SOLO’S STAR RISES WITH LATEST HELIUM INVESTMENT

SOLO’S STAR RISES WITH LATEST HELIUM INVESTMENT

SIGNIFICANT STAKE TAKEN IN HELIUM ONE LTD & TECHNICALLY ADVANCED CRUDE HELIUM DISCOVERY IN TANZANIA.

Exciting news out today by Solo Oil (AIM:SOLO) with their venture into the specialty gas market, by taking up to a 20% stake into Tanzania focused Helium One Limited www.helium-one.com.

The deal will see Solo take an initial investment of £2.55 million for a 10% interest by way of £1.2 million in cash and £1.35 million through issuing new ordinary Solo shares. This is followed by a call option to increase interest in Helium One to 20% through a further investment of £4 million by way of £2 million in cash and £2 million through issuing new ordinary shares.

The transaction values Helium One at $40 million and provides the company led by proven dividend payer and ex Polo Resources Chairman Neil Herbert (over his 4 years as Managing Director Polo paid $185m in special dividends) with the funds to develop the impressive Rukwa project, complete a drill target assessment program and position Helium One to set off on a further fundraising round to drill Rukwa in 2018.

So far Helium One has stacked up an impressive level of external professional independent oversight of what is a frontier helium discovery in Tanzania, which includes, the University of Oxford and Netherland Sewell Associates. Indeed the University of Oxford and Durham University have both been engaged in an extensive research project investigating this new helium province.

For Solo, the deal today provides their shareholders with investment exposure to a premium priced speciality gas that is not priced or generally impacted by the hydrocarbon pricing index market.

For example, the price of helium gas is traditionally benchmarked to the bi-annual auction of helium from the United States Strategic Helium Reserve, by the US Bureau of Land Management (BLM).

Back in 2005, the auction price for helium was set at just under $70 mcf, by 2015 the auction price had seen bids of $100 to $106 per mcf.  Contrast this to natural gas prices that are currently circa just under $3.00 mcf, you can see why Solo has taken such a shine to this sector of the market.  I would expect extraction costs to be under $30 mcf…….meaning Solo have secured access to a potentially highly profitable commodity.

Indeed opportunities for investors to get into the speciality helium gas market are practically impossible, unless you invest directly into the listed speciality gas majors such as Praxair (NYSE:PX), Air Liquide (EURONEXT AL) Air Products (NYSE:APD) or Linde (FWB:LIN)

So for AIM investors and indeed general investors in the London market, they now have in Solo / Helium One the opportunity to secure investment exposure to a commodity that is set for a massive supply deficit and pricing event by 2020, when the strategic helium reserve in the USA is anticipated to be depleted.

In terms of new supply, helium, by way of extraction from natural gas (concentrations have to be over 3% for this to be economical), the USA and Qatar currently dominate the supply of helium (57% and 25% respectively) – Algeria, Australia, Canada, Poland and Russia are also producing nations…….So you can see just how big a supply deficit a depletion of US supply could have on the market……..it would be massive and certain to drive the price of helium through the sky……..to coin a pun.

In essence, this is the opportunity for investors…….and it’s a unique opportunity on AIM, for Solo shareholders to secure Alpha if Helium One strike it rich.

The market behind the demand for helium, such as medical devices, MRI Scanners, welding equipment, nuclear industry and balloon market is huge, the actual global sales of helium in revenue terms are under $6 billion annually.

Contrast this to the huge natural gas market, means for Tanzania’s economic development, the helium sector will be dwarfed, but where Tanzania does win on this deal is more to do with the positive research and development message this sends out about the country, specifically given the presence of Oxford and Durham Universities, who are researching the discovery, great academics to have in town.

The Geology

The helium discovery at Rukwa, was initially made through the identification of helium-rich hot springs that sit on the periphery of rift basins that provided the initial evidence of an active helium charge along faults and likely into subsurface traps. The hot spring gas analyses report Helium One has on Rukwa sees concentrations as high as 18% with numerous instances of between 8 and 10% by volume.

Helium is sourced from pre-Cambrian basement rocks via fault            migration into a younger stratigraphy and is then contained in Red Sandstones and Karoo Supergroup rock formations, and where the helium is trapped by impermeable lake-bed rocks.

Drilling

Tanzania’s Ministry of Energy and Minerals correctly classify helium as an industrial gas mineral, however, it is anticipated that drilling would have to follow the same protocols as for hydrocarbon exploration, given the wells would be gas producing.

Investment Upside

As mentioned, for AIM investors and indeed any investor, the opportunity to secure early stage access to the significant supply, demand and pricing market a pure helium play like Helium One provides is really exciting, unique and where I will certainly be investing.

The other factor is the win-win for Solo and Helium One.

For Solo they have joined forces with a proven tier one dealmaker in Neil Herbert, who is supported by a world-class corporate and geological team with significant in-country experience (Board members are ex Ophir Energy and you should all know that story)…….So I would expect significant transaction interest into Helium One by one of the major first tier speciality gas companies when the project has been drilled and re-risked.

I can not for one minute think why a major speciality gas company would want to see their rival take control of a strategically placed helium asset that can easily be transported with 45 days of both the US and Asia markets and importantly unlike the forced daily stripping of helium that is required through a natural gas associated play, Helium One’s pure crude supply means production flows can be turned on or off as market conditions allow………..this is a huge factor.

For Helium One, Solo is a perfect shareholder to have on their register, particularly given Neil Ritson’s proven track record in bringing Tanzania gas from exploration and into production in the case of Kiliwani and also in the development of the huge Ruvuma gas project, which has recently been taken up a steep value curve. Further to that, significant increases in investment support for Solo are now being driven by finance chief Dan Maling, another proven dealmaker.