Pulsar Helium Inc. (PLSR) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Pulsar Helium "Ask me Anything" investor session. [Operator Instructions] Given the significant attendance on today's call, I suspect we won't be able to get through every question. We've had a number pre-submitted, but we will do our best to cover as many as we can throughout today's session. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. Thank you very much indeed. Well, look, that's the intro's over with. Tom, Cliff, thank you very much indeed for joining us this afternoon. Let's not waste any time. I think we've got a lot of questions to get through. So maybe, Tom, the first one is for you.

The company's share price is up by more than 20% in a week. Are we likely to hit an all-time high in your opinion? And what news and milestones could investors look forward to in the near term?

Well, thank you, and good afternoon and good morning to everybody listening. Thanks very much for your attendance. Well, look, thanks for asking because it's -- whilst we don't comment on the share price per se, what I can say is that it's been an incredibly busy week for the company. We've had a lot of news flow actually over the past couple of weeks, I should say. And so what we've had is we've had the signed Chart and Baker Hughes equipment proposal. And so that's for the rare gas hub. So the actual equipment for the production of liquid helium and CO2. We've also had a separate announcement with the City of Two Harbors in Minnesota, which is the proposed rare gas hub site. We've then had the helium-3 evaluation agreement with [ LH3M ]. My colleague, Cliff here, has been on 60 Minutes, which really garnered incredible coverage around the United States and indeed globally. Department of Energy has just put helium onto its critical list in the U.S.A. And prior to that, earlier this year, we managed to raise quite a lot of capital. So we're in a very healthy financial position. So I would think that it's one or all of those combined that's resulted in this resurgence in our share price. And I guess I could say long may it continue, and we're certainly doing everything to continue the news flow and deliver on everything that we stated in all those respective news releases.

Great. And I think you just touched on the U.S. Department of Energy's putting helium on the critical list. Do you think this will expedite Pulsar's pathway to production? How do you anticipate that this will help the company's growth? And could Pulsar qualify for DOE, EXIM or other federal financing loans, guarantees or trusts? Will this designation accelerate ongoing non-dilutive capital discussions? Perhaps Cliff, one for you.

Yes, it absolutely would. I mean this is wonderful news that the DOE moved to put this on the critical minerals list. Again, this is my own opinion. I would suspect that probably the Department of Interior is right behind that. We're obviously in -- there's 2 different major conflicts going on globally. You saw the Pentagon's announcement just a couple of days ago on fortress building resilience throughout the supply chain, specifically for the Department of Defense and U.S. bases. So yes, this definitely opens up a lot of avenues for Pulsar, not just on the helium-4 front, but also the helium-3.

That's great. Regarding the helium-3 potential at Topaz and your recent collaboration with [ LH3M ], what time line are you working towards regarding development of helium-3 for separation technologies? Maybe, Tom?

Yes. So this one, we signed the agreement on the 14th of October, and we're actually at that very moment in time, we were together in California at the NASA research facility, Ames. So it was quite the location to announce this agreement that we've signed. And so it starts off with a deep dive into a desktop review of the Topaz gas and isotope data. And then Phase 2 will then go into laboratory testing plan. And the starting target is at least 95% helium-3 purity. And then a pilot could follow, but that will be under a separate agreement. So we haven't set public dates on when these set milestones will be achieved. I mean, really, we don't want to rush the science. We are looking to do something here, which has never been done at a commercial scale before really because there's never been a requirement for it. There's never been or should I say, an opportunity for it. So it's something that we've already got the federal labs who've looked at it. We've got the Woods Hole Oceanographic Institution. We've also confirmed the helium content in our Topaz gas. And this is really the next iteration to see if we can via a staged approach, which is really coming at minimal to no cost to Pulsar to see if this technology can be utilized at our facility and then add that helium-3 value to it. And so yes, we will announce to the market as and when those stages have been reached and what the decision point is at the end of those.

Great. And Cliff, I mean, just returning to the U.S. government's interest around the critical minerals importance of helium to the U.S. economy. Do you think it's likely that the U.S. government might consider buying someone like Pulsar?

I mean there's always the chance, right? You look at the current administration is making industry moves where if you look at MP Materials out there, this move to bring processing and rare earth mineral processing to the United States. Again, I would say like maybe an outright acquisition, no. But some kind of equity investment, yes, probably. There's always the potential for that. And honestly, that's more for the helium-3 side of things just because it is kind of like the Manhattan Project of our time, terrestrial helium-3 has never been done on commercial scale. I've said it before, Minnesota or the moon. But I don't want to attack the lunar mining folks, right? Listen, we've got to get back to the moon. So what a better place to -- Minnesota is a bridge to the moon is what I've briefed Pentagon officials on, right? Here's our opportunity. So...

Tom, production question here on production. Given the previous target of Q4 '27 has shifted, what is the Board's confidence level in meeting the new H1 2029 target for first helium production? And maybe could you walk us through some of the primary drivers behind the delay?

Yes. Well, look, with that particular production guidance that actually didn't come from the company itself. It came from an analyst out there, so an analyst estimate. What we put out in the public domain was that we put out that we were targeting Q4 2027. And so look, now that since we've made that guidance, we've actually gone and signed the Baker Hughes agreement. So that's in place. And shortly thereafter, then the Two Harbors site was announced as well. So before we could really comment on an absolute time of when production may be possible, we're going through this phase now of site due diligence, EPC selection and then ultimately financing as well, but also in discussions with potential offtakers. So there's many things in there that contribute to it. But as mentioned in the Baker Hughes announcement, we did say that a portion of this equipment had already been fabricated. And so that, therefore, creates an opportunity as well. So whilst I can't answer the question absolutely, the reason for the change, as I say, it came from an analyst. But we do have -- now that helium is on the DOE critical list, we know that the conflict is ongoing and the shortage is ongoing, we have a fair wind behind us in order to realize this potential as soon as we can. That's what we intend to do, and we will keep the market announced when those key milestones. So as I say, the site, EPC and the financing are all ticked, then we will be looking to move forward as quickly as possible.

Let me stay with you, Tom, for a moment. Of the projected $85.5 million facility cost, is this capital allocated to both helium and CO2 plants or strictly to the helium infrastructure? If they are separate, what's the estimate cost for the CO2 plant? And will both facilities come online concurrently?

They're not separate. So that's an all-inclusive cost for the plant itself. So this is for the production of liquid helium and for liquid CO2. So that is the plant itself. The only cost that will be in addition to that is the EPC works. So -- what we like about particularly the Two Harbors site is that it's already effectively in a logistical hub. So that accelerates things. So there's rail there, there's power there. There's water there. There's all the utilities that you would anticipate. And then also the city putting its support behind and also making a level of commitment to contribute and participate in getting this production facility online as well. So look, it's -- the cost is for the plant. It will do both commodities. The additional costs are effectively the connection of it to the site.

There are a few questions around contracts. And I mean, one of them, are we still on track to secure low-cost drilling contracts for the next phase of the wells? Or has the rising industry-wide profile of helium inflated drilling and supply chain costs? -- that's for you, Cliff, maybe.

No, it hasn't inflated. I mean, drilling contracts are -- it's regional, right? If I'm trying to find somebody down in the Permian Basin right now, they're pretty busy. Up here in North Dakota, Montana, fairly available. So I think we're in a good position where it's -- those costs are not really going to impact us at all. So yes, I think we're in a good position.

Tom, maybe a couple of questions around financing here. Funding for plant construction, 6 new production wells and corporate G&A through to production. What is the target financing structure? Specifically, how will this split percentage-wise between equity debt, government grants and loans and potential offtake agreements?

Okay. Well, I'll split this question up into a couple of different components. So the first one is that earlier this year, we raised $25.5 million. So with that, $5 million of that is going to Chart Baker Hughes as the initial payment for the production facility. But we have budgeted within the money that we already have in our account for the up to 6 additional wells to be drilled. We also have the G&A costs in there as well. So look, what -- the question mark then remains the second component, which is the financing of the plant itself and the EPC costs for its installation. So with that one, we put out a news release the other week, clarifying what the company's position is on this. And very much so it is targeting majority debt finance for this. So that is -- we've already started speaking to traditional more conventional banking institutions, of which there's interest. In addition to that, there are a number of government agencies at a federal and state level as well. So the United States Department of Agriculture, they can provide facilities as well for qualifying companies or locations. And so for those, it will be a rural environment with job creation for which we fall into. You then got DEED, which is a Minnesota agency for financing. You then got the Iron Range, which is a local one for the what's called the Taconite Assistance Area, which is what we're within and taconite is iron ore. And so there's a number of iron ore mines around us, some of which are closed. And so the IRRR is there looking at what's the next generation of potential extraction industry that could be receiving support from them. So there's a number of avenues there. Of course, now the DOE will be speaking to them as well after last week's announcement. So we are very much of the opinion that we want to go through and do majority debt for this. We think there are some very good low interest options out there that we're looking to pursue. And what we would be looking at is not so much of a piecemeal approach to it, but having said that for the -- we could say that with each of the milestone payments for this plant that with the financing that we are looking to put into place, we'd be able to effectively cover all of those and with any be able to accelerate the time frame because with the plant itself, we've got a milestone payment, the second milestone to be paid next year. The sooner we get that one paid, the sooner the time frame reduces, and that's our intention.

That's great. Given the Topaz project requires intensive capital expenditure to reach production, what's your strategic rationale behind concurrently funding both the Falcon project in Michigan and the Tunu project in Greenland? Is there a risk potentially of overextending our financial and operational bandwidth?

Look, the minimal capital outlay, we can keep those projects moving along. And they are very good projects. They are just simply at an earlier stage in Topaz. And so we know that Tunu in Greenland that we have identified the helium there that exists. With Michigan, it's at an earlier stage, but certainly from regional work and previous work that has been conducted there by explorers not looking for gas, the gas has been encountered. So it's effectively been derisked to a degree as well. So look, we've got an opportunity here for very low cost. So in Greenland this year, we spent something like less than $100,000 for Michigan. We're doing an airborne survey. And whilst it may seem from a market point of view, not the most exciting programs, technically, they will advance these projects a lot and get them to the stage where the next stage would most logically be drilling. So -- and then a decision will be made at that point in time how that would be financed. But for a low cost, we could get these very exciting projects moving forward. And what really the strategy is, is that we've got Topaz, which we are looking to get online. And then in addition to that, the neighboring Michigan to see if we can increase the resource base there because we are firmly of the belief that we are looking at a regional helium system there. And then Greenland, which is its own project in Europe, where there is absolutely minimum helium available. So each project is exciting.

Great. There were a couple of questions around Chart processing facility and what caused the final price really to raise from $78 to $85. At what point did you know they needed 2 full years of construction? And are there any discussions with Baker Hughes/Chart about them financing any proportion of those that...

Yes, with that one. So when we signed the firm final proposal, that one came through. And prior to that, it was dependent on some unknowns. So that was why we saw a price change. And so those unknowns were purely that, okay, at the time, material costs, what specific requirements are required for our purposes, things like that is what ended up resulting in the final number. As to whether Baker Hughes would participate in financing, I mean it's their call, but it's not something that we're relying upon. I mean this is -- we are seeing it is strictly a vendor purchaser arrangement. So as I said earlier, there's many other options for financing.

That's great. I think Cliff is busy multitasking addressing as every question I ask you, there's another 2 or 3 that are coming in. So I need to speed up here. But Tom, just another one for you maybe. With 7 wells now demonstrating the presence of the reservoir system across Topaz, when do you expect to publish an updated independent resource estimate? Would it incorporate data from all 7 wells? And should investors expect it to materially expand upon the existing estimate largely based on Jetstream #1?

Yes. Well, look, to clarify, the existing resource that we have strictly utilizes data from Jetstream #1. So since then, we've drilled an additional 6 wells. But the recent campaigns for holes 3 through to 7, they are purely exploratory wells. So those are not ones that would be used for production. So they were not set up for that. They were not designed for it. They were designed to be effectively a cheaper form of drilling that would derisk future targets where we'd be looking to get to production-ready wells. And that's the next phase that we're looking to embark upon. And so logically, the resource update would come after that next campaign of drilling. So the one that we've mentioned that we budgeted for, which is up to 6 additional wells.

Great. Some investors noted that Canaccord recently initiated coverage that assumes more than 1 Bcf of recoverable helium at Topaz. I guess without commenting on their valuation or price targets, does management believe the geological and drilling data collected to date reasonably support evaluating Topaz at that scale, pending obviously an updated independent resource estimate?

We're not here to find some tiny pocket of helium. We're here to find something that would make a material difference to U.S. supply. So I have to say that our company's strategy is that to have something that will be meaningful and go some ways is our target to reduce this supply crunch, which is not just related to this current round of conflict. But prior to that, even when things were calmer on the global stage, you still had these significant supply shortages, and it's being treated as a byproduct as well. And no commodity likes to be the byproduct. Just imagine if you're an end user of helium and you're at the whim of another commodity, so you get these quite unfavorable contracts with 0 flexibility built into them. And so really, we are looking to change that. And so you will not change it by finding some small resource. You would change it by having something that's significant. And with the work that we've conducted to date, the drilling success, the high-grade nature of it, a second commodity as well, which is the CO2 and then potentially a third commodity, which is the helium-3, that creates a lot of options for us. So look, for an analyst to say that they've used 1 Bcf, that's their prerogative. But for us, I can safely say that we are looking to get something which is certainly larger. If we look at our existing resource as well, best estimate prospective resource, you're looking at a mean of 1.3 Bcf and a high case of 2.8 Bcf. And once again, this is predicated on that one well. So long way of answering a question, but yes, we're only at the start here.

That's great. Well, look, Cliff, let me save your fingers for a second. Management have described the pressure results and reservoir continuity is encouraging. What additional information can you provide regarding reservoir pressure, connectivity between the wells? And what the 7 wells have revealed about the potential size and continuity of the Topaz reservoir?

Here's what I'll say about that, and Tom can probably add a little bit to this. We've drilled 7 wells, right? All have hit helium. We have 2 production-ready wells ready to go once we get to this permitting here, which we should be done with by the end of the year. Everything is pointing to a very large system, right? It's kind of like that show Landman where you hit 6 out of 6 on the oil wells, he's doing pretty good. And when you look at success rates in any type of drilling, whether it's for natural gas or even helium, a 15% hit rate is considered good. So I think the geology is there. We got a lot of smart folks on this looking at it. We definitely have activity north of the border. I'm pretty excited about what we actually have here in Minnesota and potentially as this thing moves around into Michigan. So I think it looks pretty good.

And to add on that, so what we've seen from the wells that we've drilled is certainly where we've been seeing that we're getting increased bottom hole pressure. We know that we hit the gas because of the pressure and then also seeing the gas coming up to surface even through the mud system that we have. So counterbalance of the gas at the weight of the fluid on top of it. And so should you hit something a higher pressure there, then you start to see bubbles coming up through that mud system. And so we don't have to change the weight of the mud on top in order to keep the gas from coming up to surface. So we have that. We also know what intervals that we're hitting the gas as well, what depth, and we're able to correlate those as well between wells. On top of that, we're operating in a brand-new system. So it's worth reiterating that this is not something that's been drilled 1,000 times before, like many U.S. gas plays have. This is every well that we drill is making a meaningful contribution to our understanding of it. So when it comes to the next iteration of the resource, we're going to be in a much better position on reservoir quality. So the reason that we did coring for this instead of -- we didn't use a tricone bit where you get drill fines, we were doing coring where you get sticks of rock. And that's so we could visually see the reservoir itself. We can look at macro and micro fractures and all these things so that we can put real numbers into the resource update and that we're able to then map out across. We've got distances of what roughly -- well, just short of 2.5 miles between wells. And we're now able to see, okay, is it continuous? Is it not? What depth do we anticipate? We've also mentioned that we don't need to drill most likely in excess of 3,500 feet, whilst gas most likely goes beyond that because we're seeing stacked reservoirs that going down to that 3,500 feet. Probably going beyond that is probably not necessary at this moment in time. There seems to be sufficient systems above that depth. So our understanding has increased remarkably. And so when it comes to this next round of drilling, whilst you never say that it comes with 0 risk, we can say that we are able to go in with a much better image of the subsurface, which is saying something when prior to that, we still had 100% success rate of hitting gas. So yes, our feeling of the subsurface is we've got a very high degree of data and a very technically led team.

Well, let's move on from there, Tom. You guys previously decided not to conduct additional flow testing and instead you move towards development. What technical evidence gave management sufficient confidence to make that decision? And what should investors infer from it regarding expected commercial deliverability?

Okay. So with this -- so as Cliff just mentioned, we hit the gas in each well. So you can see it, you can feel it, it's there. So there's that. So that gave a significant level of confidence in itself. And then when it comes to then the next phase of potential flow testing, I mean, really, the money is better spent. We've derisked it. We know that the gas is there. We could have done flow testing potentially on all those wells. But at the same time, okay, would it be better use of our time to put that money towards drilling the production-ready wells. So the larger bore, the ones which could actually be utilized for production and do all the testing on those and then use those towards the resource. So that was the mindset there. But I just have to reiterate that we drilled, we hit the target depths in each well and each well hit gas.

Cliff, over to you, sir. Are discussions currently underway with potential helium or CO2 customers regarding binding offtake agreements? And could an offtake agreement form part of the financing package for the rare gas hub? Cliff, we just lost you for one second. There we go. You're back with us. there, can you hear us?

Yes. I turned my camera off. I'm having a little Internet issue here, so my apologies.

No problem at all. Do you want me just to repeat that, are discussions currently underway with potential helium or CO2 customers regarding binding offtake agreements? And could an offtake agreement form part of the financing package for the rare gas hub?

Yes to all those, right? Obviously, helium is highly sought after. This plant that we will be building will be a QA/QC semiconductor plant. There's only 2 known in the whole world. So having that semiconductor-grade helium is critical for the semiconductor industry. So those offtake discussions are happening, not just with Minnesota end users, which is a big focus, but also some global end users as well. And that goes for the CO2. CO2 also suffers from shortages, and we're in discussions with that as well.

That's great. I might just stick with you for the time being, Cliff, if that's all right. Now that Two Harbors has been selected for the rare gas hub, what are the major remaining milestones between today and construction, commissioning and first commercial helium production? And if I may, is there a realistic pathway to production earlier than 2029, if financing and permitting progress favorably?

I think we're on a good pace here to get to production by that time. When we look at milestones, one, we've selected the site, which was important. We look at this in a very broad category here where when we talk about Michigan, I see that as feedstock for the future of the rare gas hub there in Two Harbors and the port that's there. I'm looking at the feedstocks from Canada, from the Western United States to come in for that as well. Yes, I mean, 2029, probably doable for sure. And I would say the biggest thing that kind of face us right now from a rule-making perspective, I would say, is our biggest risk. But I think we've done a very good job with a very strong bipartisan effort in the state of Minnesota. We're down to MDH right now, which is the Minnesota Department of Health to do their part in the rule-making process before the session starts. And they've hired a consultant that they were funded to do. And we've been working hand-in-hand with everybody in the GTAC committee to get this thing going forward. So from the Minnesota perspective, they are very excited up here to get this thing done. We haven't had any really roadblocks as far as anybody opposing this project. Now I do feel bad for the hard mineral folks up here for the copper, nickel, they definitely have a much more difficult path than we do, but I think we're in a good spot here.

I guess, Cliff, given the national attention on helium supply security and I guess your discussions with policymakers, has Pulsar had substantive discussions with the Department of Defense or any other federal agencies regarding Topaz. Could federal loan guarantees, grants, strategic offtake or other government support accelerate your development?

Yes, they could. And yes, I'll answer the first question here. We have been briefing the Department of Energy and the Department of Defense, Department of Interior, USGS throughout this process. One, obviously, there's a big interest in the site. One, as you know, like I talked about earlier in the webinar here, there's conflicts in Iran and Ukraine, right, where helium assets have been targeted. So from the U.S. Department of Defense's perspective, they want to make sure that they have reliability of supply, right? They want to derisk the supply chain. And like to Tom's point earlier, there are other gas fields out here in the United States where they've been picked over many, many, many times over. This is a new system. This is a new opportunity. But kind of the cherry on the top of that is the helium-3 as well. And so with this new race to quantum supremacy and the current conflicts that are ongoing, and it's just been -- it's been a very pleasant journey with the folks on the Hill.