GGE Expands USA Helium Ground - Drilling Next Year

Disclosure: The authors of this article and owners of Catalyst Hunter, S3 Consortium Pty Ltd, and associated entities, own 49,940,826 GGE shares. S3 Consortium Pty Ltd has been engaged by GGE to share our commentary and opinion on the progress of our investment in GGE over time.

A few weeks back we announced our Pick of the Year Grand Gulf Energy (ASX:GGE) - Catalyst Hunter’s biggest ever investment.

GGE has a helium exploration project located amongst a number of large producing helium companies and helium production plants in a specific part of the US dubbed “the Saudi Arabia of Helium”.

Given the existing infrastructure already present in this region, we believe the building blocks for a bona fide, fully commercialised project are in place for GGE - assuming exploration success of course.

Utah, where GGE’s project is located, is an exploration friendly state which we believe will provide an easy permitting pathway to drilling.

Yesterday GGE expanded its acreage by 16% - it now commands a 27,303 acre lease holding.

This is ahead of announcing a maiden “prospective resource” estimate which is expected in the near term.

These are all positive steps, and come before the main event for GGE - drilling its first exploration well on this project - scheduled for early 2022.

We are long term investors in GGE, and are anticipating increased market interest in the stock as the spud date of the first well draws closer and the helium thematic gains wider attention.

As for all exploration stocks we like to invest early (months before a key drilling event), wait patiently for the drilling event, then take some profit off the table as the market speculates on a positive drilling result - holding the majority of our position into the drill.

GGE’s wells are expected to be low cost - approx US$1.5M each. We expect there will be more than one well over the coming years, as under the project earn in agreement GGE will need to drill two more wells before September 2023.

One of the key reasons we invested in GGE was due to the upside we saw for GGE’s helium, created by the growth in demand from the semiconductor industry, especially in the US.

Helium is required for the production of all semiconductors and it cannot be replaced with any other gas due to its unique properties.

Semiconductors, or computer chips, are part of the backbone of modern economies - highlighted by the recent chip shortage crisis which effectively shut down a number of major US based automaker factories over the course of 2021.

While a standard Ford petrol car has 300 chips, a Ford EV can have up to 10 x more chips in it - yes - that’s 3,000 chips...

Enter GGE, which is aiming to develop a significant helium resource in Utah.

GGE’s helium prospects in Utah are conveniently located close to Arizona where two of the world’s largest chip makers TSMC and Intel are investing some combined US$30BN on new chip factories, which will need helium in their production process.

With drill permitting ongoing and the target set for an early 2022 drilling program we are looking forward to our 2021 Pick of the Year drilling for helium.

Why are additional leases important?

GGE’s project sits within 250,713 acres called “Areas of Mutual Interest (AMI)”, which is a term used to describe the land available for leasing in and around its Helium project.

Think of the “AMI” as an area that has been pre-pegged, pending final agreements before it is added to the “Leased Portfolio”.

Of the 2D seismic data that GGE has acquired, 190km of it sits within the AMI - however, given that the current project size only covers 27,303 acres of land, there is plenty of scope for the project to grow.

Leasing costs money, however it also provides greater flexibility when identifying a drill target and also increases the potential size that the prospective gas resource can cover.

The larger the prospective resource the bigger the potential prize for shareholders like us.

Importantly the new leases all sit on Utah freehold land as opposed to federal land (which has complex business agreement overlays), and means GGE can avoid red-tape to secure the permitting for exploration, pipelines and future developments.

We mentioned in our initiating coverage note that we were expecting GGE to secure additional leasing to increase the project’s size, and yesterday’s news confirmed this.

Generally additional leasing occurs in the background while the company prepares for the drilling program, and any news regarding additional leasing is considered a ‘bonus’.

GGE has set themselves the objective of leasing 35,000 acres of land before re-evaluating its leasing strategy.

The next thing we want to see is just how big the prospective resource is before the end of the year 2021 and preparations for the drilling program in early 2022.

The prospective resource is the first step in an explorer’s discovery journey.

Essentially a prospective resource estimate is setting an initial exploration target which is the first indicator for just how big a resource could be. Think of this as a high-level estimate of just how big a project's potential is.

Our Investment Strategy with GGE

GGE is our 2021 Pick of the Year and we will be holding a position through the proposed three drill campaigns into 2023.

We will aim to sell ~20% of our holding prior to the March 2022 drilling results to partially de-risk our position (Note: We must wait until February 2022 if we decide to do any selling as we have a company wide trading blackout for 3 months after we add a new company to our portfolio).

Off the back of the flow-testing results of the first well we will reassess our investment strategy, taking into account whether the drill program was successful and the general market sentiment around helium (which we expect to grow - but nothing is a certainty in markets).

If the helium theme takes off over the next 2 years, or one of GGE’s drill results come in way better than expected and the GGE price moves significantly (for example +300%) we will certainly be taking some profit (top slicing), while holding our core position into the next drill.

For more information on how we invest in small cap stocks, see our ebook.

What’s next for GGE & what do we want to see?

When announcing GGE as our 2021 Pick of the Year we set some very clear expectations for things we wanted to see happen.

All of the expected milestones that we want to see management achieve can be found here.

As with all of our investments, we will always refer back to this and check to see how GGE is tracking as part of evaluating our investment thesis against these specific milestones.

Early stage investments such as our position in GGE are prone to an array of risks, and these milestones give us a good grip on how our investment is tracking.

We specifically mentioned that we would like to see a maiden prospective resource on the current leases before Christmas.

Once the prospective resource is announced all of our attention will turn to the drilling of the first well by March 2022.

As a minimum we want to see the drilling programme started no later than 6 weeks after Q1 2022 and for GGE to prove that there is at least some helium present.

With drilling permitting currently ongoing we think this target is achievable and expect GGE to announce permits and a detailed drilling programme very soon.

More details on what we want to see from GGE

🔄 Additional Leasing: GGE’s leases cover 23,600 acres with an additional 3,703 acres secured on the 18th of November. GGE’s goal is to secure 35,000 acres of leased land. We don’t have a timeframe on this and see any additional leases as a ‘bonus’.

🔲 We want to see all of the pre-drilling works completed (These could happen in no particular order):

• 🔲 Identify the highest priority Drill Targets
• 🔲 Drill Rigs to be Secured
• 🔄 Drilling permits to be granted

🔲 We want to see a Maiden prospective resource announced. (we expect this to be announced before the end of the year, based on the GGE company presentation)

🔲 Finally we want to see the first well drilled by March 2022 (GGE have said they expect this to be in “Early-2022”)

• Our base-case target is for GGE to prove there is a helium system present at the project.
• An exceptional result for us would be if they return >0.4% helium concentration in the raw gas stream at a flow rate of 10mmcfpd of raw gas (we will find out grade and flow rate 2 weeks after the well is complete).

🔲 Offtake Agreement [6 months] - GGE has said an offtake negotiations are underway. In our experience, offtake negotiates can take longer than expected - a good result would be to see this within 12 months.

🔲 Pipeline deal secured [End of 2022] - Again these kinds of deals can take longer than expected, we would be happy for this to occur by the end of 2022, and very impressed if it comes earlier

What are the risks

Investing in early stage exploration companies is risky, and while we feel our investments are set up for success, a lot of unexpected things can go wrong. As with any speculative investment, we think it's important to have a strategy and only invest what you can afford to lose.

GGE’s project is still at the prospective stage so there is still the risk that drilling won't find anything or that the flow-rates won't be commercial.

A quick note to readers - GGE vs the other ASX helium stocks

We had some feedback from readers on our initial GGE report that we missed South African helium company Renergen Ltd (capped at $357M), in our peer comparison for GGE.

We will include Renergen in any future peer comparisons we make in the helium sector.

We read all of your feedback on our commentary and analysis, so please continue to send it through.

Disclosure: The authors of this article and owners of Catalyst Hunter, S3 Consortium Pty Ltd, and associated entities, own 49,940,826 GGE shares. S3 Consortium Pty Ltd has been engaged by GGE to share our commentary and opinion on the progress of our investment in GGE over time.