Investors that are interested in the whole helium and noble gases story have been keeping Desert Mountain Energy TSXV:DME on their radars. The company has been sold down heavily in a market that has been parlous for junior miners, but Desert Mountain is exploring for helium and that helium shortage globally remains a persistent one.
While the company generated a lot of enthusiasm among stock investors earlier in the year, the lack of enthusiasm has been marked in 2H.
The Toronto-listed miner had previously been hailed by mining analysts as an early mover in the helium exploration space. It has been exploring in the southern United States where it has both the prolific Holbrook Basin site in Arizona and a small package in Oklahoma. Desert Mountain Energy used to be called African Queen Mines, and it acquired its first 36,000 acres of helium leases back in 2018.
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But circumstances seem to have changed recently. Why has the miner begun shifting its exploration activities away from a potentially very exciting opportunity in Arizona’s Holbrook Basin to look at gas flow in New Mexico?
Holbrook Basin in Arizona is considered a prime asset for helium, with occurrences of high grades in the region of 8-10%, produced historically. Desert Mountain has now amassed over 65,000 acres in the area in the last couple of years.
The Holbrook Basin is called ‘Heliopolis’ by some prospectors because of the lucrative Pinta Dome field which was a major producer of helium in the 1960s and 1970s. Much of the basin remains underexplored and sits on Permian Fort Apache limestone, which is prime geology for helium. The area averages about one well drilled per 100 square miles, which is not much.
Why is Desert Mountain shifting focus to New Mexico?
Desert Mountain has recently disassembled its helium processing plant and moved it to the West Pecos Slope Abo gas field in New Mexico. This is part of a new initiative in New Mexico where the company has assumed the operations and revenue from existing wells. It secured a contract for the near term to rent a compressor to boost natural gas sales during line pigging.
This looks like an effort to make use of proprietary plant cost-effectively while the company grapples with regulatory issues in Arizona related to its core McCauley helium processing facility. Due to delays around enhanced recovery permitting, it was felt that more could be achieved with the hardware if was shipped out to the New Mexico gas project.
“The company’s strong financial position coupled with our robust modular design make this agile move possible,” explained CEO Robert Rohlfing. “Moving the plant to the West Pecos Slope Abo Gas field allows us to produce helium and condensates near term. Where most plants are designed to meet only the specific needs of a given area and subsequently, their inherent fixed design preclude moves of this nature.”
Current estimates for relocation of the plant are between 8-12 weeks, including reassembly and hookup. The primary permitted compressor location has the required air quality permits in place, sufficient for all intended operations. Desert Mountain is moving ahead with finalizing plans to pig flow lines to lower flow gathering system line pressures and will then begin removing the most critical choke points.
On the West Pecos Slope DME’s goal is to target where independent gas analysis tests show helium values above 0.700% or where combined with low nitrogen, high condensate values and high BTU ratings. It has not independently verified the gas analysis provided by the seller. Those gas analysis tests are required to be conducted by an independent third-party testing laboratory on a yearly basis, this is done to ensure proper payments are made to the mineral and well owners by the gas purchasing company.
What is happening with Arizona and Holbrook Basin?
At this point in time, all planned drilling operations in the Holbrook Basin will halt, which will be a disappointment for investors and shareholders who liked the story when it was road showing a few months ago. Desert Mountain says it will continue to work with the Arizona regulatory authorities as they modify and develop the state regulations specific to the helium industry.
Desert Mountain has told investors it will maintain its leases and wells in good standing and plans to re-enter the state with a new second facility once assurances and permits have been granted. While the order of production has shifted from Arizona to New Mexico, the capital raised in Q1 this year was already earmarked for a second facility (among other uses), and as such the overall development plan for Desert Mountain Energy has not altered in a meaningful way to the one that was previously set out to shareholders.
In the meantime, Desert Mountain says it has already been contacted by a local power provider in NE Arizona, who will seek to tie the existing solar facility at the McCauley plant site into the local grid until it is needed for the second facility.
