has been on the up and up ever since.

My take on this is that the attraction has been that Avanti, unlike Desert Mountain, has acreage on both sides of the US/Canada border, and thus they are percieved to be more diversified, being exposed to two jurisdictions, and thus less likely to have their project sidelined by regulatory complications.

So, it would seem that Desert Mountain's pain, is Avanti's gain. But where does that leave Blue Star?

The market cap of Avanti Helium and Blue Star are comparable, and with both companies having signed agreements with IACX, that would seem to make sense, on the face of it.

And yet, there is an argument that Blue Star's assets are far more attractive than those of Avanti. I will illustrate why I say this below.

The table beneath has been lifted from an article from earlier in this month, focused on helium stocks in the United States.



The figures above were from the middle of July, and this is something that must be borne in mind when considering these figures.

On the 14th of July, the Avanti share price closed at 0.64c, where as on the same day, the Blue Star share price closed at 0.029. At time of writing, Avanti's share price sits at 0.74, while BNL sits at 0.032. So both stocks have gone up a little, but Avanti more so than Blue Star.

But I think the most telling metric on this table is found in the second column: The $US per acre valuation figure.

If these figures are correct, on the 14th of July, the dollar value of Avanti's acreage, relative to their Enterprise Value, was more than four times than that of Blue Star. The difference would be even greater today, as since then, Avanti's share price has risen more than the BNL share price. In other words, the assets of BNL seem to be significantly undervalued.

There is one other key difference between the Blue Star and Avanti helium assets. According to the Avanti website, the helium grades at their Geater Knappen project are just over 1%, whereas the helium grades at Blue Star's Las Animas projects are as high as 8% (see the 'Corporate Presentation' announcement, above). Not all of the BNL prospects have grades as high as this, but even the lower grades are still superior to those of Avanti's Knappen project.

Is there anything that I might be overlooking? Yes, there are a couple of other things that might add a bit spice to Avanti's investment case.

The first of these is that apart from their project along the border of Montana and Canada, Avanti also controls leases in the Canadian province of Saskatchewan. So there could be some value in their assets in this neck of the woods.

However, given that Avanti hardly ever mention the Saskatchewan leases in their announcements, it would be reasonable to assume that the Greater Knappen project is the most valuable project controlled by the company.

The second quirk about Avanti is, as mentioned previously, they are exposed to two different jurisdictions, and so 'don't have all their eggs in the one basket', so to speak. Some investors might find this aspect of the company appealing, particularly in light of Desert Mountain's recent Arizona woes.

Bear in mind however, that Blue Star's projects are in Colorado, rather than in Arizona, and I suspect that Colorado is more amenable environment for exploration ventures.

Keep in mind that the CEO of Blue Star is an ex-oilman, who spent years working in the US oil and gas scene. Given this background, I suspect that he would be allergic to working in jurisdictions that are not 'drill friendly', so I doubt there is much of a risk that Blue Star will encounter the same regulatory issues that faced Desert Mountain in Arizona.

Last year, Colorado was one of the ten largest oil producing states in the US, whereas Arizona has no track record in oil production. In summary, even though the two states are neighbours, there is good reason to suspect that the regulatory landscape in the two states would be quite distinct.

In conclusion, even factoring in Avanti's Saskatchewan leases and their jurisdictional diversity, I think Blue Star's market cap should be much higher than Avanti's. I think a market cap of around $100 million would be more in keeping the value of Blue Star's assets, based on comparative valuation.

I should note, in closing, that I think all helium assets are underappreciated at the moment, in both Australia and Canada. There are non-producing lithium companies which have market caps several times that of Avanti and Blue Star, and in light of this, it is quite possible that the $100 million figure quoted above might prove to be overly conservative in the long run.