Noble Helium (ASX: NHE) (OTC: NBHEF) is working on an absolutely sound, sensible and reasonable piece of logic. The shares are down 20% today on the announcement of a share issue to fund the next stages. All of which is absolutely fine - that's why exploration companies are on stock markets, to gain the capital needed to explore. And yet we do have a problem here, an unknown. Which is how well are all the other people going to do as they go exploring for helium?
The basic logic is just as with the London quoted Helium One (LON: HE1). The world uses helium - all those MRIs and so on, plus party balloons - and the US Federal Government has retreated from providing it from the major American field. The price is up and so it could, should, be something interesting to go mining for.
It's worth pointing out that helium is the one non-radioactive element that we, humanity, use which is not in fixed supply. It's actually generated by the radioactive breakdown of thorium and uranium. The Earth's original endowment boiled off into space billions of years back.
So, the geology, find some nice U and Th rich rock which is also covered by an impermeable to gas layer. The helium created by the radioactive breakdown should therefore be trapped, in pockets, below that top layer. Both Helium One and Noble Helium are reporting that this is true in the Rukwa area of Tanzania. And, given what we know about the geology there, we'd expect them to be right too.
So, happy days, right? A helium supply that can be drilled for and everything's great?
Noble Helium share price from ASX
Well, yes, probably, but not necessarily. The problem is that most natural gas contains some helium - there's usually some U and Th in much rock which will add helium to reservoirs of CH4 and so on. We - humanity that is - don't bother to extract these low levels because of the energy cost of the required liquefaction. So, searches for high helium content reservoirs make sense.
But what else is happening in the world of natural gas? Quite, the whole world is moving to liquefied natural gas. This means that liquefaction cost is already being carried by another part of the process - the helium naturally gets concentrated in the LNG process. That is, Noble Helium (like Helium One) is not competing against other helium deposits, it's competing against the byproduct of LNG.
That's not a killer, it's still possible for primary producers to compete against secondary ones. But it does put a cap on helium prices, something we need to remember when valuing these would be primary helium producers.
