The one thing that underpins every single tech giant in the world is experiencing a shortage–twice over.
Semiconductors—some call the “New World Oil” with massive global implications–are in short supply …
And Helium, a gas critical to their manufacturing, is experiencing a supply squeeze that can’t be remedied without new exploration and development.
It’s not just the demand explosion in the semiconductor industry that necessitates more Helium, either …
Helium is a critical gas in the healthcare industry as the backbone of the MRI and the NMR, and a vital component in space exploration, not to mention everyday consumer electronics.
That put this gas in pole position for the next boom. And it could be bigger than the Cannabis 1.0 boom. Maybe bigger than blockchain. Bigger, possibly, than lithium.
It also means that the next pure-play junior to make a significant discovery could end up being one of those success stories for early-in investors.
Any time you have a commodity shortage looming, it pays to look to the small-caps whose stock most often reacts favorably to news of progress in an exploration play.
We’ve seen two big deals in less than two months …
In March, Avanti acquired a license for 6,000 acres from the Government of Alberta in highly prospective Helium territory at the tipping point of a global supply squeeze.
Less than a month later, they moved to acquire another 12,000-acre prospective Helium land package, this time in Montana.
They’re setting themselves up and aiming to become North American Helium superstars … with geopolitical implications …
With global demand for Helium set to outpace supply until 2025 at the very least, Canada could end up becoming a global powerhouse, and Avanti could end up being the spark that ignites the flame.
Peak Helium: Are We Already There?
We’re not talking about “peak Helium” in the same way that we talk about “peak oil”. Peak oil suggests the earth is running out of crude and we’ve discovered everything there is to tap.
Peak Helium means we’ve run out of Helium reserves and have been caught napping: We don’t produce enough, and we can’t meet future demand unless we explore for more.
It’s not enough to just extract it as a byproduct of natural gas.
We need pure Helium discoveries now.
Why? Because there’s no more going to be sold commercially by the US federal Helium reserve.
The U.S. Federal Helium Reserve (FHR) in Amarillo, Texas, has–until now–provided some 40% of the world’s supply.
After 70 years of supply reserves, it’s running low.
In September this year, the Helium Stewardship Act expires, which means two things: First, the Bureau of Land Management (BLM) will have to auction off the Helium there is in the fed reserve to private operators. Second, BLM will exit the market, removing the current price ceiling.
Helium is already pinging investor radar. In September, it is set to get lots more attention.
Its now-7,000-acre Alberta project houses a previously abandoned natural gas well that shows 2.18% Helium and 96% nitrogen in the Cambrian, and 0.3% Helium and up to 98% nitrogen in the Devonian.
Furthermore, offset wells in the area have multiple tests in Cambrian and Devonian intervals with up to 1.79% Helium and 83-93% nitrogen content. Beyond that, drill stem tests (DSTs) in wells both in Avanti’s license area and nearby indicate reservoir-quality rock in the Cambrian and Ordovician zones.
This is high-grade Helium potential. Anything above 2% is well above the commercially viable grades ranging from 0.3% to 1%.
Then Avanti has a letter of intent to buy another 12,000-acre play in Montana that’s in close proximity to and on trend with an active drilling area just north of the border in Saskatchewan. Nitrogen-rich Helium tests in Cambrian and Devonian zones show high potential, and seismic (2D and 3D) have already mapped out structures that appear prospective for Helium.
Helium: Beyond the Concept
Initiating coverage on Avanti, Beacon Securities Limited says it expects the company to start drilling this summer, with at least 3 wells in 2021.
Beacon also expects Avanti to “consistently” add additional lands to the asset base for many more drilling locations and forecasts:
Initial production and cash flow starting in Q3/22
a $15-$16 million capex program in each 2022 and 2023, based
on a 10-well drilling program each year
average initial production of 35 mcf/d per well
60% drilling success
“We note that since the transfer of drilling knowledge from the O&G industry should be seamless, we do not envision undue risks as it pertains to drilling the vertical Helium wells,” Beacon notes.
Beacon forecasts $6 million of cash flow in 2020 (for six months) and $40 million after an assumed 5-million-share equity issuance.
It’s all about management, and Avanti (TSXV:AVN; OTCMKTS:ARGYF) has proven natural gas success. Now, it’s set up in Alberta where the government has already drilled oil and gas wells, keeping in mind that Helium is usually found at natural gas sites.
It was the Avanti team, led by Chris Bakker, that developed the world-class Encana/Ovintiv’s Montney natural gas production in British Columbia. They famously brought production to 300,000 boe/d.
Now, they’re building a proprietary model to target significant Helium accumulation in Alberta and Montana. And while the details of that model remain an industrial secret, we think the success of Encana shrouds it in confidence.
Multiple Sector Demand Makes Helium the Hottest Gas Around
The global Helium market was worth $10.6 billion in 2019. By 2023, it is projected to close in on $16 billion.
The demand is undeniable. It comes from sectors as diverse as healthcare and space exploration to big tech and … well … party balloons, which manage to hoard some 10% of the dwindling supply to the point that birthday parties may have to go without.
We think that demand can do nothing but surge at this point. Big tech isn’t getting any smaller; nor is our hunger for big data, all of which require Helium.
And the semiconductor industry, which also relies on Helium, has an appetite that these days is insatiable and is experiencing its own shortage. It can’t keep pace with demand. A global computer chip shortage is looming …
NASA is back in the business of space exploration and will have to look for Helium privately soon enough.
That makes this critical gas dependent on new discoveries.
And it makes fast-acting gas veterans, such as Avanti, one of North America’s best hopes for new home-grown Helium supply at a crucial tipping point in our reserves.
We think those looking for the next commodity supercycle should look no further than Helium–trading the hydrogen hype for a critical gas with a clear demand picture and a supply setup that’s running on empty.
That makes Beacon’s prediction that Avanti’s wells “should payout in only two to eight months and generate an IRR of 122-635%” all the more timely.
And while helium is facing a shortage, a key component in modern tech, and one of helium’s primary uses, semiconductors, are also running out of supply.
Companies To Watch As Semiconductors Grow Scarce
Google has gotten a lot of praise for its electric driving subsidy Waymo, but few might know that its partner in this groundbreaking project is none other than chipmaker Intel Corporation (NASDAQ:INTC). Intel and Waymo teamed up way back in 2017, and have worked together to fine tune their technology together ever since. Through their mutual knowledge of hardware and software, the tech giants have made leaps and bounds towards building the car of the future.
At its core, Intel is a chipmaker. And a big one at that. It’s also a leader in the global semiconductor game thanks to its investments in 65nm process, an advanced node used in volume CMOS semiconductor fabrication. Intel has manufactured semiconductors in Ireland since 1990, and has invested around $6 billion there in this time, but is beginning to branch out with new investments in the United States, as well.
In addition to its efforts with Waymo and its semiconductor investments, Intel has also been on the forefront of developing its own artificial intelligence and vision hardware. Back in 2017, it acquired MobileEye, a supplier of camera-based chips and software to the global mobile industry. And now, in a new deal with Luminar, another emerging tech company on the forefront of this movement, Intel is positioning itself as its own giant of this new sector.
Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) is the world’s largest contract chip manufacturer, meaning it’s tasked with making chips for dozens of fabless tech companies including Apple, Qualcomm, Nvidia and Advanced Micro Devices among others.
The fact that only a handful of chip manufacturers actually own chip-making facilities has made the situation even more dire. Indeed, many leading top semiconductor companies are “fabless,” meaning they only design the chips but rely on other companies, known as foundries, to actually make the chips. The shift to outsourcing has been having a big effect on structural changes and related capacity because companies that cut orders in the early days of the pandemic have been forced to go to the back of the line.
Advanced Micro Devices (NASDAQ:AMD) is another one of the world’s top chipmaker and semiconductor producers. While it’s primarily known as a gaming company, AMD, along with Nvidia (NASDAQ:NVDA), are present in most modern computers, whether it’s a Dell, Lenovo, Razer or even an Apple, at least one component in that computer will likely be built and manufactured by either AMD or NVDA.
They’re not just present in home computers, either. AMD, for its part, is building CPUs to be used in massive data centers, the kind propping up Microsoft’s Azure cloud-based workstations and desktops. And its GPUs are providing the speed, security, and scalability to keep these data centers performing at the level needed to push modern tech into the future.
Nvidia, as AMD’s biggest competitor, is also pushing new tech into the future. In fact, it’s even setting new records with the introduction of its A30 and A10 enterprise server GPUs. Thanks to its innovation and dedication to its clients, Nvidia is present within the highest levels of tech in just about every industry imaginable. From Big Finance and Fintech to robots, engineering, and even building the cities of tomorrow, Nvidia’s hardware is at the core of some of the most exciting innovations being rolled out into the world today.
With more and more demand coming for semiconductors and new chip technology hitting the market, companies like Nvidia, AMD, Taiwan, Samsung and Intel are going to be some of the biggest benefactors. They’re already well-known in the industry, and this could just be their time to really shine.
Maxar Technologies (NYSE:MAXR, TSX:MAXR) isn’t a semiconductor company, but it is a particularly interesting play positioned right in the middle of a number of the most exciting industries exploding this year. While the space firm specializes in satellite and communication technologies, it is also a manufacturer of the infrastructure required for in-orbit satellite services, Earth observation and more.
Maxar’s 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.
Maxar’s incredible tech and innovative approach to the already-extremely complicated space industry has helped the company see its share price climb where many of its peers have struggled. In fact, in just the past two years, Maxar has seen its share price increase by well over 1000%. And as the company secures more deals in the great beyond, the innovative firm will likely maintain its upward trajectory for some time.
Even The EV Industry Could Be Affected
Electric Vehicles are built on the back of semiconductors, and by extension, helium. While they’re flying high at the moment, their next steps will be important. And some of Canada’s finest are already well positioned to weather the storm.
GreenPower Motor (TSX:GPV) is an exciting company that produces larger-scale electric transportation. Right now, it is primarily focused on the North American market, but the sky is the limit as the pressure to go green grows. GreenPower has been on the frontlines of the electric movement, manufacturing affordable battery-electric busses and trucks for over ten years. From school busses to long-distance public transit, GreenPower’s impact on the sector can’t be ignored.
NFI Group (TSX:NFI) is another one of Canada’s most exciting companies in the electric vehicle space. It produces transit busses and motorcycles. NFI had a difficult start to the year, but it since cut its debt and begun to address its cash flow struggles in a meaningful way. Though it remains down from January highs, NFI still offers investors a promising opportunity to capitalize on the electric vehicle boom.
Recently, NFI has seen an uptick in insider stock purchases which is often a sign that the board and management strongly believe in the future of the company. In addition to its increasingly positive financial reports, it is also one of the few in the business that actually pay dividends out to its investors.
Investors Should Not Ignore Resource Companies, Either
Helium isn’t the only company facing a supply squeeze this year…Lithium is set to blow as well.
And Lithium Americas Corp. (TSX:LAC) is one of North America’s most important and successful pure-play lithium companies. In a way, Lithium Americas is literally fueling the green energy boom. 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.
But what ties everything together? The manufacturers. Magna International (TSX:MG) is a unique way to gain exposure to the EV – and by extension tech and resource – market without betting big on one of the new hot automaker stocks or high-tech speculative plays tearing up Robinhood 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.
By. Ron Caleb
**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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