A penny share’s usually defined as one with a price below £1 and a market-cap of less than £100m. With a current (6 January) stock market valuation of £55.3m — and its stock changing hands for less than 1p — Helium One Global (LSE:HE1) comfortably qualifies.
But I don’t want to buy the company’s shares.
Why on earth not?
Don’t get me wrong, I think it’s going to do well from its flagship Rukwa project in Tanzania, as well as its 50% interest in the Galactica-Pegasus development site in Colorado.
That’s because global demand for helium’s rising. And it can’t be manufactured. The additional gas needed can only come from deep underground. In the third quarter of 2024, the company successfully flowed 5.5% helium continually. The concentration is believed to be the fourth biggest on record.
Also, there’s no global spot price for the gas. Instead, prices are negotiated on a contract-by-contract basis. Typically, these are one-to-seven years in duration. However, given its unique properties — it has the lowest boiling point of all elements — helium’s currently over 100 times more valuable than natural gas.
And if all goes to plan, the company should be generating revenue soon. It’s likely the project in Colorado will deliver first. Current estimates are that income will be earned at the end of the first half of 2025. Tanzania’s likely to start production 12 months after a drilling licence is granted.
So what’s the problem?
Despite all this good news, the company’s going to need to raise more money. This isn’t intended as a criticism. It’s a fact. And that’s why I don’t want to invest.
Although the company’s “fully funded” at its present level of activity for the next 12 months, it’s going to need a substantial sum to get gas out of the ground in Africa.
At Helium One’s annual general meeting in December, the directors said that it’ll cost “in the region of” $75m-$100m (£60m-£80m at current exchange rates) to fully develop the mine in Tanzania. Of course, this assumes the government approves the company’s mining licence application that was submitted in September.
And these funds can only come from debt providers, shareholders, or customers (or a combination of the three).
The company’s directors have revealed they’re in discussions with banks regarding securing loan finance. Initial contact has also been made with potential customers about paying in advance.
The company says it has no plans to raise more money from shareholders. That’s good news for long-standing investors who’ve already been heavily diluted. When the company first listed, it had 497m shares in issue. Today, there are 5.92bn in circulation — nearly 12 times more.
And the share price is now less than 1p, compared to 2.84p at IPO.
Why not invest then?
But mining’s possibly the most difficult industry in which to operate successfully. And if things go wrong in Africa, I think it’s highly likely that $100m won’t be enough to commercialise operations.
Also, there’s no guarantee that banks or customers will agree to provide finance.
In these circumstances, it’ll be shareholders that have to pick up the pieces and put in more money to avoid being diluted further. Therefore, at the moment, an investment’s too risky for me.
