Are you an investor who likes to speculate on start-ups, 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 8.05p. Back in early 2021, it had been 3.80p, which was its offering price on its issue date on 4th December 2020, and it then quickly rose to just above 28p – a ‘7x’ multiple in eight months. It has since fallen from grace due to two negative drilling updates.
YOUR CAPITAL IS AT RISK
In a short space of time, Helium One Global had generated a market cap of £171m, but it quickly fell to £50m. Investors often display a tendency for being early adopters and 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 in the latter phase, but can it rise again?
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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 there remains what investment analysts term ‘performance risk’. Until Helium can discover and prove that it is capable of capitalizing on a positive find, this type of risk will be pervasive.
However, Helium One is a long way from test drilling verification, which it had 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). These remarks appeared in 2021, before the stock’s fall from grace.
Many astute investors typically allocate 5% to 10% of their investment portfolio to highly speculative items, which, if successful, can deliver multiples of ‘7x’ to ‘10x+’. If you had been one of the fortunate investors staring at a ‘7x’ multiple in 2021, hopefully you cashed in before the crash. It is never easy, however, to turn your back on a stock that has gone stratospheric. Investors who exited Bitcoin early on are still kicking themselves today for their lack of staying power.
YOUR CAPITAL IS AT RISK
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. Presently, drilling resources are rushing to potential oil sites due to the pressure on that commodity in the aftermath of the Ukraine conflict. Helium One will need to compete for resources effectively in order to prove its case.
Helium One shares have gradually begun to claw back some of its previous gains, but it has a long road ahead of it. Its CEO has been confident of late, a good sign for the near term that has had a positive impact on share values. For small mining companies, however, especially the ones in their early stage of development, such as 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. Can Helium One deliver the goods and regain its all-time-high values? Are you prepared to wait, and will you lose sleep at night when its share price gyrates wildly?
Who Is Helium One Global Ltd?
Helium One Global Ltd is a relatively young company, founded in 2015 and only recently listed in December 2020 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 such as 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 in 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.
YOUR CAPITAL IS AT RISK
The stated strategy and mission of Helium One are:
- Strategy: “To develop the Company’s helium assets and become a significant primary supplier of high-grade helium gas to industry – providing a large scale, alternative supply of helium to a constrained market.”
- Mission: “To develop and bring into production the Company’s helium assets, becoming a significant supplier of high-grade helium gas to high technology, as well as new and future industries, while ensuring the Company continues to maintain the highest operational standards across its activities and the communities in which it works.”
(Sources: Helium One)
A testament to 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:
- Rukwa: Approximately 3,590 km2 – Independent tests estimate a prospective helium resource of 138Bcf, “making this the largest known primary helium resource in the world” (source: Helium One). Maximum drilling depth is only 1,200 meters, and seepage at a surface level has confirmed concentrations of around 10%, which is high grade compared to natural gas deposits that average below 0.3% of helium.
- Eyasi: Approximately 910 km2 – The company has mapped 12 locations with indications of 4.3% concentrations of helium.
- Balangida: Approximately 260 km2 – Initial analysis of seepage from thermal springs indicates concentrations of 10.6% of helium.
The company has what is called ‘Proof of Concept’ on its sites, but until actual drilling can confirm preliminary results, the Tanzanian sites in Rukwa will not gain the full support of the investment community. Drilling campaigns conclude in November for the anticipated rainy season, but results for two of its sites came back negative in August 2021.
The bad news came in two successive reports over the span of a single month. Stock prices tumbled twice in a stair-step fashion, falling from 28.0p down to 6.0p, before bouncing back over 10.0p, only to slip back down again. When drilling season returned in 2022, investors renewed their hopes with two slight bumps to the north, but the stock is now stuck in the 8.0p range.
Is Helium One worthy of your consideration at this time? We will attempt to answer this question by reviewing near-term prospects, as well as taking a longer-term look at both one and five-year time horizons. Analysts are cautious, as you might expect after the stock’s rollercoaster ride, but for small drilling firms such as Helium One, any positive headlines in the press can drive the price through the roof in short order. More negative news will only harden resistance.
Where Will Helium One’s Stock Price Be in Three Months?
Shares for HE1 have risen slowly during 2022, starting out at 7.0p, rising over 11.0p at one stretch, only to fall below 6.0p. Investors have begun to take note once again, as the drilling season ended, due primarily to optimistic comments by the firm’s CEO. It rests now at just above 8.0p, as depicted in the daily chart of HE1, courtesy of IG:
YOUR CAPITAL IS AT RISK
It has taken five years to initiate the firm’s initial drilling plan. The firm 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 was still positive on its prospects. When more negative press hit the airways in 2021, the stock tumbled, but 2022 has been a year for rebuilding and rethinking its efforts going forward.
Hargreaves, the Motley Fool analyst following Helium One, summed up investor sentiments: “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).
The company need not get to a final extraction stage in order for this stock to deliver a good return in the near term. When drilling resumes in 2023, there will be great anticipation surrounding the newer plans and testing performed by the firm. There will be news, but it could go either way. If you like to speculate, there is the recent positive bump from 6.0p to 8.0p to rest your hopes upon, but it would purely be a speculative bet at best.
Where Will Helium One’s Stock Price Be in One Year?
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 coming years, but this company will not be producing products for sale anytime 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.
For the moment, let’s revisit the daily chart shown above and note the slight bump in values during the latter half of November. What is going on there? A rise of nearly 50% in share value in only a few days is worth a further look. Management announced that it has changed its drilling rig supplier, ostensibly due to the failure on the part of the previous provider. After settling legal issues with its previous partner, Helium One has now inked a deal with an onshore drilling company called Exalo Drilling.
Based on comments from Minchin, the firm believes that it is back on track and will resume drilling plans in Q1 2023 with apparently no increase in costs. In the meantime, prices for helium have become more and more expensive, rising 135% in the past two years. Minchin estimates the global market for helium gas to exceed $2.7bn.
Of greater concern, however, is the issue of cash burn rate. Helium One did raise new capital of roughly £20m over the 2020/2021 period, but it had burned through half of that amount before 2022. According to Minchin, the firm has instituted a “prudent approach to capital management”, keeping the burn rate at acceptable levels to ensure funding for 2023 endeavours.
Where will the HE1 stock price be in one year? It is still too early to tell. The share price has pulled back to 8.0p from 9.0p, but original investors have still more than doubled their investment. It will not be an easy road in 2023, but management is confident that progress will be made. Most analysts, however, are advising a more cautious approach. Share prices could go either way.
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Where Will Helium One’s Stock Price Be in Five Years?
What is the Helium One Global stock forecast for 2027? The current 8.05p stock price could always be multiples higher, 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 Minchin in his hardhat on site, but he also knows that the time for talk is over.
Even if major finds are confirmed, the firm will require a good amount 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 138bn cf. With operating costs of $6m and revenues approaching $100m, a very profitable business plan could be a real possibility for this company.
If positive finds are confirmed, HE1 may never have to raise additional capital. In situations such as these, the preferred exit strategy is for a major mining concern to take an interest and propose a takeover price that will satisfy long-term investors. Investors may not achieve the highest potential for their holdings, but an early payoff frees up capital for other investments, rather than tying up the funds for more speculation, additional capital raises, and more performance risk.
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 start-up 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 up this stock price any further, for the near or long term.
As for an analyst’s opinion, 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). Remember that this comment came before the stock plummeted from 28.0p, but the sentiments are still relevant today.
What could change? The company has yet to establish a record of any revenues. Cash reserves were nearly £10m at the end of 2021, thereby ensuring a bit of time before having to raise more capital for significant drilling operations, as long as the firm continues to burn cash at an acceptable rate. If the firm is able to extract helium in 2023 and generate any amount of revenue, then the stock could explode once again.