Discovered over a century ago, helium was never intended for balloons. It wasn’t supposed to be a party gas. At the height of the Cold War, the United States recognized its strategic nature and started stockpiling it and controlling supply and pricing at a Federal Helium Reserve in Amarillo, Texas.
Three decades later, in the 1990s, the federal government decided that helium could be sold to private entities. Now, reports say those reserves have been depleted, and the reserve is slated for shutdown in September, while the United States is taking over 2 billion cubic feet of helium off the market. For national security, Big Tech, biomedicine and even the space race, the situation may now be nearing critical. And one junior Canadian explorer who recently scooped up highly prospective helium property in both the U.S. state of Montana and the Canadian province of Alberta is hoping to be part of the change for the course our helium trajectory. Avanti Energy Inc. (TSX:AVN.V; US OTC:ARGYF) is aiming for the next big commercial helium discovery, and it’s a small-cap stock that could end up rewarding early-in investors significantly, if successful. And from where we stand, it looks well positioned to take advantage of a critical supply squeeze looming for helium.
Our Tech Future May Depend on Helium
Everything from Big Data, fiber optics and MRIs to astrophysics, space travel and cryogenics relies on helium. There’s no winning the race against China for global tech dominance without helium. There might be no winning the space race, either. Advancements in healthcare could be severely hindered. You probably wouldn’t be able to get an MRI. And perhaps most significantly, at least to the masses in the immediate term. No one would be able to stream TV and movies … or even use a cell phone. Helium is usually found in natural gas reservoirs and mined as a by-product of natural gas.
This noble gas is so valuable because it’s non-combustible, very unreactive, highly stable and so light that Earth’s gravity cannot hold it. Helium is non-toxic and boils at -268 degrees Celsius–near absolute zero, which is the lowest temperature in the universe. No other element can perform the invaluable act of remaining a liquid at such temperatures. That’s what makes helium a noble gas that cannot be replaced. And investors will like the fact that it’s already a hundred times more expensive than natural gas, which sells for around $3 per Mcf. Helium can sell for as much as $400 Mcf, and isn’t traded like a commodity—yet. Now, get ready for what looks to us like the supply squeeze of the century. One that could last decades.
There is no better time for a junior explorer to be launching exploration in prospective helium territory. And it looks like there are no better venues that Alberta—which is already witnessing a helium land rush—and Canada’s Saskatchewan, which is on trend with key areas of Montana.
Avanti Energy Inc. (TSX: AVN.V; US OTC: ARGYF) took decisive action in the second quarter of this year, with four major acquisition moves we think are significant. First, it acquired the license for over 6,000 acres from the Government of Alberta in highly prospective helium territory. Next, it scooped up another ~2,500 acres in Alberta. Those projects–Knappen and Aden–show helium up to 2% and helium-trapping structures. Shortly afterwards, Avanti moved on over 60,000 acres in northern Montana, on territory that is said to be on-trend with both Saskatchewan’s helium prospects and Alberta’s. In mid-April, Avanti moved to acquire the helium license rights to a 12,000-acre land package in Montana. According to reports, that deal should close soon. In June, Avanti announced intentions to purchase the helium license rights for ~50,000 more acres in Montana. The deal is still being finalized, but initial data shows multiple formations (similar to the Aden project) and data from surrounding wells makes this one even more promising in our perspective: That data showed 1.5%-2.2% helium in the Cambrian and 0.7%-1.7% helium in the Devonian. Again, with high nitrogen levels (up to 96%). Back in Alberta, at Avanti’s Knappen project, data shows helium concentrations up to 2.18%, with nitrogen up to 98%. Additionally, data shows deep structural features for trapping helium. (Keep in mind that in Alberta, reports say 1% helium is considered a very good concentration.) At the Aden project, also in Alberta, similar results and helium concentrations have been shown in multiple zones. For Alberta, it’s great news because the province is reinventing itself: It’s not only going to be about dirty oilsands in the future. The future is critical gas supplies, and Alberta could become a major global hub for helium. Experienced Explorers Who’ve Been Part Of This Before. The key figures behind Avanti Energy Inc. (TSX: AVN.V; US OTC: ARGYF) are experienced in exploration. And they know discovery, too. Several team members were involved in giant Encana’s natural gas discovery in Canada’s Montney shale—a play that ended up producing around 300,000 boe/d over 15 years. One of those key figures is Chris Bakker, Avanti’s CEO who has over 20 years of O&G experience, including with Encana. His expertise in acquisitions, exploration and production has already been tested in the past.
Are Insiders Going All-In on Avanti?
Reports show that insiders have been buying up this stock, and we think that’s always a good sign. It’s now on analyst radar, too. Recently, Beacon Securities Limited initiated coverage on Avanti, stating that with the new ~50,000 acres in Montana, Avanti could have “a contiguous land block that may support several years of drilling”. Beacon also noted that “if successful, numerous development wells would follow with production in H2/22 once facilities are configured and installed”. But in our view this one could move fast. On July 12th, following a detailed geophysical review of seismic data, Avanti Energy Inc. (TSXV: AVN) (US OTC PINK: ARGYF) identified three potential drilling locations on its Aden property and says it will now be moving forward with its planned Q3/Q4 drilling program. Not only did the team’s geophysical review of seismic data confirm a four-way structural close with over 75 meters of relief, ideal for trapping helium, Avanti said it would target multiple horizons showing up to ~95% nitrogen and ~2% helium from multiple adjacent wells and previously abandoned wells on the property. Not only is Avanti moving fast, but we think the land rush in Alberta is taking on proportions appropriate for a looming helium shortage that could make or break our tech dominance, and much, much more.
The Resource Industry Is Booming
As demand for energy continues to explode in a post-pandemic China, CNOOC Limited (NYSE:CEO, TSX:CNU) will likely be one of the biggest winners in this boom. It’s the country’s most significant producer of offshore crude oil and natural gas and may well be one of the most controversial oil stocks for investors on the market. A label that has nothing to do with its operations, however. Just last month, U.S. regulators announced their intention to de-list Chinese companies from the New York Stock Exchange, going back on their announcement just a few days later. The sustained negative press surrounding Chinese companies, however, has put CNOOC in an uncomfortable position for investors. While many analysts see the company as significantly undervalued, it is still struggling to gain traction in U.S. markets. Lithium Americas Corp. (NYSE:LAC, TSX:LAC) 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. Lithium Americas’ efforts have paid off in the market, as well. While many companies across multiple industries struggled last year, Lithium Americas’ stock soared. In February last year, the company’s stock price was sitting at just $5.26, while today it is at $13.32, representing a more than 100% return for investors who bought in just a year ago. Turquoise Hill Resources Ltd. (NYSE:TRQ, TSX:TRQ) is a key player in Canada’s resource and mineral industry. It is a major producer of coal and zinc, two resources with distinctly different futures. While headlines are already touting the end of coal, zinc is a mineral that will play a key role in the future of energy for years and years to come. In addition to its zinc operations, Turquoise Hill is also a significant producer of Uranium. Uranium is a key material in the production of nuclear energy, which many analysts are suggesting could be a major component in the global transition to cleaner energy. While the mineral has not seen significant price action in recent years, there are a number of new projects set to come online across the globe in the medium term, which could be a boon to Turquoise Hill, especially as alternative energies gain traction in the marketplace. Teck Resources (NYSE:TECK, TSX:TECK) could be one of the best-diversified miners out there, with a broad portfolio of Copper, Zinc, Energy, Gold, Silver and Molybdenum assets. It’s even involved in the oil scene! With its free cash flow and a lower volatility outlook for base metals in combination with a growing push for copper and zinc to create batteries, Teck could emerge as one of the year’s most exciting miners. Though Teck has not quite returned to its January highs, it has seen a promising rebound since April lows. In addition to its positive trajectory, the company has seen a fair amount of insider buying, which tells shareholders that the management team is serious about continuing to add shareholder value. In addition to insider buying, Teck has been added to a number of hedge fund portfolios as well, suggesting that not only do insiders believe in the company, but also the smart money that’s really driving the markets. Celestica (NYSE:CLS, TSX:CLS), like Magna, is a key company in the lithium boom due to is role as one of the top manufacturers of electronics in the Americas. Celestica’s wide range of products includes but is not limited to communications solutions, enterprise and cloud services, aerospace and defense products, renewable energy and enough health technology. Thanks to its exposure to the renewable energy market, Celestica’s future is tied hand-in-hand with the green energy boom that’s sweeping the world at the moment. It helps build smart and efficient products that integrate the latest in power generation, conversion and management technology to deliver smarter, more efficient grid and off-grid applications for the world’s leading energy equipment manufacturers and developers. Like the rest of the market, Celestica fell victim to the massive selloff sparked by the global COVID-19 pandemic, seeing its share price fall into the $2 range in March 2020. Since then, however, the stock price has soared by nearly 400% to its current trading price of $8.11. As the world races towards a greener future, however, the upside potential for Celestica could be even higher.
By. James Burgess