Every sector has its’ time to shine. Helium has slowly been making its’ way into the spotlight, waiting for that moment when all systems are go. Quite frankly, in my opinion, I don’t think we will have to wait that much longer for a rise of epic proportions.
So, what makes helium stand out? We’ve all heard of blimps, in particular the big brand name, the tire magnate one that everyone thinks of first, powered by helium. We also relate helium to party balloons. Everybody knows about those. And many of us are guilty of using the gas to temporarily change our voices – resulting in the squeaky mouse effect that leaves everyone laughing. The truth is that as an investment, helium is no laughing matter. With many crucial uses for helium, other than for entertainment purposes, it is a valuable resource.
In the medical world, helium is a vital gas with a main use being as a cooling agent in Magnetic Resonance Imaging (MRI). Other uses include as a protective gas in welding, an inert gas for controlled atmosphere manufacturing and a fugitive gas for leak detection.(1)
Notwithstanding current valuable uses, helium has also become one of the most popular gases used in the rapidly expanding multi-billion-dollar cryogenics market. It has proven to be an excellent resource in the preservation of tissues and organs. With the growing demand for helium, it is not surprising that there is a shortage naturally leading to a rising price. By 2027, the helium market is projected to reach USD 3.5 billion. As of current date, there are only 16 helium plants across the globe.(2) Not a lot for such an anticipated huge market and as more applications are being developed and expanded on, the race to unearth more helium will only become more important, allowing for companies who have everything in order to come out leading.
So, what do I feel is a good helium company in a rapidly rising market? One that does stand out to me is Royal Helium Ltd. (TSX-V: RHC). The company, helmed by President and CEO, Andrew Davidson, CPA, CA, one of the most experienced helium exploration company executives in Canada, is based in Saskatoon, Saskatchewan. The team also includes Steve Halabura, a renowned professional Geologist with 40 years experience in Saskatchewan, as VP of Exploration. With these two, along with other key members, Royal Helium comprises a team that I feel is strong and direct.
The more I learned about the company, the more excited I became. Firstly, in prime real estate it’s all about location, location, location. Saskatchewan has an excellent history of known concentrations of helium and helium production. The province also boasts a stable regulatory environment, a key to running a company in top-notch style. Royal Helium is one of the largest helium lease and permit holders in North America, covering an area of 1.0 MM acres where helium concentrations of +2% have been recorded.
The company has zeroed in on 12 initial drill targets with near-term plans to drill 3-5 exploration wells. Of the 12 drill targets, 7 are in Climax (Southwest Saskatchewan) and 5 in Bengough (South-central Saskatchewan). The estimates for the area are 1-2% helium with ~ 95% nitrogen for the Climax area and 1-3% with ~ 95% for the Bengough area.(3) As stated by Andrew Davidson, “In Saskatchewan, we have the ability to produce helium as a primary product, which is something that’s relatively unique to our province. Globally, average helium grades are significantly lower, principally because they’re produced with hydrocarbons or natural gas by-products. In Saskatchewan, it’s co-produced with nitrogen, so you get levels ranging from trace all the way up to north of three per cent. Three per cent is a world-class helium well. Two per cent is a phenomenal helium well. Anything from 0.3 per cent and up is an economic unit. So, we’re expecting in the range of one to three per cent in our wells.”(4)
There is another reason to consider a strong Canadian company. Since 1925, the United States has been the world leader in helium production, thanks to a humungous reserve discovered across Texas, Oklahoma and Kansas – an area noted as the Federal Helium Reserve. (5) However, as per the Helium Stewardship Act of 2013, this area is set to close down by the end of September 2021(6), the purpose of which is to mitigate the shortage of helium, especially given that the area is running out. Crude helium will then be sold through the Federal Helium System from the Federal Helium Reserve.(7) It is estimated that the Federal Helium Reserve contains over 1 billion cubic meters (109 m3) of helium gas, stored in the Cliffside Storage Facility, approximately 19km northwest of Amarillo, Texas.(8) The sale of helium will done by order of priority: Federal in-kind crude helium, and current year sales delivered proportionally and sold through sales and auction.(9)
These types of moves may, in my opinion, place some issues in the US helium market by potentially creating uncertainty as to the availability and purchase ability of the commodity. In fact, if past history is repeated, it is quite possible that the same problems affecting competition, including a decrease in the number of companies purchasing helium from the U.S. reserves, will resurface.(10)
While other helium producers in the U.S. may or may not be affected, the overall consequences of such a closure remains to be seen. Whatever may happen there, there may be a huge production and supply void within the U.S. created by the enacting of the Helium Stewardship Act.
It would seem to make sense then to look to a company that is not facing closure on their properties or dealing with these types of restrictions and is not likely to be affected adversely by what is going on South of the border.
According to the article link above, Royal Helium is set to commence drilling in December 2020 or at the latest January 2021 in the aforementioned Climax area. The Bengough area drilling is slated for the summer of 2021. As drilling for helium requires extensive depth, Royal Helium is looking at a drill in the range of 2,500 metres.
As helium is not a renewable resource, you may want to keep your eye on a company that is determined to keep on going, not placing all in only one locale or one development plan.
In addition to their drill plans, the company is putting forth a study for a plant that produces many products. As per Andrew Davidson, “The polygeneration we’re studying now, in partnership with the SRC (Saskatchewan Research Council) is processing multiple gas streams. Multiple gases out of the same wellbore in our helium wells, purposing the helium, the nitrogen, CO2, and any other valuable gases that come out, and processing them into one centralized location and monetizing them at that same location.”(4)
I do believe that Royal Helium stands a good chance at playing a substantial role in helping to replace the current and upcoming gap in the North American market. It has many of the elements in place: strong leadership, good location and superb planning. I also believe that Royal Helium will continue to have a lot to offer in the future, given their stance of looking at utilizing their resources to the utmost level possible. I like forward-thinking companies.
And quite frankly, given the current existing shortage and evidence that demand is going to continuously increase, Royal Helium is placing itself in a very favourable position. With new applications being developed, companies that have a good production strategy in place are likely going to benefit substantially from the market demand which can only be good for its’ shareholders.
I’m placing my bets that Royal Helium will soon be known as a Royal Leader.
Dr. Kal Kotecha
Disclaimer: Junior Gold Report (JGR) has been paid by Royal Helium for marketing services. JGR has participated in Royal Helium's recent private placement. Please read the full disclaimer below.
- Hobart M. King : Helium: A byproduct of the natural gas industry : https://geology.com/articles/helium/
- Hot Stocks Review (May 28, 2020) : Helium Sector Is Rising – How To Invest? : https://hotstocksreview.com/helium-sector-is-rising-how-to-invest/
- Michael Mueller, Cormark Securities, Inc. (Oct 13, 2020) : Royal Helium Ltd., The Heir Apparent To A Revitalized Western Canadian Helium Industry : file:///C:/Users/mta/AppData/Local/Temp/CormarkResearch%20-%20RHC-1.pdf
- Brian Zinchuk (November 10, 2020) : Royal Helium putting together winter drilling program in SW Sask., plans SE Sask. for next year : https://www.thestar.com/news/canada/2020/11/10/royal-helium-putting-together-winter-drilling-program-in-sw-sask-plans-se-sask-for-next-year.html
- Carmin Chappell & Jordan Smith (June 21, 2019) : The worldwide helium shortage affects everything from MRIs to rockets — here’s why : https://www.cnbc.com/2019/06/21/helium-shortage-why-the-worlds-supply-is-drying-up.html
- Dan Cancian (May 10, 2020) : Are We Running Out of Helium? Price Surges as Global Supplies Dwindle : https://www.newsweek.com/helium-supplies-global-shortage-us-helium-production-party-city-1422021
- U.S. Department of the Interior, Bureau of Land Management : Stewardship of the Federal Helium Program : https://www.blm.gov/programs/energy-and-minerals/helium/stewardship
- Wikipedia : National Helium Reserve : https://en.wikipedia.org/wiki/National_Helium_Reserve
- U.S. Department of the Interior, Bureau of Land Management : The Federal Helium Program : https://www.blm.gov/programs/energy-and-minerals/helium/federal-helium-program
- Adrian Cho (July 8, 2015) : New U.S. rules on helium sales said to stifle competition : https://www.sciencemag.org/news/2015/07/new-us-rules-helium-sales-said-stifle-competition