On March 23, we issued a bullish alert on First Helium Inc. (FHELF) (HELI.V) with a $2.00 fair value price. The stock has since risen 26% from $0.58 to $0.73 in Canada, but remains a strong buy with further updates on its positive cash flow results and strong liquidity position. In addition to HELI, we are issuing a bullish alert on Inomin Mines Inc. (MINE.V), which rose an incredible 257% to $0.375 today on a major critical mineral find. We are up to 997 followers on our ValueTrades blog despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can also follow this blog by clicking the follow button on the top of the left hand panel. We have 80 followers so far on here. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.
First we will start with MINE. From today's press release:
Vancouver, British Columbia--(Newsfile Corp. - March 29, 2022) - Inomin Mines Inc. (TSXV: MINE), ("Inomin", "MINE" or the "Company") reports significant new discoveries of nickel, magnesium, and chromium at the Company's Beaver nickel-cobalt property in south-central, British Columbia. Drill-hole B21-02 intersected 252.1 metres (m) grading 20.6% magnesium, 0.16% nickel, and 0.33% chromium. B21-02 is the longest mineralized hole ever drilled at Beaver, and the first-ever drilling in the Spur zone, one of five large mineralized areas at the property. Hole B21-01 at Spur also made another first, discovering near-surface silver and copper, intersecting 649 g/t silver and 0.29% copper over 3 metres, before the hole was terminated due to difficult ground drilling conditions. All holes ended in mineralization leaving the discoveries open to extension at depth.
Summary - 2021 Drilling on the Beaver Property
Hole | From | To | Interval | Nickel ppm | Cobalt ppm | Chromium | Magnesium % | Silver | Copper ppm |
B21-01 1 | 56.69 | 59.74 | 3.05 | 797 | 129 | 569 | 7.1 | 649 | 2867 |
B21-02 2 | 40.54 | 292.61 | 252.07 | 1,648 | 99 | 3,276 | 20.6 | ||
including | 62.00 | 250.55 | 188.54 | 1,823 | 106 | 3,365 | 22.1 | ||
including | 185.93 | 243.84 | 57.91 | 2,018 | 108 | 3,099 | 22.4 | ||
B21-03 2 | 9.14 | 184.40 | 175.26 | 1,783 | 93 | 3,623 | 21.0 | ||
including | 24.38 | 47.24 | 22.86 | 1,962 | 94 | 2,810 | 22.9 | ||
and | 61.57 | 184.10 | 122.53 | 1,913 | 97 | 3,043 | 22.4 | ||
including | 74.98 | 108.51 | 33.53 | 2,008 | 98 | 2,884 | 23.1 | ||
including | 119.48 | 156.06 | 36.58 | 1,941 | 95 | 3,097 | 22.5 | ||
B21-04 2 | 27.43 | 91.44 | 64.01 | 907 | 57 | 1,515 | 11.8 | ||
including | 30.18 | 38.10 | 7.92 | 1,555 | 111 | 3,570 | 21.6 | ||
and | 72.85 | 91.44 | 18.59 | 1,923 | 111 | 2,897 | 23.6 | ||
B21-05 2 | 21.34 | 100.58 | 79.25 | 1,419 | 98 | 3,401 | 19.3 | ||
including | 21.34 | 43.59 | 22.25 | 2,021 | 108 | 2,601 | 23.4 | ||
Note: Entire mineralized zone average. | |||||||||
Table 1: Drill Summary (No attempt was made to correct for true thickness)
Notes:
1 Drill hole terminated due to ground conditions.
2 Entire mineralized zone average.
The 2021 drilling program, consisting of 5 holes (716 m), successfully tested mineralization over a strike length of 5.7 kilometres. Drilling confirmed the presence of significant, near-surface, polymetallic mineralization over the tested strike length, and discovered mineralization in untested areas of the property. Drilling in the Spur and North Lobe zones, the focus of the 2021 drilling, intersected long intervals of favourable mineralization up to 252 metres in thickness, open to expansion in all directions. All drillholes ended in mineralization.
John Gomez, President of MINE states, "Our initial drilling program demonstrates Beaver's potential for hosting large volumes of nickel, as well as magnesium and chromium - all critical metals. Finding significant magnesium and chromium in new areas of the property is a tremendous discovery that adds considerable more value to the project."
A ground magnetics program on the Lynx block of the Beaver property, started in early February, has been concluded and results are pending. The magnetics program was implemented to delineate targets for the next phase of drilling in this previously untested area.
Figure 1: Drillhole Location Map (TF Magnetics Background)
To view an enhanced version of Figure 1, please visit:
https://orders.newsfilecorp.com/files/3069/118431_197d2c89145d8b5b_001full.jpg
Laboratory Analysis of Samples
SGS Minerals Services of Burnaby, BC was chosen to analyze the core samples. Samples were dried, crushed, split, and pulverized prior to analyses. Multi-element analyses was completed using SGS's GE-ICP90A50 method which is a 29 element package using a sodium peroxide digestion with an ICP-AES finish. This package was chosen specifically to discriminate sulphide nickel from silicate nickels generally found in olivines.
Collaboration with University of British Columbia
Select magnesium-rich samples from the drilling program will be analyzed at the University of British Columbia (UBC). Led by award-winning professor Dr. Greg Dipple, UBC researchers have demonstrated that magnesium captures carbon dioxide (CO2) from the air in tailings of ultramafic nickel, diamonds, and PGEs deposits.
Magnesium is a key mineral for carbon capture as it naturally sequesters CO2. In tailings magnesium reacts with CO2 removing it from the atmosphere, converting it into a safe, solid form that is stable for thousands of years. Depending on the amount of carbon dioxide sequestered, it is technically possible for mines to be carbon neutral or even negative in terms of CO2 emissions.
Inomin is pleased to be working with UBC to support their leading carbon mineralization research and advancement of carbon capture technology. Carbonization technology could have a substantial impact to decrease carbon emissions and assist companies and governments reduce their CO2 footprints to fight climate change.
About the Beaver-Lynx project
Inomin's 100% owned Beaver-Lynx project, approximately 20,000 hectares in size, is located 15 - 25 kilometres east and southeast respectively of Taseko Mines Ltd.'s Gibraltar Mine in British Columbia's Cariboo Region. Initial exploration and metallurgical studies at Beaver in 2013 - 2014, including geophysical surveys and diamond drilling programs, demonstrated the property's potential to host large volumes of near-surface, Class 1 sulphide nickel and cobalt, amenable to conventional extraction methods.
The Lynx area is geologically similar to Beaver with even larger prospective target areas. RGS (regional stream sediment) data collected by the Province of British Columbia illustrates the existence of a large 10 x 5 kilometre nickel anomaly at Lynx. An airborne magnetics survey delineated an 8 kilometre-wide ring-like magnetic anomaly and several strong magnetic anomalies - all greater than 2 kilometres in length. The Lynx property shows potential for multiple, large, bulk-tonnage nickel deposits.
The Beaver-Lynx project is situated in relatively flat terrain and easily accessible via all-season roads, as well as a network of forestry roads providing access to most of the property. Other important nearby infrastructure includes electricity (hydro-power) and railroad. Skilled workers, contractors, and supplies are available locally from the city of Williams Lake situated about 20 kilometres south of Lynx.
The company struck significant mineralization in all five drill holes. This is particularly important because of the sheer distance between these holes of 5.7 kilometers, suggesting an absolutely massive resource on the company's British Columbia-based property.
The major find is coupled with the fact that there are only 29.3 million shares outstanding. Including warrants and options, the fully diluted share count is 34.5 million. The combination of big find plus low float is what led to the 257% increase.
One could say that this is already a major lift in stock price and that buying now would be chasing high. We don't agree with this conclusion. At $0.375, the stock only has a market cap (fully diluted) of $13 million. Yes, it increased 257% in one day, but it ONLY increased $9 million in market cap on this tremendous news. Companies with larger floats have increased far greater in market cap on lesser results than this. The percentage increase actually helps new shareholders get in cheaply, because the buying is tempered while selling is induced purely because of it. Some people will be turned off by this major percentage gain and avoid buying it while others will take their profits and sell. The actual increase in market cap should be what an investor uses to base their buy or sell decision. That's not what had happened today so the stock is actually undervalued.
With this result, we think a $50 million market cap is a reasonable valuation based on the potential size of this discovery and how many critical metal peers trade around this range for comparable or lesser drill successes. That is approximately a $1.40 fair value price for the stock, leaving plenty of upside. We expect a steady stream of buying in the coming days as 1. The news gets more widely disseminated 2. Those who are fearful of chasing a stock up 257% in a day gain more confidence and buy in once they see a steady base form in the stock at $0.35 and higher. 3. That 257% gain resets to 0% tomorrow and investors new to the story will be less hesitant psychologically because they no longer see that big percentage gain number. 4. People start to analyze the small float relative to the large discovery and understand that it's fundamentally undervalued at a $13 million market cap.
Next, HELI. In addition to our first alert here, we issued a follow up alert on our ValueTrades blog over the weekend:
From First Helium's press release this past week:
Significant Additional Production Revenue Anticipated in Q2/2022
CALGARY, AB, March 23, 2022 /CNW/ - First Helium Inc. ("First Helium" or the "Company") (TSXV: HELI) (OTC: FHELF) (FRA: 2MC), today announced that it has drilled, completed and tested the Company's second exploration well on the Company's Worsley Property (the "4-29"). Upon completion of well operations, the 4-29 well flowed 467 barrels per day ("bbl/d") of ~35 -degree API light oil from the Leduc Formation, representing an oil cut of 67% over a test period of 48 hours on a minimal drawdown. First Helium is preparing to bring the 4-29 well into production in early Q2 2022.
Preparations are underway to perform a minor expansion at the Company's existing oil facility to put the 4-29 well into production, with first cash flow expected by mid-second quarter of 2022;
Oil production from the well will be transported by truck to select receipt terminals and marketed via third-party marketing agreements; and
Cash flow from the well will be deployed to accelerate the exploration and development of helium gas over the Company's 79,000 acres of land along the Worsley Trend as well as cover ongoing corporate costs.
Management Commentary
Ed Bereznicki, President & CEO of First Helium stated, "We are extremely pleased with the performance of our second discovery well, the 4-29. Given current commodity pricing of approximately WTI US$85 to US$90 per barrel, and our estimated field netbacks of CA$82 to CA$88 per barrel, we expect the well to pay out in approximately 4-6 months." Mr. Bereznicki added, "Based on the current implied production trading multiples for Canadian light oil producers, this well represents a significant potential increase in asset value for First Helium shareholders. Capturing the aggregate value of this exceptional exploration success, along with potential development locations will enhance the Company's ability to deliver on its key strategic objective of exploring for and developing helium production in the Worsley Trend."
David Safton, Vice President, Geoscience commented, "The results of the 4-29 well provide additional confirmation of our geologic model over the prolific Worsley Trend and bolsters our confidence in our exploration strategy for the region. Our estimate that approximately 20% of Leduc wells along the Worsley Trend present as oil wells, and 80% as gas wells with a high probability of potential helium content, highlights the Worsley Trend as a very attractive helium exploration area."
4-29 Highlights
Drilled based on a detailed 3D seismic evaluation, the 4-29 confirms the Company's geologic model over the area; based on the Company's assessment of economic Leduc wells along the Worsley Trend, approximately 20% have been light oil producers, the balance have been natural gas producers. Key features of the 4-29 include:
Production tested at 467 barrels per day of ~35-degree API light oil, flowed over a period of 48 hours, representing an oil component of 67%, and a water component of 33% following recovery of completion fluids, with minimal drawdown;
At a total drill and complete cost of approximately CA$2.2 million, production test results for the 4-29 suggest that it is an exceptional vertical oil well in the WCSB;
The 4-29 will provide the Company with flexibility in securing funding to continue with its primary strategic objective which is to explore and develop its landholdings on the helium rich Worsley Trend; and
The Company intends to engage its independent reserve engineering consultant to evaluate the 4-29, along with the Company's first discovery, the 1-30 well, for inclusion in year-end corporate contingent resource and reserve estimates in accordance with 51-101 guidelines. This would include an independent estimate of the net present value of the reserves associated with the 4-29 and 1-30 wells, respectively.
Next Steps
Based on a further evaluation of these exploration results, First Helium will be confirming its drilling program at Worsley for Q2 and Q3 2022, which will include:
Prioritizing its drill prospect inventory for helium, favoring locations which may also provide exposure to the potential for light oil accumulations;
Selecting its next helium drill location and commencing drilling in late Q2 or early Q3 2022;
Evaluating a number of lower cost well bore re-entries on the existing Worsley land base; and
Evaluating further potential light oil development locations in the vicinity of both the 4-29 and 1-30 wells in connection with exploring alternatives to monetize their collective asset value.
Over Q2 and Q3 2022, the Company will evaluate alternatives for monetizing the intrinsic asset value of both 4-29 and 1-30 to further its strategic helium exploration and development objectives. This may include entering into hedging arrangements to guarantee predictable levels of cash flow for ongoing project development and the possible underpinning of helium gas processing facility financing alternatives.
This 467 barrels of oil per day figure adds to the company's 1-30 oil well currently in production. That well produces 430 barrels per day and the company expects to receive $1.2 million CAD in late March for February's production. As the 4-29 discovery is expected to come online by mid-2022, this monthly revenue can be expected to double. At an estimated $85 per barrel netback, the 4-29 discovery has a payback period of only four to six months. The 1-30 well had a payback period of less than two months.
This added cash flow will enable the company to aggressively drill for helium as well as additional oil targets. This is where investors can win in two ways. First, the cash flow generated from these two discoveries post-payback period will be around $2.5 million CAD per month, or $30 million CAD per year. At $0.67, the entire market cap for HELI is $44 million. This is a significant undervaluation compared to other Canadian light oil producers. Second, with the increased cash flow enabling aggressive drilling, the company should increase on added hype and news of more discoveries.
The HELI team is obviously very effective at finding and developing resource discoveries on an active property. There are approximately 66 million shares outstanding and 100 million fully diluted after exercise of all warrants and options. We think this stock has a fair value of $2.00 CAD, resulting in a market cap of $200 million. This would be 6.6x of cash flows from the two current discoveries while giving no value to any future discoveries. After all, this company is called First HELIUM, not First Oil. The company already has a 3x upside before we even start talking about helium.
We aren't the only ones who have concluded that $2.00 is a fair valuation for HELI. Cormark Securities have increased their target on the stock from $0.65 to $2.00 as well. The source of this report is from the Twitter user @airic101. Cormark estimates that there will be $20 million in annualized cash flow from the two discoveries. Less than our estimate, but the conclusion is the same that this cash flow will be used as a non-dilutive source of funding for the Helium exploration plan.
The company followed this up with another press release this morning, confirming the receipt of $1.25 million in cash for February's oil production from the 1-30 well and the strong cash position from the exercise of warrants. We think the stock pulled back from the $0.80's today because people were reminded of the warrants being exercised at low prices which will add to dilution and selling pressure. But we also think that will soon dissipate and the stock will trend back upwards over $1.00 shortly. It's fundamentally undervalued and the strong cash position points to the high likelihood that no further dilution or financing will take place outside of existing remaining warrants and options.
CALGARY, AB, March 29, 2022 /CNW/ - First Helium Inc. ("First Helium" or the "Company") (TSXV: HELI) (OTCQB: FHELF) (FRA: 2MC), today announced a significant positive change to the Company's balance sheet based on ongoing payments from light oil production and cash proceeds from the exercise of previously issued warrants.
"The 1-30 well continues to perform very strongly and we look forward to bringing the 4-29 well on stream next month," said Ed Bereznicki, President & CEO of First Helium. "Total cash proceeds of approximately $3.2 million from the early exercise of warrants along with cash flow from the two wells will be deployed to help support ongoing helium exploration activities at our Worsley Property and our Southern Alberta Helium Fairway exploration land," added Mr. Bereznicki.
Disclosure: We are long HELI.V, MINE.V
