Noble Helium Pty Ltd (ASX:NHE)

Investment Memo:

Noble Helium Pty Ltd (ASX:NHE)

- LIVE

Opened: 08-Apr-2022

Shares Held at Open: 3,925,926

What does NHE do?

Noble Helium (ASX:NHE) is a helium exploration company working to define a helium resource in the East African Rift (Tanzania). If proven, this resource has the potential to be the world’s third largest helium reserve behind the nations USA and Qatar, and the largest ever reserve held by a single company.

What is the macro theme?

Helium is a critical part of the semiconductor (computer chip) supply-chain and cannot be substituted across most of its other industrial uses. We expect helium demand from semiconductors to increase rapidly as the world becomes more technologically advanced and countries seek to localise supply.

Helium prices have increased five fold in 2022 on supply chain issues, geopolitical tension and demand. We expect current price pressures to highlight the importance of helium, and improve investor sentiment around helium companies.

Our Big Bet for NHE Big Bet Tooltip

NHE discovers the world’s largest helium reserve held by a single company and is strategically acquired by a major company OR a state owned enterprise to secure supply (USA, China, Qatar).

Why did we invest in NHE?

East African Rift System

Top helium experts highly rate NHE’s geology: - two prominent helium experts think the East African Rift is the best geology in the world for helium and it could house a globally significant resource. (NHE’s Mean unrisked prospective volume of 175.5 billion cubic feet (bcf) across nine structures).

String of Pearls

NHE is aiming to identify drill targets from a series of leads across similar geology in the East African Rift system - known as a “String of Pearls”. If NHE drills the first “pearl” and it turns out successful, it implies all the other leads (pearls) could be successful too. This is similar to what happened to Africa Oil Corp’s “String of Pearls” back in 2012 when it surged 1,200% on a successful result from its first drill in a string of targets in the East African Rift System.

String of Pearls: two leads become one larger lead [20-Apr-2023]

Our past success with basin opening exploration

Some of our best investing success has come from major drilling events in frontier exploration - companies like Elixir Energy, Invictus Energy, 88 Energy and our first ever Top Pick from many years ago - Africa Oil Corp in the East African Rift System. We hope to replicate that success with NHE.

Founder owned and operated

NHE CEO Justyn Wood built the company over many years and holds more than a third of the company’s shares, so is heavily incentivised to deliver value for shareholders. Justyn brings significant East African Rift System experience. He played a key role in opening up the region’s geology with breakthrough exploration success in 2006 with Hardman Resources (~2c to $2.50). He knows the ground NHE is working with.

Exclusive rights to global “Helium Atlas”

Years ago NHE commissioned and licensed the world’s first “helium atlas” from two of the foremost helium experts. Basically it’s many years of research into a detailed database of all the helium prospects in the world and is how NHE first settled on Tanzania. We think access to these experts and their “helium atlas” will also help NHE in selecting future helium project acquisitions.

What do we expect NHE to deliver?

Objective #1: Target generation to produce two drillable targets

With drilling planned for late 2023, over the course of 2022 NHE will use modern exploration techniques to acquire data and then interpret that data to identify drill targets during the course of 2022.

Noble Helium’s 2022 Operational Review & 2023 Forward Plans [19-Dec-2022]
Noble Helium announces first two drill targets at North Rukwa [23-Mar-2023]
Noble Helium signs LOI for a rig ahead of Q3 drilling [06-Apr-2023]
String of Pearls: two leads become one larger lead [20-Apr-2023]

Milestones

complete Airborne gravity gradiometry (Q2-Q3 2022)

Widespread elevated helium, gradiometry next [02-Aug-2022]
Airborne Gravity Gradiometry (aim for helium bullseye) [09-Aug-2022]
Airborne Gravity Gradiometry completed [22-Aug-2022]

complete 3D seismic (Q2-Q4 2022)

Widespread elevated helium, gradiometry next [02-Aug-2022]
NHE's All-Important 3D Seismic Commences [28-Sep-2022]
3D Seismic Surveys Kachinga Lead [24-Oct-2022]
Noble Helium finishes seismic, does deal with Helium One [23-Feb-2023]

complete Geochemistry survey (Q2-Q3 2022)

Widespread elevated helium, gradiometry next [02-Aug-2022]
NHE: North Nyasa Soil Gas Survey Commenced [19-Oct-2022]
Noble finds more helium in Tanzania [28-Nov-2022]

complete 2022 Bonus: Resource re-quantification (Q4?)

complete 2022 Bonus: finalise drill targets (Q4?)

Objective #2: Acquire more Tanzanian permits, strengthen in-country presence

NHE has 14 permits with 9 more to be acquired covering ~4000km2 in total. Along with acquiring these permits, we expect NHE to increase its stakeholder engagement efforts and add to their Tanzanian team:

NHE upgrades helium resource at Mbelele Prospect in Tanzania [28-Jul-2023]
NHE’s helium project grows with maiden drilling on the horizon [07-Sep-2023]

Milestones

complete Finalise licence areas (9 Prospecting Licences) (Q2 2022)

NHE increases its landholdings by 59% [16-Sep-2022]

complete Stakeholder engagement (Ongoing)

Stakeholder engagement - Helium Gas Research Agreement [21-Apr-2022]

complete Tanzanian team additions (Ongoing)

Objective #3: Explore new opportunities

With expert advice and based on their exclusive licence to the “helium atlas”, NHE may look to acquire another helium exploration asset.

Milestones

not done Acquire a new asset

Objective #4: [NEW] Drill first helium well

[Added Friday 13th October]

NHE’s drill rig has arrived on site in Tanzania, and on October 10th NHE announced that final repairs have been completed on remaining equipment which can now be assembled and commissioned prior to spud (commencement of well).

Bull case (outstanding result) = NHE finds helium and is able to declare an official discovery.
Base case (Good result) = NHE finds helium but isn't able to confirm an official discovery yet due to technical reasons.
Bear case (bad result) = NHE finds no working helium system.

Milestones

complete Drill Rig Mobilised

in-progress Drilling Commenced

not done Drilling Update 1

not done Drilling Results

Objective #5: [NEW] Drill Second Helium Well

Milestones

not done Drilling Commenced

not done Drilling Update 1

not done Drilling Results

What could go wrong?

Permitting risk

While NHE currently holds 14 Prospecting Licences, there are 9 more yet to be granted and there is a risk that these additional licences are not granted.

NHE increases its landholdings by 59% [16-Sep-2022]

Exploration risk

NHE may fail to find commercial quantities of helium despite having promising geology on its side. For example, 3D seismic data may not yield the drillable targets they are looking for.

Underlying commodity risk

Helium prices may fall as additional supply comes on line, forcing down prices and reducing investor appetite for new helium resources.

Country risk

Tanzania is an emerging resource jurisdiction and although a change in government has improved the ability to invest in Tanzania, local politics, changes to mining regulations and royalty systems may be a factor in NHE’s future prospects.

Operational risk

If NHE doesn’t achieve operational milestones before the start of the Tanzanian wet season, they could miss the start of the drilling window in 2023, leading to a 12 month delay in drilling. Weather is a factor in NHE’s prospects.

What is our investment plan?

As with our other previous exploration stage oil & gas investments (Helium is a gas) we invest early, well before the main drilling event and will aim to be free carried and have taken profit before the drill results are announced in 2023.

We look to hold at least 50% of our initial position into the first drill result and this is usually a ~3 year strategy. In the case of NHE, this investment plan is truncated to ~1.5 years.

NOTE: Our selling plan must adhere to our trading blackout policy and IPO escrow conditions shown below:

Disclosure: S3 Consortium Pty Ltd (The Company) and Associated Entities own 3,925,926 NHE shares and 1,851,852 options, The Company’s staff own 40,000 NHE shares at the time of publishing this article. The Company has been engaged by NHE to share our commentary on the progress of our investment in NHE over time.