Helium Junior Looks to Be in Production in 6 Months

Source: Peter Epstein   02/07/2022

Desert Mountain Energy expects to be in helium production within six months and be robustly cash flow positive from 2023 on.

Chief Executive Officer and Executive Chairman Robert Rohlfing  and President and Director Don Mosher of Desert Mountain Energy Corp. (DME:TSX.V) are very busy junior mining executives. Luckily, they’ve surrounded themselves with a highly talented team, including Dr. James Cronoble, director and vice president of exploration; Jessica Davey, director and vice president of land; and Scott Davis, chief financial officer.

But wait, there’s more. The team also includes Soren Christiansen, independent director and oil field operations expert; Jenaya Rohlfing, independent director and experienced petroleum engineer; Dr. Kelli Ward, independent director, physician, and Arizona politician; Weldon Stout, independent director, judge, and lawyer; Eric Witt, drilling operations manager; Ched Wetz, vice president of risk management; and James Hayes, vice president of engineering.

I’ve spoken at length with Robert Rohlfing and Mosher. They’ve built a tremendous team that’s in the right place (85,000+ acres in Arizona) at the right time (ongoing helium supply concerns), and the right business model (fully-integrated, refined helium production).

Desert Mountain expects to be one of the greenest mining operations on the planet by using a solar farm onsite and its own produced hydrogen gas for backup power generation. 

In addition to its use in MRI machines, helium is critically important in semiconductors and fiber optics, data centers, LCD displays, hard drives, quantum computing, rocketry, and lasers.

There are not many helium juniors to invest in (less than 20). Fewer still listed in North America. The following interview of Mosher discusses where Desert Mountain Energy stands today, and where it’s headed.

Peter Epstein: Thank you Don for taking time out of your busy schedule. Can you please give us the latest on Desert Mountain Energy?

Don Mosher: My pleasure. We’re a primary helium gas development company soon to be entering production in the southwestern state of Arizona. Helium is an essential high tech enabling commodity, yet few readers know of its uses and critical importance. For most applications, there are no substitutes.

In addition to MRI machines, helium is crucial in manufacturing, operations and/or R&D for semiconductors/fiber optics, data centers, LCD displays, hard drives, quantum computing, rocketry, lasers, and more.

We’re sitting on nearly CA$25M in cash, but we will spend a good bit of that to enter production in the second half of this year. Our team is building a customized helium refinery, allowing us to deliver up to 99.9999% pure products to the U.S. government and regional customers. We’ve identified nearly 40 prospective clients within 300 miles of our first facility.

PE: Intel and Taiwan Semiconductor are each investing tens of billions of dollars into new semiconductor plants in Arizona. How important is this to Desert Mountain?

DM: Yes, this helps indirectly. Although we can’t supply the extremely high purity specs those companies will need. They will pull highly refined helium out of the market, removing potential surpluses in the U.S.

PE: Can you comment on Russia’s giant new natural gas production facility (that produces helium as a by-product) being offline?

DM: Yes, wow. To be fair, this is a highly complex, very remote project in far east Russia. It was talked about for years, causing some producers to slow rollouts of new helium supply for fear Russia would flood the market.

Due to an explosion and fires, reports indicate the Phase 1 ramp up will be largely offline for six to 12 months. This shows how difficult it is to secure clean high grade helium from safe, reliable sources. And, it’s not just Russia, Qatar is having problems ramping up a major refinery and in Texas, the BLM is experiencing operating issues.

PE: Your team is planning seven wells in 2022, three wildcats and four offsets. Please tell us about those plans.

DM: The first two offset wells will supply the McCauley Finishing Facility that we’re building. Although we’re four for four on wildcats so far, there’s no guarantee of future outcomes. The oil and gas industry average success rate is ~17%, so we will have some misses.

PE: What do you mean when you say that Desert Mountain will be a zero carbon, green helium operation?

DM: Great question. The composition of our initial helium wells is very clean, with no wastewater. There are relatively few gasses to contend with, and nitrogen can be freely vented. Hydrogen is in the mix, so that can be used for back-up power onsite. We’re building a solar farm to work in conjunction with hydrogen-generated backup power.

This adds up to a low cost, simple, modular refining plant. Our McCauley Field Finishing Facility will be the first solar/hydrogen-powered helium plant in the world. The only emissions will be from trucks hauling crude gas to the Facility. … Over time, those haul trucks will likely be replaced by electric vehicles.

PE: You said in a recent interview that Desert Mountain might be able to sell finished helium (up to 99.9999% purity) for $1,000-$3,000/mcf. What factors will determine the difference between receiving $1,000 vs. $3,000/mcf?

DM: The exact grades, proposed volumes, and contract durations will dictate prices. We expect to be the only fully integrated premium quality, primary helium producer in North America, if not the world.

Depending on market conditions and internal factors, we may sell some or most of our helium for < $1,000/mcf. For instance, if we sell 99.995% helium, we might get $500/mcf, but it costs far less to produce that grade. We should have a better idea of where we stand this Spring. In the chart below is a wide range of scenarios for 2023 given potential flow rates, helium grades and pricing.

PE: Your team mentioned a goal of bringing 60 to70 primary helium wells online in the next five years. How uniform might those wells will be in terms of flow rates and decline curves?

DM: We have ambitions for 60 to 70 wells based on our knowledge of the geology across 85,000-plus acres in Arizona. That could change. At this time, there are more unknowns than knowns, so we need to wait for the drill bit to deliver us the data we need to answer these questions.

Some helium junior peers are offering more certainty with regard to their future operations than we’re comfortable with. We have a very skilled and experienced team that’s doing a lot of hard work in a prudent manner. Since we have nearly CA$25 million in cash, there’s no pressure to (potentially) over-promise and under deliver.

PE: With lead times for new equipment stretched, will Desert Mountain have a pause in growth after its first production facilities are maxed out?

DM: We have pre-ordered key components for the next plant, but expect roughly an 18-month flatline in production before the second unit is started. That means we could be maxed out at ~10 million cubic feet/day until our Rohlfing facility is up and running. That’s unless we acquire existing facilities with free cash flow, but that’s not on the table at this time.

Producing and refining helium is not rocket science, but it’s not easy either to do things the right way. We expect to have CA$8 million-plus in cash as we reach cash flow breakeven in the back half of the year. A strong balance sheet allows us to avoid the need to sign onerous off-take contracts where we give up most of the upside.

PE: Can you please reiterate near-term investment catalysts for Desert Mountain over the remainder of 2022?

DM: Sure. We will have a very busy year. Over the past 12 months, we proved we can find helium. Our team, led by CEO Rob Rohlfing, is four for four on wildcats. Well number five, an offset, will be completed this month along with two more wells by early March.

In total, we hope to drill seven wells in 2022. Initially we will sell helium directly to the U.S. government. While we don’t know the specifics yet, and things can certainly change, we expect to enjoy high margins and to generate substantial revenue and cash flow.

If all goes as planned, wells two, four, five, and six should go into production in late second quarter or early third quarter, with crude gas sent to our refinery at a measured pace so that we can work out any kinks. Next year should be a big one for Desert Mountain.

PE: Thanks Don, very helpful. It’s truly amazing what’s happening in the helium market. Pricing looks like it will be stronger for longer. I look forward to seeing your team’s progress in the coming months!

Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University’s Stern School of Business.

Disclosures / Disclaimers: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Desert Mountain Energy, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Desert Mountain Energy are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Desert Mountain Energy was an advertiser on [ER] and Peter Epstein owned shares in the Company.

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.

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