Helium One‘s (LSE:HE1) a penny stock that appears to be stuck in a bit of a rut. While the company patiently waits for approval of its mining licence application in Tanzania, its share price has been treading water.
Investors know that if the company is to fully exploit its Rukwa mine, it must first get government approval. Then it’ll be in a better position to raise the necessary funds to help fully commercialise production.
The wait’s frustrating because the company knows there’s gas deep underground.
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Another potential opportunity
Meanwhile, attention has moved to its 50% “working interest” in the Galactica-Pegasus helium development project in Colorado, United States. It’s operated by Blue Star Helium, a tiny Australian-listed company with a current (21 February) market-cap of £4.75m.
And there have been some developments recently. Six of Helium One’s last eight stock exchange announcements have been about the American mine.
Firstly, in the middle of December, it was reported that bad weather had delayed the drilling of the planned development wells. Then, just before Christmas, it was confirmed that everything was in place to commence work. A further weather-related delay was subsequently announced in January, leading to a decision to gravel the roads leading up to the site.
However, the most recent release is more positive and says that drilling should start shortly. Encouragingly, it appears that everything remains on schedule to extract helium in the first half of 2025.
The company’s directors and shareholders will be relieved because it’s likely to take 12 months — from the granting of the licence — before Rukwa’s fully operational.
Future prospects
It must make a pleasant change for shareholders to see news items about operational matters rather than financial ones. That’s because the company’s repeatedly had to ask investors for more money.
When it first listed, it had 497m shares in issue. Today, there are 5.92bn in circulation — nearly 12 times more. And with its mine in Tanzania requiring an estimated $75m-$100m to start generating revenue, and the Galactica-Pegasus project likely to require some more cash, I think extra shares will have to be issued soon.
To try and avoid this scenario, the company’s directors are talking to potential industry partners — and banks — with a view to providing the necessary finance, but there are no guarantees these negotiations will be successful. And that’s a major problem for me.
On the plus side, the demand for helium’s rising and it can’t be manufactured. This has helped drive its price higher. Also, there’s no spot market for the gas. Instead, prices are negotiated on a contract-by-contract basis. Experts reckon it’s now 100 times more valuable than natural gas.
However, mining’s notoriously difficult, especially in rural Africa. The Rukwa, South West Tanzania field is 80 miles away from the nearest town.
And until Helium One’s projects are fully funded — and its mining licence in Africa has been granted — an investment would be too risky for me.
