Apr 22, 2021 (Financial News Media via COMTEX) -- FN Media Group Presents Oilprice.com Market Commentary
London - April 22, 2021 – Every once in a while, a niche commodity – usually a relatively rare one – comes along that the world simply can't get enough of. Mentioned in today's commentary includes: Teck Resources Limited /zigman2/quotes/208435438/composite TECK +2.74% , Turquoise Hill Resources Ltd. /zigman2/quotes/208953645/composite TRQ +1.78% , Lithium Americas Corp. /zigman2/quotes/206933779/composite LAC +4.54% , Magna International /zigman2/quotes/204433886/composite MGA +2.11% , Celestica Inc. /zigman2/quotes/208427519/composite CLS -1.56% .
Normally, the investment script reads something like this: Word gets out about a looming shortage of a certain commodity; Small-cap natural resource companies quickly "pivot" to said commodity, and the next thing you know a surge of investment interest and commodity bubble quickly follow.
It's happened with numerous rare earth metals, potash, graphite, cobalt, vanadium, and even marijuana (though not strictly a commodity) ...The could be the position of a little-known Canadian stock Avanti Energy Inc. ( AVN.V ; ARGYF ), as it emerges off the acquisition trail with a world-class team in a market that is primed for growth. The best thing about this particular commodity is that it has largely gone under the radar until now.
Helium prices increased before the pandemic, and while Covid has delayed the supply squeeze, we think demand is sure to return as the world begins to recover. And when prices begin to climb again, Avanti Energy is going to be one company to watch.
Why Helium is so important?
Helium has the lowest melting point of all the elements (-272.2 �C), which makes it the go-to commodity when it comes to cooling. Liquid helium is used for cooling everything from magnets in MRI machines and ventilator machines to supercomputers and data centers. About 30% of the world's helium supply goes into MRI scanners, while another 20% of the world's helium supply goes into the manufacture of hard disks and semiconductors.
With Big Tech companies such as Google, Facebook, Amazon and Netflix being heavy users of helium in their massive data centers, we think this segment of the market is likely to be one of the fastest growing over the next decade or so given the world's insatiable appetite for data.
Overall, the global helium market was worth approximately $10.6 billion in 2019 but is expected to grow at a compound annual growth rate (CAGR) of 11% and reach approximately $15.73 billion by 2023 . Alarmingly, some scientists warn our helium supplies are growing very tight, something that we think could send prices much higher over the next couple of years.
A world without helium
Helium is the second-lightest element known to man, and belongs to the group of the so-called noble gases. Helium also happens to be the second most abundant element in the universe behind only hydrogen.
The world's helium comes from two main sources: Primordial, which is part of the original formation of the planet, or from radioactive decay of uranium and thorium in the earth's crust. Most of our helium is mined in natural gas formations.
Despite its prevalence across the universe, helium is incredibly rare in our atmosphere, with a concentration of just 5.2 ppm. Because of its light weight and the small size of its atom, Helium readily dissipates into space and is incredibly difficult to store.
For decades, the U.S. has been the world's largest producer, accounting for roughly 40% of supply. Unfortunately, the U.S. Federal Helium Reserve (FHR) in Amarillo, Texas, the world's single largest source of helium for the past 70 years, is now exhausted after FHR discontinued the sale of crude helium to private industry, with the remaining stockpile earmarked for Federal users only.
Consequently, prices have been increasing and could continue doing so for years. With very few mines being discovered and according to some experts no helium substitute likely to be discovered for decades, the supply/demand imbalance is aligning for a helium price boom.
Playing the helium market
With the vast majority of our helium supply coming from natural gas reservoirs, the best and easiest way to play the helium boom is to invest in natural gas companies which own the richest deposits of helium, preferably with helium concentrations of >1.5+%.
On the Toronto Stock Exchange, smaller players appear to be positioning themselves in this developing market. The most promising helium play here might just be Avanti Energy ( AVN.V ; ARGYF ). Avanti Energy is focused on the exploration, development and production of helium across western Canada and the United States.
Back in March, Avanti acquired the license for over 6,000 acres of land highly prospective for helium containing wells that were originally drilled for oil and natural gas from the government of Alberta. The newly acquired project resides in an area with confirmed reservoir rock and multiple Drill stem tests (DSTs) with analyzed gas.
A previously drilled well on the property returned gas with high helium content (2.18%) and high nitrogen content (96%). The high grade of helium gas of greater than 2% compares favorably to commercially viable grades ranging from 0.3% to 1%. The property fits well with helium tests in multiple nearby wells and the potential for viable helium reservoirs over a larger basement structure.
Avanti President & CEO Rob Gamley says the company plans to continue evaluating and mapping deeper Paleozoic zones in detail since mapping the basement structure is crucial to high grading areas with reservoirs of helium.
Some investors appear to have realized what we think is the significance of the findings and have been bidding up the Avant Energy share price to the tune of 400% in the year-to-date and more than 1,000% over the past 12 months.
The sweetening on this play is the management story. In our view, there is no other helium play with this level of management experience. Some of the key people behind Avanti are the same ones who helped identify, model, and develop the Montney play in British Columbia at Encana (now Ovintiv).
Avanti's team, including Genga Nadaraju, Dr. Jim Wood, and Ali Esmail are developing a plan to target helium accumulation that aims to strengthen North America’s position on this gas map at a time when a supply squeeze may be looming.
That's why we think Beacon Securities Limited has just initiated coverage of Avanti on what it calls "an enticing" investment opportunity with a solid team and helium prices that have risen over the past couple of years, all propped up by demand it expects to continue to climb nicely.
Helium is not the only commodity set to explode
With the battery metal boom in full swing, it's worth taking a look at other elements, and the companies that mine them, as well. Teck Resources Limited (TECK) is one of the global leaders in resource mining, with operations across the world. While its primary mining and mineral development plays focus on coal, copper and zinc, Teck also has a major stake in renewable energy ventures. It's also a major producer of lesser-known resources like germanium, indium, cadmium, and more.