Helium One Global (LSE: HE1) sounds like a space ship, or one of Richard Branson’s balloons. The truth is more down to earth. The AIM-listed company is an early-stage helium exploration miner. And the Helium One share price spiked 44% over two days in November, in response to the latest project update.
We’ve had a change of drilling rig supplier. After legal issues with its previous partner, Helium One has now signed up with onshore drilling firm Exalo Drilling.
Spudding at the Rukwa licence in Tanzania is still expected in the first quarter of next year. And the company doesn’t expect costs to rise materially compared to its old plans. So it seems things are back on track after a potentially threatening hurdle.
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Growth potential?
Why might Helium One Global be a good one for investors to go for? Unlike the even lighter hydrogen, helium is inert and is of little use in the energy business. But it’s critical for a number of industries, including the medical, technology and aerospace sectors. MRI scanners use a lot of it, for example.
And it’s scarce, which makes it increasingly expensive, having risen 135% in price over the past two years. Helium One reckons the global market for the gas could be worth more than $2.7bn.
For an investor who wants to get in on the helium business, Helium One Global is the only UK-listed option.
Cash burn
But this is no surefire investment. The key risk I see is that it’s a very small company and it’s still not profitable. We’re still waiting for this year’s results. But for the year ended June 2021, the figures showed a total comprehensive loss of $5m.
Perhaps more importantly, net cash outflow (including operating and investing activities) amounted to $6.8m. We’re very much in cash-burn days, with capital dilution going on at a fair rate from new funding activities.
Dilution
In the 2020-21 year, Helium One issued new shares to the tune of $21.7m. And that’s a company with a current market cap of only around $61m. At 31 December 2021, the balance sheet showed net cash of $9.7m (down from $15.8m six months previously).
So there’s cash there now, as the current drilling campaign gets under way. But how much more will be needed before profits start to arrive, and how much dilution that might mean for existing shareholders, is a big unknown. Still, investors seem to have been keen to buy up last year’s new issue.
Volatility
We’re also looking at a small penny stock here, with a share price of 8p at the time of writing. It’s been very volatile since IPO in December 2020, and I fear the volatility could continue.
Anyone who got in at flotation would have since seen their investment rise by 85%, which is a pretty decent result in just two years. But Helium One shares were briefly up as high as 550% in August 2021. That’s quite a bubble to see bursting.
