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Why I’m running a mile from the Helium One (HE1) share price

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Helium One (LSE:HE1) proudly states that it’s the only listed company in the UK that enables investors to participate in the helium market. Although this is something of a niche area, it can’t be doubted that helium is an increasingly important resource. But before I rush to invest in this company, I need to assess how the business is performing. Taking just a look at the Helium One share price would suggest me that it’s not going well. After doing more research, here’s my take on it.

Recent developments 

Since listing, the Helium One share price is actually up almost 100%. For those investors who got in at the beginning, I can see why it was an attractive proposition. However, those who jumped in a month ago would currently be nursing an unrealised loss of around 67%.

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The main reason for the slump was two negative trading updates regarding the exploration and results of sites for potential helium. The projects are referred to as Tai-1 and Tai-2. The first of these did locate a helium system, but without any free gas. Tai-2 was less positive, with the drilling campaign finishing without locating any helium gas.

The results of the two updates were two large, sharp falls in the Helium One share price over the course of the past month. From levels around 28p a month ago, it now trades at 9p.

I don’t need to be a genius to figure out that if the company can’t find helium in the sites it’s exploring, the business isn’t going to survive for long. I accept that helium has a lot of great commercial uses. It’s also a non-renewable resource, meaning that the price should rise as supply falls. But if the gas can’t reach the market, Helium One won’t be able to tap into any of this.

Concern over the Helium One share price

Looking forward, the company does have a lifeline. It’s beginning phase two of exploration, with positive remarks about the significant new data it now has. If the company can find helium in further exploration, then this would be the turnaround needed to support the share price.

Even though the business hasn’t reported any revenue, it does have £10m worth of cash funding to help pursue future projects. I don’t know how long this money will last with a cash burn rate and no incoming revenue. Yet now that Helium One has gained valuable information from the first two campaigns, I would expect it to be able to be a lot more targeted going forward.

If the business does find what it needs in the next campaign, the share price could move back higher. But I’m not expert in this field. I also don’t have enough information to work out how long it can survive without finding anything. In my eyes, this makes an investment like a flip of a coin. With a 50/50 chance, I wouldn’t see this as an investment worth pursuing for my own portfolio and so will be steering clear.

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jonathansmith1 and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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