I’m under the impression that most of the shareholders that I’ve talked to on Reddit, Twitter, Stockhouse, iHub, and StockTwits have yet to realize the true potential value of this stock.
An important detail that DME’s VP of Capital Markets Don Mosher mentioned in one of his latest interviews is that rocket companies and tech companies require high grade (99.9999%) pure helium.
Don mentioned the company’s intentions to sell to these specific types of clients. CEO Robert Rohlfing said that just one tech company could buy all of their helium, but the company plans to diversify and sell to a private (most likely rocket) company, a public (tech) company, and the US government.
If their clientele is made up entirely of high grade helium consumers, and the going price of high grade He is $3,000/mcf as quoted by Don Mosher, that means this company is easily worth 3x most people’s estimates that I’ve seen.
After realizing this, I sold the farm, backed up the truck, and I’ve been loading as many shares as I can. This stock now makes up 86% of my portfolio, and I’ll continue to add shares until probably their first earnings call, as I predict the company will remain undervalued until then.
Since the company will be bringing in revenue so soon, and since they have zero debt, DME has explicitly said they will be fully diluted before the end of the year, which will only strengthen the value of our shares.
Former DME CEO Irwin Olian said their all in cost of extraction for crude helium is $65/mcf, and since I’ve seen elsewhere that Helium One’s projected cost of refinement is $20/mcf, I would estimate DME’s cost to produce their high grade helium would be somewhere in the ball park of $100/mcf. Perhaps DME’s refinement cost will prove to be less since their solar plant will be providing the energy required to run the refinement facility.
Don Mosher says the company expects to bring in $50 million revenue per quarter with the first five wells. Even if it’s just the first two wells that come online, that’s $80 million a year revenue, and at a 90% profit margin, that’s over $70 million. At a 10x price to earnings ratio, that would put this stock at a market cap over three times it’s current value.
But this is a conservative estimate, and I’m sure their true revenue per well will prove to be much greater. Even if DME does not receive the $3,000/mcf price that I’m speculating they will receive in their first quarter of production, the price of helium is poised to rise.
New MRI machines have been developed that require about a tenth of the helium of existing machines, but the increase in demand for MRI machines in developed and especially developing nations means the demand for helium in healthcare will remain high.
Scientific instruments that require helium are being built to capture the escaped helium for reuse, but the growing demand for helium in the tech sector will outpace any innovations in helium capture that would reduce existing demand.
More rocket flights means more helium will be needed to purge the fuel tanks, and more satellites which require helium to prevent their instruments from overheating.
There is going to be a rather large void on the supply side of helium once the US Bureau of Land Management holds their last auction of their helium reserves in September. I expect the price to increase as a result, and DME will be one of the first to market of the existing helium companies to capitalize on this drop in supply.
Every other public helium company that I know of looks inferior to what DME has to offer. DME used to be called African Queen Mines, and they were an early mover in the African gold space. They had success finding gold deposits, and about ten years ago they shifted their focus towards helium once the company caught wind of the world’s hottest commodity. Finally in 2018 they rebranded as Desert Mountain Energy after acquiring properties in Arizona and Oklahoma.
Their Oklahoma project is a natural gas well, which yields about 1% helium concentrations, which is insignificant compared to what the company expects to pull out of the ground in Arizona.
Since DME is an early mover in the helium space, they had their choice of where they wanted to drill for helium. They most certainly could have chosen Saskatchewan, which is known for their rich uranium deposits (uranium produces helium as a result of radioactive decay). But the historical data that you can find on the government of Saskatchewan’s website does not show that the Canadian province is known for high concentrations of helium.
DME chose to mainly operate out of Arizona, in the Holbrook Basin, which is known as the Saudi Arabia of helium. The old adage says that the best place to build a gold mine is right next to a gold mine, which is exactly what DME is doing.
The Pinta Dome gas field, which is right next to where DME has its leases, consistently pulled out concentrations of helium between 8-10%, whereas in Saskatchewan by comparison someone once found an anomaly of 7%, but they usually find concentrations around 1%, which is typical of natural gas wells.
What gives DME’s jurisdiction its greatest advantage is it’s proximity to end users. Originally the company planned on purchasing a fleet of vehicles to deliver their helium, but they reached an agreement with their customers where they will come pick up the helium.
Not only does this save the company $7 million in vehicle costs, but more importantly they won’t suffer any loss during transport. Don Mosher says that driving from Arizona to Texas in the middle of summer would account for an 18% loss by the time the helium reached its destination.
There currently is not a way to properly store helium where it won’t escape. Current MRI machines need to be topped up once a year, and small helium tanks for balloons only have a one year shelf life. The best natural containment for helium is a salt rock formation, like in the Holbrook Basin.
The biggest thorn in the company’s side when it comes to jurisdiction is the speed in which these drilling permits are issued by the state of Arizona. After the company establishes itself in the community and has started to donate money to the Arizona school system, which they promised they will do, then hopefully these drill permits won’t take so long to squire.
It also probably won’t hurt that their newest member of the board is a former state senator and current Chair of the Arizona Republican Party.
Another issue the company faces is the future of their third well. A judge recently granted the city of Flagstaff an injunction after the filed a restraining order on DME after the city feared that fracking would interfere with the city’s aquifer.
However the company is confident that an appeal would go their way since a similar case in Washington state was recently ruled in favour of a company. Not to mention, DME is not doing any fracking, their well is 3 miles away from their aquifer, and they are not drilling to the depth of where the aquifer is located. This matter probably won’t be settled until next year.
Well #3 was said to contain He3, which is the only other stable form of helium next to the commonly known He4. He3 will be sold to the Department of Homeland Security, as they use it to detect radioactive isotopes in airports. I’m not sure what sort of a price He3 fetches, but given its rarity I’m sure it would be at least comparable to high grade He4.
Since all of DME’s other leases are on private land away from any town or city, they won’t have to worry about any further restraining orders, nor do they have to worry about federal legislation designed to curb drilling efforts.
I’m sure I’m neglecting to mention some of the downside risks to this stock , but as far as I can tell the risks are pretty minimal, and the upside potential is massive enough that I’m digging in the couches trying to find more money to add to my position.
Once DME announces who their customers will be, and once they uplist to the Nasdaq as they intend to do, we will start to see a lot more interest in this company. Until then I’m happy with this stock flying under the radar, as it gives a better opportunity for me to add to my position.
If this isn’t your favourite stock as well I would like to know why. I honestly can’t think of a better place to invest my money, as this company will be experiencing significant growth over the next four or five years, which will be nearly unparalleled.
