Gerardo Del Real
May 25, 2023
Editor’s Note: I sat down this week with my partner, Nick Hodge, to pick his brain about what he thinks is an overlooked opportunity in the commodity space — helium. See why he likes the sector and is putting his money where his mouth is in the interview below.
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is my friend and colleague and co-owner of Resource Stock Digest, publisher of Digest Publishing, all around expert in all things, Mr. Nick Hodge. How are you Mr. Hodge?
Nick Hodge: I'm doing well, Gerardo. You know an expert is someone who knows more and more about less and less. So maybe I'll just bill myself as a generalist instead of an expert.
Gerardo Del Real: Hahaha! Listen, it's great to have you back on. There probably isn't more than a two or three day window where you and I aren't communicating about life and markets and opportunities and what we see as the next big contrarian plays that hopefully we can profit from. And we obviously share those profits with our subscribers and readers and audience. So I wanted to have you on and just kind of get your take.
Rates are creeping up a bit. The dollar index is strengthening. It's near the 104 level as we speak. The overall markets, the major indices seem shaky. What are you seeing out there? What are you thinking in macro-wise right now?
Nick Hodge: Well, I think we're heading into summer, which is a general slow time in the speculative and TSXV markets, and we're certainly seeing that.
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More broadly than that, we're seeing a slowdown in general, right? I've been talking about copper going below $4 for a while now. If people listen to the podcast or read the letters that I write, Foundational Profits and Hodge Family Office. And you've got a CRB index that's down, you know, 4% for the year and over 16% in the past year as demand destruction has materialized and recession fears get priced in.
And I think that's a good window to position for the long term, right? That's what I've been saying — use these short-term fluctuations and short-term volatility to get positioned for the long term.
At the same time, I see a stock market bubble that just doesn't want to entirely pop. The chart chasers don't want to go away. The YOLO meme stock buyers and short-term options players are still around and still don't think that economic gravity is going to materialize. So in that respect, I like gold. I've been saying that for the past 12 years in a zero interest rate environment, it was buy the dip in tech stocks, buy the dip in the general market and you'll be fine because there was always that backstop there of zero interest and then the Fed was always going to be there to bail you out.
And now that’s not the case as they've gone on one of the steepest rate hiking experiments that's ever been done. And even now, when most people thought that that hiking cycle was done, and two weeks ago there was zero chance of a rate hike at the next meeting, now there's like a 33% chance of another rate hike at the next meeting. So, to close that thought, whereas it was by the dip in the market, the broader markets, for the past 10 or 12 years, now it's buy the dip in the precious metals and the safe havens. And we've been long gold, going back to November, started buying royalty companies, have been adding producers and mid-tier producers and even developers. And I think this is an opportunity. You've got gold pulling back below $2,000 and that's one of the places I would be hunting for new opportunities.
Gerardo Del Real: Well said. Let's talk about new opportunities. I talked about being a contrarian. It's funny, I've written checks, substantial ones, here for three different copper companies over the past month with the pullback in copper positioning for that next leg up but you mentioned gold. Are there any other contrarian plays — maybe some not so obvious sectors or commodities that you're kind of attracted to right now?
Nick Hodge: An easy one is helium. And I know we wanted to talk about that. It's not on many people's radar. You know, we hear about these battery metals and some of them get a bit contrarian, or at least under the radar — the manganeses of the world, tin, rare earths. But those prices have been soft. And certainly lithium prices have been soft. NdPr prices have been coming down. And one thing that hasn't been coming down is helium.
And it's not something that a lot of people talk about. You know, a couple of years ago, it was $300 to $500 per MCF, per thousand cubic feet. And now you've got one-off contracts being signed at $1,000 to $2,000 per MCF. And there hasn't been any new supply coming online. It's sort of a long story. But to make it short, we used to have a helium reserve in this country that was managed by the government, just like we have a strategic petroleum reserve.
I don't know, 10 or 15 years ago, the Congress decided to sell it off. And that's where most of the country and North America got its helium from. In typical government fashion, right? They made the boneheaded decision to sell off the reserve. And the prices sort of went through the roof, as I just outlined, and continue to remain elevated.
Gerardo Del Real: Of course they did.
Nick Hodge: Right. And at the same time, there's been really no new supply coming online. Helium is a weird gas, right? It's inert. It's light. It escapes some geologic formations. You really need a good structure to trap it. And it's used for all sorts of important things. You know, battery metals have been a huge theme lately. Critical metals. Well, helium is super critical for all sorts of things like MRI machines, making fiber optic wires, and even rocket launches for space exploration.
It's really the overlooked backbone of lots of high-tech applications. And so I've been interested in it for some time.
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Gerardo Del Real: That is an interesting sector. Tell me how you play the helium sector, because although commodities tend to be my bread and butter, the oil sector and the helium sector are two that I just haven't felt comfortable actually allocating significant amounts of capital towards. How do you play that sector?
Nick Hodge: Well, it's like uranium in some respects because it's very opaque. There's not a spot price for helium. The contracts are clandestine. You don't really get to know the terms unless you speak directly with the folks who are signing those contracts. And it's dominated by a couple of large players, companies that are listed on the big board, like Air Products, Air Liquide and Linde, for example, sort of these industrial gas companies.
But just like the mining industry, like gold or copper, those bigger companies aren't out there exploring for new deposits, right? So you go to the companies who are out there exploring.
And this has been in headlines. This started a couple of years ago with the price to fill up a balloon at Party City ballooning, I guess, if you want a dumb pun. But then the stocks caught a bid in the market. You had companies like Desert Mountain and First Helium that were adding hundreds to thousands of percent ahead of even bringing on new supplies.
So we invested in a company that was looking in Canada for new deposits. They found one, they were developing it and they ended up getting taken out. And so we became shareholders of this new company and that new company is about to bring new supply online. Their plant is modular, it's being built right now, and it's expected to be online by the end of Q2. Now corporate projections are always rosy and we're a month away from the end of Q2 so I would expect it sometime in Q3, but I'm looking at that as a major catalyst for this helium company to be rerated higher. I think there'll be a lot of interest.
They've already signed an offtake agreement with a space exploration company because helium is needed for rocket launches. There's only a couple of those — hint, hint, it’s either SpaceX or Blue Origin or NASA. And they've still got some additional capacity. So that space exploration company took half their initial production. They've still got 50% to sign. They're fully financed. They've got agreements with Canadian commercial banks, so no additional dilution is expected.
And this is just the first of several wells that they expect to bring online. They've got assets in southern Alberta and Saskatchewan, and I'm pretty excited about the switch being flipped to bring on this first new North American helium production. I think it'll command a premium in the market.
Gerardo Del Real: Insightful as always, Nick. Anything else that you're watching out there before I let you go?
Nick Hodge: No, that's it. I continue to say that a recession is going to brew on the macro side, so be cautious of that. Buy the dips in precious metals and keep an eye out for more from me about helium. We'll be shouting it from the rooftops for the next month or so, I believe.
Gerardo Del Real: Excellent. For those in the audience that have not subscribed to your paid services, where of course you make specific recommendations and opine on all things markets, how can people find you?
Nick Hodge: Well we'll put a link up right here. We'll put a link up to the most recent issue of Foundational Profits. That's a monthly service that focuses on being macro aware and allocating your long term safer funds. And then we can also put a link up to Hodge Family Office, which is the weekly speculative newsletter. So two easy ways there.
Gerardo Del Real: There you go. Mr. Hodge, always a pleasure. Thank you so much.
Nick Hodge: Appreciate it, Gerardo.
Gerardo Del Real
Editor, Resource Stock Digest