Since the IPO in December Helium one (LSE: HE1) Stock prices are up about 450%. The announcement of preliminary drilling results has sparked recent optimism, with market share rising by more than 30% from this moment. But Helium One is still unprofitable and therefore very speculative. So do you need to add this exciting stock to your portfolio or is it too risky?
What is the company doing?
The goal of Helium One is simple. It is to become a high quality helium producer for the international market. This can be very lucrative. Indeed, helium is an element with many useful properties and a variety of uses. For example, it is used in MRI scanners, telescopes, and spacecraft. Nevertheless, helium is a finite resource and its global supply is declining. This means that helium production has become more dependent on hydrocarbon development and its price has risen significantly.
That’s where Helium One comes in. The company currently has three project sites in Tanzania, and drilling has just begun. It’s still in the early stages, Looks promising so far.. On June 21, it was announced that the drilling fluid contained 2.2% helium at a shallow depth. This is not commercially feasible, but the company’s use of large amounts of helium is very promising and can prove to be very beneficial. In this case, HeliumOne’s stock price is set to skyrocket.
What are the risks?
HE1 is still in the exploration stage, so there are many risks. For example, the company is currently not making money. This also means that you are burning cash at a high rate. The current annual cash burn is about $ 2.7 million, leaving about 2.5 years on the cash runway. This may mean that the company is forced to raise funds by issuing debt or more shares. I think the best way to raise money is to issue shares, which can have a negative impact on HE1’s share price. Therefore, this is a risk to consider.
In addition, HeliumOne’s share price will be the main loser if the future results of the three projects do not meet expectations. At this time, stocks are very speculative and unsafe, as it is very difficult to predict where these results will go.
The largest known helium reserve in the world
The company, founded in 2015 and run by a team of directors with experience in mining and exploration, has three projects in Tanzania where it’s a first mover. In Rukwa in the south-west, it will start drilling next month. Rukwa has been independently verified as the largest known primary helium resource in the world.
All this doesn’t mean that the project is financially viable — the company cautioned in its AIM submission documents that it has no drilling production history and has yet to determine whether extracting the helium would be economically rewarding.
There are substantial regulatory risks. Companies extracting helium obviously need licences. So far, Helium One has been ticking the boxes with the Tanzanian regulatory authorities and as it’s got to the point of drilling, investors can be optimistic this will continue. The company has warned investors, however, that the granting of mining licences comes with share entitlements for the Tanzanian government.
While this might be potentially the world’s future largest resource, it’s not the only area that companies are exploring. With the closure of the US Reserve, it’s inevitable that many companies want to get in on the act, including incumbents in oil and gas.
What are the other options in the helium space?
Investors wanting exposure to helium might also want to look at Canada’s Avanti (TSXV:AVN) which announced this week that it has acquired a land package under lease from the government of Alberta. Big players include Air Liquide (EPA:AI), Linde (NYSE:LIN), which is newly merged with Praxair, and Air Products (NYSE:APD).
Shares in Helium Global debuted in December on AIM at 5.875p and opened on Tuesday at 19p, but down off their all-time high of 24.50p. The company also listed on the US OTCQB market at the end of last month (HLOGF), noting it expected this to have a positive impact on liquidity.
We think the risks, although decreasing as the company moves further to determining the economic viability of exploration, are still high for all but the boldest of investors. For the less bold, the potential is enough for us to recommend keeping a close eye on developments in Rukwa.
Is Helium One’s stock price a great opportunity?
I am very attracted to Helium One’s stock price and believe it could skyrocket in the future. This is because the demand for helium is very high and HE1 is in a high growth market. In addition, the company’s current project looks very promising. Nevertheless, I Very vigilant for speculative stocks I don’t buy it now. Instead, I would like to see stronger evidence that a company can produce helium and achieve profitability at some point.