Special Report: How to Invest in Helium
The best small caps out there
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You will, I hope, have read last week’s piece on helium. If not, please take a look, as it forms the backdrop for today’s report.
I have been invested in this sector for some time now and I know it quite well. But, in addition, I have solicited the views of Cliff Cain, CEO of rare gas consultancy Edelgas Group, and I am grateful for his insights.
Helium is one of those “niche commodities”: a small market, not many companies operate in the sector, but an essential and “strategic” substance. With such concentrated markets, a persuasive story and some supply constraints can quickly lead to big gains. I’ve seen it happen with potash, graphite, rare earth metals, cobalt, vanadium, even marijuana, though quite how essential that is, I’m not so sure.
Three or four years ago, there was just one helium play on AIM in Britain, one in Australia and two on the Canadian markets. Now there are many. We have had the boom in new helium exploration companies phase. Now they have come back down to earth and many, now development plays, are struggling to survive.
Yet there is a still a helium supply shortage. People may have found the stuff (or not) - but they can’t get their discoveries producing.
The beauty of gas plays is that the time from discovery to production, unlike metals which can take as long as a decade, is often just a year or two, so you can see a quick return on investment. But the experience with helium has been that barely a company have successfully managed to get its assets producing. Helium production is more problematic than natural gas.
With the multiple failures to achieve production and the general malaise in commodities, the sector has taken a bit of a hit this year - especially the explorers. “75% of these companies are going to fail,” says Cliff. At least, say I. Most exploration companies fail, whatever the natural resource.
The helium price, meanwhile, has gone from something like US$200/mcf (thousand cubic feet) to $1,800/mcf - although this varies depending on the purity of the gas, amounts sold, agreements made and so on.
There are numerous development companies promising production in 2023. So many, in fact, that there may even be something of a helium surplus by 2024.
But that is then - and this is now. The company that can get its assets producing first, while there is this shortage, is going to make a lot of money. The question is which is that company?