Where is the Helium One (HE1) share price going?
Helium One Global (LSE:HE1) has grasped investor attention since it went public in December last year. The He1 share price has exploded by more than 350% in the past seven months and is currently trading at around 22p. Is this growth based on mere speculation? Or can the stock continue surging? Let’s take a closer look.
The secret behind Helium One’s (HE1) explosive share price
Helium One, as the name suggests, is a producer of high-grade helium for the international market. The company has identified a high-grade helium deposit in Tanzania. The project has been dubbed Rukwa and has created quite a buzz in the global markets. The firm also holds prospecting licences for its Balangida and Eyasi projects located in north-central Tanzania.
The core business of Helium One has the potential to resolve the supply issue of the global market. Despite the element’s abundance, helium is rarely found in concentrated pockets that are economically viable to extract. Given the rising demand from healthcare and space exploration industries continues to rise, once commercial production begins, I believe the HE1 share price could skyrocket. And make the 350% growth seen so far seem marginal.
The growth strategy moving forward
Helium One Global is in the early stages of business. The company is investing vast amounts of cash in its prospective projects. But without any existing revenues to back up this cash burn, investors are beginning to raise some questions over the long-term viability of this strategy. This is particularly troublesome as the level of cash investment has been shortening the firm’s cash runway. In other words, the business may soon run out of capital and will likely have to find a means of raising more, either through shareholders or debt financing. The latter seems less likely for a young business like Helium One.
In my opinion, if Rukwa can meet expectations, then these investments are worth the potential future growth. According to the 2020 annual report, the financial runway for the company is two and a half years. This should be long enough to get the firm’s helium production facility set up, or at least on the right path to commercial production. Only time will tell. But I would expect the HE1 share price to soar once the Tanzania plant is operational.
The risks for the HE1 share price are high
Government approvals and financing risks are the main challenges young exploration businesses like Helium One have to face. Extracting anything from the Earth’s surface requires appropriate licences. This barrier to entry does make it harder for competition to rise up. However, securing these licenses remains challenging. Should the relationship with the Tanzanian government begin to falter, the firm might struggle to continue its operations over the long term.
Another major risk is the company’s need to seek external financing sources to fund its development. While there have been some solid early indications of a large helium deposit at its Rukwa site, there has been no conclusive evidence so far. The firm has already begun drilling down to start comprehensive testing. But suppose the results are not as good as investors are hoping for. In that case, the HE1 share price could see some significant volatility. And the firm’s ability to raise further capital moving forward could become jeopardised.
Helium is an extremely highly valued commodity. In fact, it’s priced around 100 times that of natural gas. Needless to say, if Helium One succeeds, it could be on the verge of transforming into a very lucrative business.
The risks are undoubtedly high. But given the potential reward, I think it’s a worthwhile venture. Therefore I would buy some shares for my growth portfolio today.
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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.