Can the Helium One share price provide investors with sustainable growth?

| Last Updated July 22, 2022

Man planting investments to achieve long term growth with the helium one global share price

The Helium One Global (LSE:HE1) share price has failed to recover its glory even after a year. Despite receiving massive levels of excitement in the first half of 2021, the stock has been unable to maintain its momentum. And in the following August, Helium One Global watched its share price plunge from 28p to 9.1p.

Seeing this level of volatility is not uncommon amongst young mining stocks. In the case of this business, the downward trend was triggered by a failure to find an economically viable helium deposit at its highly anticipated Rukwa project in Tanzania.

While management tried to provide reassurance to investors, it seems to have fallen on deaf ears. And even today, the stock continues to trade significantly below its peak.

Having said that, 2022 has had some positive returns. The helium stock is trading up around 12% year-to-date, placing its market capitalisation at around £50m. However, investors should be aware that despite being listed on the London Stock Exchange, the group reports its financial statements in US Dollars.

So, can this latest growth be maintained in the long term to provide investors with sustainable returns? What does Helium One even do as a business? And what do analysts think about the future of this business? Let’s explore.

What does Helium One do?

Founded in September 2015, Helium One Global is, as the name suggests, a helium exploration company in the process of transitioning into a producer. The company aims to become a global producer of high-grade helium for the international market.

Under the leadership of key directors David Minchin, as CEO & Director, as well as Russel Swarts, as Financial Director, the company operates three distinct project areas within the company’s portfolio in Tanzania. The Tanzanian-based miner manages around 20 employees and holds 4,512km exploration licenses in prospective helium provinces within the country.

It’s worth noting that despite the element being the second most abundant substance in the universe, helium gas is notoriously difficult to find in economically viable deposits. This, paired with growing demand from the aerospace and healthcare industry, makes it a valuable commodity to pursue. Hense the initial excitement surrounding this firm sending the Helium One share price through the roof in 2021.

Details behind the stagnant Helium One share price

Helium One has had a transformational 2021. After completing an aggressive exploration program, the company has moved to Phase two of its drilling plan bringing it one step closer to commercial development.

Looking at the financial position, helium production has remained well-funded. And management is confident about securing future funding, despite the unfavourable economic conditions the United Kingdom is currently facing. On 31 December 2021, the business reported $15.8m in cash on its balance sheet versus only $1.2m in current liabilities. In other words, the firm has more than enough capital to fund its immediate expenses as well as its phase two drilling plan.

Having said that, I’m sceptical that $16m will be enough in the long run, especially since its drill results failed to live up to expectations. With no actively producing sites, this business is pre-revenue and unprofitable, meaning it’s impossible to even calculate a PE ratio. So, it’s no surprise that the lack of reliable cash flow means the business does not pay a dividend.

Needless to say, this adds considerable risk to any investment. And looking at the stock’s 1.74 price-to-book ratio, it seems the stock market is placing a heavy discount on this group due to the high risk of failure. But for risk-seeking investors, does this low valuation present a buying opportunity?

What is the future of Helium One share price?

As I mentioned earlier, helium gas is currently in very high demand from various industries, from healthcare to high-tech manufacturing. In fact, global demand is pushing up the helium market and is now projected to grow at a healthy compounded annual average growth rate of 4.65% between now and 2030, according to Research and Markets.

And despite the recent Helium One share price performance, I believe the firm could still be poised for growth. The disappointing drill results from the Rukwa Basin are a setback. But they’re not the end of the road, which many investors seem to believe. And if the company can uncover an exciting prospect within its massive exploration region, momentum could quickly return.

That’s what I think in any case. And it seems other expert financial analysts agree with a consensus rating of “buy” and a price target of 19.18p for Helium One shares. That certainly sounds like an attractive opportunity if this forecast is accurate. Only time will tell, of course. But with so many unknown factors at play, any investment into this business would be a speculative, high-risk, high-reward investment strategy, in my opinion.

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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.