On Wednesday of last week, some of you may have watched a man fly without a plane or hang glider. David Blaine, the illusionist and endurance artist, soared over the Arizona desert by holding onto 50 giant helium balloons. The stunt, called “Ascension,” lasted about an hour, during which Blaine reached a maximum altitude of 24,900 feet, or about 4.7 miles, before parachuting back to earth.
What made his flight possible, of course, was helium, the lighter-than-air stuff that makes your voice sound like Mickey Mouse’s.
Many people may not be aware that the gas is used for much more than filling birthday balloons. It plays a critical role in a number of high-tech applications, from barcode readers to semiconductors to liquid-crystal display (LCD) panels. Magnetic resonance imaging (MRI) machines can’t work without it. Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) have been buying massive quantities of it for their data centers.
Helium is an important but finite resource that must be extracted from the ground. In fact, it’s exclusively a byproduct of natural gas mining.
Like gold, new large helium deposits are becoming fewer and farther between, even though we’ve only known about the element since 1868, a little over 150 years ago. We’ve only been mining it in earnest since 1915, when the U.S. Army built the first helium extraction plant at the Petrolia Oilfield in North Texas.
As a result, supply is getting tight. Helium is notoriously difficult and expensive to store, for the very good reason that it escapes every known container over time. Ever wondered why balloons lose their helium so fast? It’s because the gas’s atomic radius is so small, it can literally diffuse through any solid. Much of it floats up into the upper atmosphere and eventually gets torn away by the solar wind. Helium is the second-most abundant element in the universe, and yet the day is fast approaching when it may no longer exist on Earth.
Did you know the U.S. has a National Helium Reserve in Amarillo, Texas? Despite the plant having the capacity to hold over 1 billion cubic meters, its reserves are projected to be depleted within two years, according to Desert Mountain Energy (OTCPK:DMEHF) (TSX:DME.V), a North American explorer of the gas.
Desert Mountain Energy Announces New Helium Discovery
One of the most attractive investment cases of gold is that it’s an extremely rare commodity. Peak gold is likely here, even as demand for the yellow metal remains steady, and over time this will help support prices.
Investors seeking exposure to gold have other options than physical bullion. There’s individual gold mining stocks, futures, mutual funds and ETFs. Investors interested in helium aren’t so lucky. There’s no helium futures market that I’m aware of. Explorers and producers are your best bet.
Among my favorites is Desert Mountain Energy. The company is headquartered in Vancouver and listed on the TSX Venture Exchange under the ticker DME.V, but it operates in the U.S. Southwest, particularly in Oklahoma and Arizona, the “Saudi Arabia of helium.”
Desert Mountain is up around 640 percent year-to-date on growing speculation of its prolific Holbrook Basin project in eastern Arizona, first leased in late 2017. Last week, the company announced “significant” helium percentages at two of the project’s wells, which is highly encouraging.
The jump in share price fits in neatly with the “Lifecycle of a Mine” thesis, whereby mining stocks rise and fall depending on which phase of exploration or production a project is in. In the past I’ve discussed this investor behavior as it applies to gold stocks, but it also applies to any commodity, including helium.
Base Metals Supported by Recovering Manufacturing Activity
Helium isn’t the only commodity that’s surging on greater demand right now. Copper and iron ore are both up as manufacturing activity around the world continues to recover following the lockdowns. The manufacturing PMIs in the three largest economies – the U.S., China and euro area – all registered above the key 50.0 mark in August, indicating expansion. U.S. factories hit an incredible 56.0, the fastest pace since late 2018.
New orders in particular have increased, meaning demand for industrial metals has also improved. The price of copper has surged 41 percent since the March lows and closed at a two-year high of $6,697 per ton in London trading last Wednesday. Meanwhile, iron ore futures on China’s Dalian Commodity Exchange traded at nearly $126 on Thursday, up 70 percent from its April 2 low.
Disclosure: I am/we are long DMEHF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the links above, you will be directed to a third-party websites. U.S. Global Investors does not endorse all information supplied by this/these websites and is not responsible for its/their content.
Originally published on Seeking Alpha