Imperial Helium (TSXV: IHC) had their first investment bank initiate coverage on them this past week. Eight Capital initiated coverage on the company with a C$1.00 price target and buy rating. Their analyst Phil Skolnick says that they derived their price target from 1x their risked NPV13 net asset value estimate.
Eight Capital’s investment thesis on the name can be broken down into a few key advantages that the company has over its peers. The first hinge on the companies deep Rolodex of >640,000 drilled wells between Alberta and British Columbia. This is because the company spent four years analyzing publicly available raw data.
The second is that the company is not just a pure exploration play, rather the company utilizes a “lower-risk strategy of re-drilling a known helium discovery made in 1940.” Additionally, the company has two land lease packages that would give them access to 24,635 hectares of leased lands that have known helium concentrations of 0.63%.
The third point is that the company has a plan to achieve vertical integration that will allow them to have a strong free cash flow profile. Skolnick also believes because of the proximity to other product producers, it could offload the helium that those producers just vent into the air directly to Imperial’s locations which could potentially create a “centralized helium purification hub” in Alberta.
The last point is that the companies potential economics of its expected plan looks attractive, “with a full cycle IRR of an estimated 62% and a forecasted free cash flow payout of 2.75 years from first production.” This plan is backed by a strong management team that brings relevant expertise across the full value chain. He writes, “we see Imperial, along with its strategic partners, as being a driver of the development of Western Canada’s helium industry.”
FULL DISCLOSURE: Imperial Helium is a client of Canacom Group, the parent company of The Deep Dive. The author has been compensated to cover Imperial Helium on The Deep Dive, with The Deep Dive having full editorial control. Additionally, the author personally holds shares of the company. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.
