The next supply squeeze that may take markets by surprise isn’t lithium. It isn’t even a battery metal …
While everyone is distracted by the media barrage surrounding EVs, another commodity may be creating an investment opportunity to rival all …
We think it’s potentially bigger than the cannabis boom that reportedly netted some investors 1,000% gains.
And some experts say we’re running out of it.
It’s not just a niche commodity anymore. It’s not just about balloons. And we think it’s positioned to become the focus of increased investor interest.
Like oil and gas, this is about exploration, discovery, and development. And we think the biggest returns may end up coming from the small-cap explorers trying to hit the big time with a new discovery - all on their own.
Right now, we think that’s looking like Canadian Avanti Energy Inc. (TSX: AVN.V; US OTC: ARGYF) backed by an experienced team that’s been involved in the discovery of the Montney, one of North America’s largest natural gas discoveries and is now ready to try it again, hot off the acquisition trail.
The Montney discovery still produces and has produced for over twenty years and at its peak, was producing up to 300,000 boe/d.
Now, Avanti has acquired the license for 6,000 acres from the Government of Alberta in highly prospective helium territory at what looks to us like the tipping point of a global supply squeeze.
But Avanti has its sights set on North America at large--not just Canada. On April 16, they announced entry into a letter of intent to acquire a 12,000-acre prospective helium land package, this time in Montana.
We think helium is about to run to new heights, and Avanti may be running in front of it.
Growing Helium Demand
Demand for helium is increasing, and it’s coming from multiple sectors, including everything from the tech and biomedical industries, to space, medical equipment and national security. And, yes, of course, party balloons and Thanksgiving Day parades.
Many industries require helium.
It’s been reported that the tech industry has been a massive catalyst, and that 2013 was a game-changing year for helium supply.
That’s when the world’s first ‘helium drives’ were made commercially available, making helium a key ingredient to fill our monstrous appetite for data.
Some 3.7 billion people are generating some 2.5 quintillion bytes of data every single day. And even those numbers may grow by up to 60% a year. By 2025, it is projected to be more like 160 zettabytes per year. Helium drives were apparently a breakthrough that replaced the air in hard drives with helium to reduce the energy used. They went from concept to commercialization in 2013.
Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), Facebook (NASDAQ:FB), Netflix (NASDAQ:NFLX)--all are said to need tons of it for their massive data centers.
We think demand is set to surge into the helium-driven territory of zettabytes.
And the growing semiconductor market may depend on helium, too. Why? Because helium can bring temperatures down to below -450 degrees Fahrenheit--lower even than liquid nitrogen. This is important for superconducting equipment in particle accelerators and the magnets used to build semiconductors, according to Forbes.
Driving this further is a global computer chip shortage.
In Geneva, Switzerland, the Large Haldron Collider (LHC), the largest high-energy particle accelerator on Earth--and the biggest machine in the world, needs a truckload of helium every week.
Nor does the demand story end there …
The health sector is another major driver of helium demand. It’s also critical for use in cooling magnets in MRI machines. Without helium, we won’t have working MRIs. The shortage also threatens NMRs--nuclear magnetic resonance spectroscopy, which in turn is a crucial aspect of medical research.
Experts say it’s critical for our global pandemic because helium is a vital element in respirators, not to mention a line-up of other key medical equipment.
It wasn’t without reason or rationality that some medical scientists are said to have begged helium balloon retailers to give it a rest. They were reported to be sucking up 10% of the helium supply.
NASA relies heavily on helium, too, as a key gas used in space exploration.
The Real Helium Shortage and the Avanti Opportunity
This is reported to be the world’s third major helium shortage in 14 years. And some experts say it will be a much tighter supply squeeze than ever before.
Until recently, the U.S. Federal Helium Reserve (FHR) in Amarillo, Texas, seemed to have an inexhaustible supply for the past seven decades. It’s reported to have provided some 40% of the world’s supply.
But that supply may become exhausted. North America is now desperately in need of new helium discoveries.
There’s also another big price catalyst ... In September this year, the Helium Stewardship Act expires, which may mean two things: First, the BLM may have to auction off what little remaining helium there is in the fed reserve. Second, BLM may exit the market, removing the current price ceiling.
That’s when the free market excitement will start in earnest.
Avanti Energy (TSX: AVN.V; US OTC: ARGYF).now has two key helium exploration positions. One in Canada--home to what is reported to be the world’s 5th largest helium reserve that remains gloriously untapped--and one in the US.
In 2019, the global helium market was said to be worth approximately $10.6 billion. By 2023, it is predicted to close in on approximately $16 billion.
But that depends on production, which in turn depends on new discoveries.
We think that’s an incredibly advantageous position for a small-cap explorer and developer like Avanti to be in right now.
Not only has Avanti’s team just acquired (in March) the license for over 6,000 acres of land from Alberta, but the company says that land is highly prospective for helium.
Keeping in mind that most big supplies of helium in the world are found where drilling for natural gas takes place, in our opinion Avanti’s setup is the same: It’s the site of oil and gas wells previously drilled by the government.
Avanti’s new project is reported to reside in an area with confirmed reservoir rock that has seen multiple DSTs (drill stem tests) with analyzed gas. And the company says it has high-grade helium potential, with anything above 2% comparing favorably to commercially viable grades ranging from 0.3% to 1%
A previously drilled well on the property returned gas with high helium content (2.18%) and high nitrogen content (96%).
On April 16, Avanti announced it has signed a letter of intent (LOI) to acquire the helium rights on approximately 12,000 acres of prospective land in North-Central Montana. This land package is in close proximity to and on trend with an active drilling area just north of the border in Saskatchewan, which has nitrogen-rich helium tests in Cambrian and Devonian zones. Seismic data (2D and 3D) has already mapped out structures that appear prospective for helium.
But we think this is a management story just as much as it is a helium one …
Helium Veterans Return for Another Opportunity
On April 9th, Beacon Securities Limited initiated coverage on Avanti, calling it an “enticing investment opportunity” because of its “world-class team” and “supportive He market fundamentals”.
As Beacon notes, the Avanti team has proven experience.
The key figures behind Avanti helped develop a world-class resource--Encana/Ocintic’s Montney production in British Columbia, which they identified, modeled, and helped develop to production which, over approximately 15 years, reached nearly 300,000 boe/d.
Now, they’re ready to try it again…
Genga Nadaraju, Dr. Jim Wood, and Ali Esmail are reportedly building a proprietary model to target significant helium accumulation that may strengthen North America's strategic helium position. Just like they did with Encana.
The strategy appears to use “conventional” exploration to identify structural Cambrian-aged traps and the high point of drilling. Avanti is reportedly pursuing an 80%-20% model, with 20% following conventional natural gas exploration strategies, and 80% proprietary methods.
Beacon emphasizes the potential here for possible operating netbacks of C$309/mcf (with $300 helium prices) and C$548/mcf (with $500 helium prices), based on:
- a raw gas rate of 2-2.5 mmcf/d (which it notes is extremely feasible for 2,500-3,000 meter wells)
- a helium content of 1-2%
- estimated helium prices of $300-$500
- DCCT costs, operating costs and royalties
The hydrogen market has seen an estimated $300 billion poured into projects for a gas that we may not even be able to scale up--and for which there is no real demand surge because it’s still largely conceptual.
In our view, helium isn’t about hype. It’s been a strategic commodity since the Cold War, and quite simply, it looks like we’re running out--fast. It’s a simple game of discovery and development and supply and demand. And we think Avanti is right there, in the early stages of the next potential North American helium opportunity at the edge of a supply squeeze that the feds can’t bail us out of any longer.
Bonus: Other Companies Set To Win On This Gigantic Shift In Commodity Consumption
Technology companies are some of the biggest consumers of alternative fuels and renewable energy. Take Apple (NASDAQ:AAPL), for example. It is a leader in Big Tech’s sustainability push…but it’s more than just that. From the products themselves, to the packages they came in, and even the data centers powering them, Apple has gone above and beyond to cut the environmental impact.
But now, it’s even getting into the transportation business. "We're focusing on autonomous systems. It's a core technology that we view as very important. We sort of see it as the mother of all AI projects. It's probably one of the most difficult AI projects actually to work on." Apple CEO Tim Cook on Apple's plans in the car space. Electric vehicles aren’t likely to be left out, either…
Apple's rumored car design means that more active material can be packed inside the battery, giving the car a potentially longer range. Apple is also examining a chemistry for the battery called LFP, or lithium iron phosphate which is inherently less likely to overheat and is thus safer than other types of lithium-ion batteries.
While electric vehicles are the talk of Wall Street right now, autonomous vehicles are on the horizon as well, and they too will rely on a number of key metals and resources. And the leader in this push is Waymo, a subsidy of tech giant Alphabet Inc. (NASDAQ:GOOGL). Waymo may just be the de facto leader in the emerging autonomous vehicle industry. It’s already had cars driving themselves across the United States for several years. In fact, in Arizona alone, Alphabet’s self-driving cars have logged over 6.1 million miles. To put that in perspective, that means that Alphabet’s autonomous cars have driven the distance between New York City and San Francisco over 2100 times. Or, as the company explains, “over 500 years of driving for the average licensed US driver.” Even more impressive, however, the vehicles were only involved in 47 “contact events”, and the vast-majority of the collisions were the result of human error and none resulted in any sort of severe injury for anyone involved.
While these tests are extremely promising for Alphabet’s Waymo, there are still some hurdles to overcome. First and foremost, these lengthy trials took place in Phoenix, a city not exactly known for extreme weather. Second, an issue that may frustrate many drivers, the vehicles operated in a sort of hyper-cautious mode, driving at slower speeds and taking sometimes unnecessary precautions to avoid conflict.
Renewable energy providers are some of the driver factors in the commodity demand boom, as well. That’s why lithium companies are scrambling to snag deals with companies like Enphase Energy (NASDAQ:ENPH). Enphase is a Fremont, California-based company that designs and manufactures software-driven home energy solutions used in solar generation, home energy storage, and web-based monitoring and control.
ENPH reported a large Q2 GAAP loss with GAAP EPS clocking in at -$0.38, a good $0.44 below Wall Street's consensus. The loss was mainly due to a $59.7M charge related to fair value changes related to convertible notes issued in March 2020. The company reported Q2 revenue of $125.53M (-6.4% Y/Y) after shipping approximately 1.1 million microinverters while also managing to drive channel inventory back to healthy levels with management attributing the revenue contraction to a difficult macro environment due to Covid-19.
Despite the tough first half of 2020, however, Enphase has remained a favorite on Wall Street. Since January of last year, Enphase has seen its share price rise by a massive 472%, and it’s only just getting started. As the renewable push kicks into high gear, and with the United States expected to spend over $1.7 trillion on green energy initiatives over the next decade, Enphase might just emerge as one of the biggest winners.
Even old-school fossil fuel producers are getting in on this race. Suncor (NYSE:SU) might be known mostly for its oil production. But it’s one of the few majors really pushing the boundaries. In fact, it has pioneered a number of high-tech solutions for finding, pumping, storing, and delivering its resources. When the rebound in crude prices finally materializes, giants like Suncor are sure to do well out of it. While many of the oil majors have given up on oil sands production – those who focus on technological advancements in the area have a great long-term outlook. And that upside is further amplified by the fact that it is currently looking particularly under-valued compared to its peers.
But that’s just one part of its business, however. Suncor is also a world leader in renewable energy innovations. Recently, the company invested $300 million in a wind farm located in Alberta. Additionally, as Canada moves away from oil, Suncor is well positioned to take advantage of another one of the country’s resource reserves; Lithium. The best part? It doesn’t even have to move very far. In fact, Alberta’s oil sands are a major hotspot for lithium production.
Westport Fuel Systems (NASDAQ:WPRT) isn’t necessarily a resource play, but it is an important company to watch as new fuels and new forms of energy take the spotlight. Especially as the world races to leave behind traditional gasoline and diesel-powered vehicles. That’s because, while it is a manufacturing play at heart, it offers a particularly unique way to gain exposure to the alternative fuels market. As a key manufacturer of the hardware needed to build natural gas and other alternative-fueled cars, Westport is definitely a company to watch in this scene.
Westport Fuel has been making major moves in the market over the past year, and its efforts are finally coming to fruition. Since February 2020, the company has seen its stock price rise by 348%, and with more potential deals like the one it has just sealed with Amazon to provide natural gas-powered trucks to its fleet, the stock has even more room to run in the coming years.
While alternative fuels are worth watching, another mineral is facing a similar supply squeeze to helium, and the companies producing it could have some significant upside in the coming years. That’s right, it’s lithium. And a leader in that realm is Lithium Americas Corp. (TSX:LAC). It is one of North America’s most important and successful pure-play lithium companies. With two world-class lithium projects in Argentina and Nevada, Lithium Americas is well-positioned to ride the wave of growing lithium demand in the years to come. It’s already raised nearly a billion dollars in equity and debt, showing that investors have a ton of interest in the company’s ambitious plans, and it will likely continue its promising growth and expansion for years to come.
It’s not ignoring the growing demand from investors for responsible and sustainable mining, either. In fact, one of its primary goals is to create a positive impact on society and the environment through its projects. This includes cleaner mining tech, strong workplace safety practices, a range of opportunities for employees, and strong relationships with local governments to ensure that not only are its employees being taken care of, but locals as well.
Magna International (TSX:MG) is another fantastic way to get in on the explosive commodity market without betting big on one of the new hot stocks tearing up among the millennials right now. The 63-year-old Canadian manufacturing giant provides mobility technology for automakers of all types. From GM and Ford to luxury brands like BMW and Tesla, Magna is a master at striking deals. And it’s clear to see why. The company has the experience and reputation that automakers are looking for.
More than a decade ago, Magna International was already making major moves in the battery market, investing over half a billion dollars in battery production while the market was still in its infancy. At the time, electric vehicles as we know them had barely hit the scene, with Tesla launching its premiere car just two years prior.
Magna’s massive investment has paid if in a big way, however. Since its battery bet, the company has seen it’s valuation soar by tens of billions of dollars, and it has solidified itself as one of the leaders in the business.
Want a bit of a more high-flying stock with ties to the world of commodities? Maxar Technologies (TSX:MAXR) might be worth keeping an eye on. While space firm specializes in satellite and communication technologies, it is also a manufacturer of infrastructure required for in-orbit satellite services, Earth observation and more. So what does Maxar have to do with lithium? Quite a lot, actually.
Maxar’s wholelly-owned subsidiary, SSL, a designer and manufacturer of satellites used by government and commercial enterprises, has pioneered research in electric propulsion systems, lithium-ion power systems and the use of advanced composites on commercial satellites. These innovations are key because they allow satellites to spend more time in orbit, reducing costs and increasing efficiency. Thanks to Maxar’s incredible tech and innovative approach to the already-extremely complicated space industry, the company has seen its share price climb where many of its peers have struggled.
By. Carl Green
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that prices for helium will significantly increase due to global demand and use in a wide array of industries and that helium will retain its value in future due to the demand increases and overall shortage of supply; that Avanti can pursue exploration of the recently acquired licenses of property in Alberta; that Avanti’s licenses in respect of the Alberta property can achieve drilling and mining success for helium; that Avanti will be able acquire the rights to helium on 12,000 acres of prospective land in Montana pursuant to its recently announced letter of intent; that the Avanti team will be able to develop and implement helium exploration models, including their own proprietary models, that may result in successful exploration and development efforts; that historical geological information and estimations will prove to be accurate or at least very indicative of helium; that high helium content targets exist in the Alberta and Montana projects; and that Avanti will be able to carry out its business plans, including timing for drilling and exploration. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that demand for helium is not as great as expected; that alternative commodities or compounds are used in applications which currently use helium, thus reducing the need for helium in the future; that the Company may not fulfill the requirements under its Alberta licenses for various reasons or otherwise cannot pursue exploration on the project as planned or at all; that the Company may not be able to acquire the helium rights to the Montana lands as contemplated in the letter of intent or at all; that the Avanti team may be unable to develop any helium exploration models, including proprietary models, which allow successful exploration efforts on any of the Company’s current or future projects; that Avanti may not be able to finance its intended drilling programs to explore for helium or may otherwise not raise sufficient funds to carry out its business plans; that geological interpretations and technological results based on current data may change with more detailed information, analysis or testing; and that despite promise, there may be no commercially viable helium or other resources on any of Avanti’s properties. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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