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Helium One Doubles Loss – Is This OK?

Tim Worstall
Tim Worstall trader
Updated 16 Feb 2022

Trade Helium One Shares Your Capital Is At Risk

Key points:

  • Helium One has reported a double loss to June 2021
  • This is normal enough for a junior miner at this stage
  • But is this burn rate sustainable?
  • Helium One Global Stock Forecast

Helium One Global Ltd(LON: HE1) has released its annual results up to June 2021 and they can be read here. The loss has doubled over the year before which isn’t, usually, all that good a sign but here it’s a little different. There was a takeover, the value of the goodwill – also known as the potential value of things that haven’t happened yet – needs to be written off and that, rather neatly, explains that doubling of the loss.

Actual losses, in the sense of cash flowing out of the company, are up a bit but then that’s also the sort of thing we would expect as prospecting activity increased.

This is simply normal for this stage of a junior miner’s life. Don’t forget that a workable definition of “junior miner” is someone who is not producing anything as yet. If there’s no production then clearly there are no sales and thus no revenue. Any activity at all is going to lead to loss. Which is fine, we all know thighs about junior miners anyway.

Also Read: The 3 Best Carbon Capture Stocks For 2022

The other thing about such junior miners is that they’ve got a number of hurdles to clear before they can produce anything. The first is to decide upon what to look for and where. The second is to find something that’s worth exploring more – then, obviously enough, to do that more exploring. This is the stage that Helium One is at, at present.

The base idea, that helium itself is in short supply is true. It’s also vital for certain parts of the global economy – both MRIs and certain chip-making techniques depend upon it. The helium price is nice and high as a result, Helium One is looking for something easily sold if it can be found and extracted.

Helium is produced as a daughter product of the nuclear breakdown of uranium and thorium, these abound in volcanic rocks – the area of Tanzania being explored is the right geology. So, the basic set up looks just fine.

Which brings us to two further questions. The first is whether that beneficial market price is going to continue. As we’ve said before about Helium One that’s something we’re really not sure about. The big competition isn’t so much from the other helium miners (Imperial Helium, Royal Helium and others looking in Canada say) but from the LNG producers. For making LNG is a halfway stage to being able to extract the possibly minimal levels of helium found in most natural gas deposits. So the jury is still out there.

The other question is, well, how long can Helium One continue prospecting without a capital raise? This is equivalent to the “burn rate” that we talk about with tech companies. For Helium One ongoing losses are running about £3 million a year (stripped of that takeover effect) and there’s some £16 million of cash and cash equivalents. Helium One is therefore funded for exploration for several years. There could be a cash call to exploit of course, but then at that point Helium One is worth more because they would have proven that there is indeed something to exploit.

The risks at Helium One are, therefore, will they really find exploitable levels of helium? And what will be the helium price if and when they do?

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.