One of the latest additions to London’s AIM growth market is helium explorer Helium One Global Ltd (LSE: HE1). Investors seem to be excited about this penny stock — the Helium One share price has risen by 200% since the company’s IPO in December.
Is this £64m company a potential multi-bagger I should tuck away in my Stocks and Shares ISA? I’ve been taking a closer look to see what the fuss is about.
Helium could be an exciting story
Helium One hopes to produce helium gas from underground reserves in Africa. It’s working on three projects in Tanzania, one of which is due to start drilling in May.
The company says that demand for the gas is increasing and that the helium price has risen by 135% over the last two years. The medical, aerospace, and technology sectors are all said to be big buyers.
In 2019, sales from the US Federal Reserve of helium in Texas were discontinued. At the time, shortages seemed likely in 2020. However, the pandemic changed the picture.
Apparently, party balloons account for around 10% of global demand. According to press reports, balloon demand fell in 2020, freeing up supply for scientific and industrial customers.
Of course, demand could bounce back as global lockdowns ease. Forecasts on Helium One’s website suggest the balance of supply and demand will remain tight for the next few years. If correct, this suggests to me that market conditions could be attractive for new producers.
Ready to drill
Helium One’s share price has tripled since the firm’s flotation in December. But I’d expect to see more volatility — up and down — while the market waits for drilling results from the first well.
A three-well drilling programme is due to start in mid-May at the Rukwa project. This covers 3,448 square kilometres in south-west Tanzania. Within this area, the firm’s geologists have identified 21 prospects and four leads.
Seismic surveys and other geological work suggest that Rukwa contains a “best estimate unrisked prospective recoverable helium resource” of 138bn cubic feet. Apparently, “surface seeps” have shown helium concentrations of up to 10%. This is said to be high grade.
The drilling programme should provide more reliable information about the size and quality of Rukwa’s underground helium reservoirs. If some of HE1’s prospective resources can be converted to commercial reserves, I’d guess it would be a big find. But there’s a long way to go yet.
HE1 share price: why I’m not buying
Helium One raised £6m in December’s flotation. Management say that this year’s exploration programme is “fully funded”.
I think that’s a positive start, but I don’t want to get carried away. This company is a small explorer with no revenue, no proven reserves, and limited funding.
Before I invest in an exploration company, I need to have a good understanding of the geology and the business case. Unfortunately, I don’t think I know enough to feel confident investing here.
Helium One looks like an interesting story to me, and I’ll be keeping an eye on the share price. But until we know more about the quality of the company’s assets, I’ll be staying on the sidelines.
