Canadian companies with low-risk helium projects present an exciting opportunity for investors seeking to capitalize on high helium prices and increasing demand.
The idea of investing in helium may not seem as exciting as investing in cryptocurrencies, for example, but there is more to this noble gas than meets the eye.
The global helium market was valued at an impressive US$1.9 billion in 2019. Additionally, the global market for helium is expected to reach US$2.8 billion by the end of 2026, with a respectable compound annual growth rate of 5.9 percent over that period.
In 2021, helium was declared a critical mineral in Canada along with copper, uranium, zinc and others. As a critical mineral, helium is considered essential to Canada’s economic security, is required for Canada’s transition to a low-carbon economy and is a sustainable source for the country’s partners.
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Helium is also a finite resource because it is non-renewable and its presence is rare on earth, despite being the second most abundant element in the universe. The element is generally found deep underground in the same sedimentary basins that have historically produced oil and gas.
Why is helium important?
Helium is a valuable and precious commodity used in a wide range of applications, including in the medical, aerospace, military and technology industries. Specifically, the element is used in MRI machines, fibre optic cables, data centers, semiconductor manufacturing and cooling as well as in cryogenics.
Among all of helium’s applications, the most growth is expected to stem from demand in high-tech areas. Given helium’s unique atomic structure of being lighter than air, the element is also non-substitutable in many instances, which therefore requires significant helium production to meet endless industry demands.
Helium: A looming shortage
Effective September 30, 2021, the US government will completely leave the helium industry in an effort to encourage private sector growth and development. The US will facilitate the disposal of its helium reserves in accordance with the Helium Stewardship Act of 2013 to foster a more sustainable economic model.
The decision is expected to have industry-wide ramifications because the US has been the largest supplier of helium to the world since the 1920s. The US accounts for 75 percent of the world’s helium production. Based on current consumption rates, the world’s known helium reserves are expected to run out between the years 2030 to 2040.
The anticipated shortage has sent shockwaves throughout the industry, sending helium prices to between $300 and $600/Mcf as recently compared to natural gas which trades at approximately $2-3/Mcf. According to Cormark Securities, the current price of helium is forecasted to generate project IRRs for producers of approximately 140 percent.
Canada is now being considered a top contender for helping close the helium supply gap. Canada has the fifth-largest helium resource in the world and the US is the largest consumer of helium.
What does this mean? Canadian helium companies have a significant opportunity to leverage attractive prices as the US government starts its exit and seeks new suppliers.
Key players in the helium industry today
There are multiple key players in the helium industry, including Avanti Energy (TSX:AVN,OTC Pink:ARGYF), Desert Mountain Energy (TSX:DME,OTCQX:DMEHF), First Helium (TSXV:HELI), Global Helium (CSE:HECO,OTC Pink:GBHCF), Imperial Helium (TSXV:IHC), North American Helium, Royal Helium (TSXV:RHC,OTCQB:RHCCF), Helium One Global (LSE:HE1,OTCQB:HLOGF), Blue Star Helium (ASX:BNL,OTC Pink:AZZEF) and Thor Resources.
Among the group, North American Helium is the most active driller in Canada with a focus on helium and nitrogen production. The company also holds the largest contiguous helium land position in the world with rights to over 5 million acres of prospective land in Saskatchewan and Utah. North American Helium has a third-party assessed Risked Prospective Resource estimate of 20.8 Bcf of helium on half of the Saskatchewan land area. The company’s assets in Utah sit in a helium-rich area with strong historical drilling outputs as high as 2.8 percent helium – although North American Helium has yet to drill in Utah.
The most uniquely positioned company for success in the group is First Helium. The company expects to be one of the fastest to produce helium relative to the peer group, due its project-driven nature, access to existing infrastructure and favourable timeline. The company’s flagship Worsley project near Grande Prairie, Alberta has a discovery well with helium content that was tested as high as 1.3 percent. According to an independent engineering contingent resources report by Sproule Associates Limited, the Worsley discovery well is estimated to have a net present value of C$15.2 million at a 10 percent discount rate, or C$0.23 per basic share outstanding.
The company also plans to embark on a three-well drilling program on locations adjacent to the discovery well and identified via 3D seismic to further expand its asset base to increase shareholder value. First Helium has also entered into an option agreement to review land and seismic data to potentially explore and develop over 350,000 hectares of highly prospective land for helium. The company plans to become a leading North American helium producer by leveraging its low-risk, high-yield discovery well, and focusing on a low-cost strategy to achieve strong cash flows.
Regardless of what company fits your investment strategy — the potential helium shortage that may occur in the coming years makes companies like First Helium and North American Helium compelling to consider.
As US government helium production ceases, the industry is set to experience a supply shortage in the near term. New and significant production is needed and Canada is quickly rising to the top as a major potential supplier of helium. Canadian companies with low-risk helium projects present an exciting opportunity for investors seeking to capitalize on high helium prices and increasing demand.
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