Are you an investor that likes to speculate on startups, especially those that concentrate on mining a valuable commodity and then bring it to market? If so, you would have likely been alerted to the quick trajectory of the shares for Helium One Global Ltd (LSE:HE1). At the time of writing, it closed on London’s Alternative Investment Market (AIM) at 27.90p. Just a year ago, it had been 3.80p, which was its offering price on its issue date on 4th December 2020 – a ‘7x’ multiple in eight months.
Helium One in a short space of time has generated a market cap of £171m, no small feat, as investors with a tendency of being early adopters pounced upon this stock in a big way. ‘Piling on’ may be a better description, but hype in the stock market can drive share values beyond reason in a flash, only to crash and burn when reality sets in. Some analysts refer to it as a ‘tortoise shell’ formation. You want to be on the front end, not the latter. HE1, however, is still rising.
Is the ‘double top’ pricing behaviour of late masquerading as the top of the ‘shell’? Is it all downhill from here? Such is the fun that investors, who like to dabble in these waters, claim to enjoy – even though the risks are ever-present and threatening at each step in the process. HE1 is supposedly sitting on not one but three valuable Helium fields. Helium is a necessary ingredient in a variety of manufacturing processes, most of which are new-age and complex technologies. In other words, the market demand is strong and getting stronger.
But Helium One is a long way from test drilling verification, which it has initiated in one of its lucrative sites in Tanzania, which is in East Africa below Kenya and on the coastline. The helium deposits in this part of the globe are said to be the richest in the world. According to Rupert Hargreaves, an investment analyst for The Motley Fool UK: “There’s been some speculation the company is sitting on one of the world’s most extensive helium resources. This seems to be the reason behind the Helium One share price performance over the past 12 months” (source: The Motley Fool).
If you are one of the fortunate ones staring at a ‘7x’ multiple, what do you do now? Do you cash out and head for the hills, or do you wait for the next ramp-up in stock appreciation? This question has no easy answer. Investors that exited Bitcoin early on are still kicking themselves today for their lack of staying power.
One thing to keep in mind, however, is that experts are claiming that helium reserves are under pressure. There will be a major shortage of this commodity as tech giants increase demand for it. Prices could soar in the near and long term.
For small mining companies, however, especially the ones in their early stage of development like Helium One, there is a multitude of sins that could occur before the first dollar or pound of positive cash flow is delivered to shareholders. This event could take years. Are you prepared to wait, and will you lose sleep at night when its share price gyrates wildly?
Helium One Global Ltd is a relatively young company, founded in 2015 and only recently listed last December on AIM on the London Stock Exchange. The firm’s focus is on the helium commodity market. Its plan is to become a major producer of this non-renewable commodity for the world market, where it is used in modern technologies that range from the medical sector to all manner of high-tech solutions.
Although helium is the second most abundant element in the universe next to hydrogen, its accessible supplies around the world are diminishing at a rapid rate. Tech giants like Amazon, Alphabet, Facebook, and several others, in addition to those in the medical field, depend heavily upon this noble gas. Forbes has been quoted as saying: “Helium is soaring on red-hot-demand, shrinking supply” (source: Forbes).
Helium One was conceived to tap into this critical shortage in the market and is led by David Minchin, its chief executive officer. Minchin has over 15 years’ experience in the mineral exploration and production arena, serving such enterprises as Rio Tinto and Cleveland Potash. His most recent assignments were as Executive Director of ScandiVanadium Ltd, a
multi-commodity exploration company involved in Australia and Europe, and as Director of Geology for AMED Funds, which had oversight over varied projects in Africa. He has a Master’s degree in Geology from the University of Southampton and has a background in corporate finance.
The stated strategies and missions of Helium One are:
(Sources: Helium One)
A testament to Mr Minchin’s capabilities is that, with minimal financing, his firm has acquired exclusive licensing rights to develop nearly 5,000 square kilometres of supposedly helium-rich deposits at three separate locations in Tanzania. Helium One has focused on its primary property, Rukwa, while testing has proceeded on its second site, Eyasi, with minimum attention paid to its third location, Balangida. Sufficient infrastructure is near each of these sites, and each one is within 130 to 800 kilometres of a major city or port. Project summaries are as follows:
With these positive results to date, it is understandable that the investment community would flock to this stock. It is, however, in startup mode. As of the end of December, share capital stood at just $29.2m with accumulated losses to date of $13.5m and cash of $6.6m. The additional capital raise in April diluted shares to a degree, but the company is moving quickly.
Is Helium One Global a good stock to buy? Can this management team catch the curve of increasing helium prices before competitors outpace this little startup? Will a larger concern gobble up this company in its wake? HE1 is a speculative bet, but if its licenses are truly as good as it says, then this company’s shares may be worthy of your consideration.
Shares for HE1 have soared over the past 12 months, rising from 3.80p to the closing price of 27.90p at the time of writing. It has been quite a trip, but momentum has stalled, as per this short-term chart:
It has taken five years to initiate the firm’s initial drilling plan. It has chosen to drill three times at its most promising site in the Rukwa project. It incurred a bit of a hiccup in its first attempt, losing a drill pipe at 500 meters, which will require a sideways fix to continue. The stock dipped, but the management is still positive on current prospects.
There is, however, a disconcerting ‘Double Top’ forming over July, which must be resolved in August. Odds favour a drop of 10p, but Mr Hargreaves once again sums up investor sentiments best: “Considering the speculative nature of the Helium One share price, I wouldn’t buy the stock today. I’d much rather wait and see how the company’s drilling results develop over the next few months and years. This will allow me to better understand how the business will evolve as we advance, although it may mean I miss out on some profits along the way” (source: The Motley Fool).
Due to the speculative nature of Helium One at this stage in its development, a projection of share prices one year out at this moment would be a pure guess. Yes, helium prices are expected to rise significantly over the next year, but this company will not be producing products for sale any time soon. There is no drilling history to fall back upon, just a few test drills to determine potential. The question remains as to whether these sites are commercially viable.
There is only one Wall Street analyst that has issued a projection for August of 2022. He does support a ‘hold’ on the stock, but his guesstimate is based solely on the current technical aspects of the above chart. If the ‘Double Top’ does pan out over the current months as expected, the share of Helium One would most likely gyrate about support at the 21p level. The concern is that any stumble on drill testing news could send the stock reeling.
If you like a speculative bet and you accept the pricing pressure on helium reserves, then an easy argument would be that shares would follow a similar path as for the previous year. This type of projection is purely about extending trend lines, assuming all else is positive. This number exercise yields values between 50p and 75p, but even experts can be wrong with mining stocks.
What is the Helium One stock forecast for 2025? The current 28p resistance level must be hurdled dramatically, or shares of Helium One could crumble in the near and long run. The market is demanding solid evidence that the Tanzanian fields can yield high-grade helium as promised before leapfrogging this short-term value. It is one thing to see David Minchin in his hardhat on site, but he also knows the time for talk is over.
Even if major finds are confirmed, the firm will require a good bit of additional capital to deliver its product to the marketplace. Minchin has already noted that a processing plant will require $50m to get off the ground and produce 3.5m cubic feet of helium annually. The current estimate for the Rukwa project alone is for a potential of 138 billion cf. With operating costs of $6m and revenues approaching $100m, a very profitable business plan could be a real possibility for this company.
Is Helium One a good stock to buy for the long term? HE1 is speculative investing at its best and worst if it fails. The majority of startup firms in the mineral exploration sector typically fail due to a lack of capital, competition, and, most often, due to poor results down the road. Helium One is definitely a coin toss that could end up on either side.
Is Helium One Global Ltd a buy or a sell? Caution is the byword here unless you are an investor who likes to take highly risky bets with very large payoff potential. Investors want more confirmation of profitable helium deposits before driving this stock price up any further, for the near or for the long term.
As for a final sentiment, Mr Hargreaves counsels caution: “Even if it finds commercially viable amounts of the resource, it will still face a long battle to get the project up and running and producing cash flow. As a result, it could be years before the company sees any return on its exploration investment” (source: The Motley Fool). Are you an investor that likes high-risk/reward situations?
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