Penny stocks can deliver spectacular returns. But they can also be huge flops. What might be in store for this pre-revenue gas exploration company that’s trying to commercialise two projects, one in the US and the other in Africa?
The share price of Helium One Global (LSE:HE1), the AIM-listed gas development company, is on fire at the moment. Six months ago, the company’s stock was changing hands for 0.34p. Today (6 March), one share is selling for approximately 0.63p. This increase of 85% dwarfs the return of the FTSE AIM All-Share index. Over the same period, it’s returned 2.5%.
Then and now
However, as is typical of penny shares, it hasn’t always been like this. Indeed, when the company listed in December 2020, its share price was 2.84p. Back then, £1,000 would have bought 35,211 shares in the group. Today, it would stretch to 158,730 of them.
With the group having to repeatedly ask shareholders for more money, the number of shares in issue has increased by nearly 9bn. However, Helium One’s stock market valuation of £58.6m is over four times higher than at the time of its IPO.
What’s going on?
Despite this history of dilution, investors appear excited at the moment. The current share price momentum seems to be driven by expectations that the group’s 50:50 joint venture helium project in the US will soon start generating revenue.
The company’s most recent (5 March) update on Galactica-Pegasus says that a “significant commercial milestone” has been reached with “the plant currently filling a tube trailer with refined helium gas for sale under established spot-market arrangements”.
This is a positive development. But it’s unlikely to dramatically change the fortunes of the group. Blue Star Helium, the group’s partner in Colorado, is listed on the Australian stock market. It’s current market cap is just under £7m.
Bigger and better?
However, Helium One has another project on the go, in Tanzania. The Southern Rukwa project is – potentially — much bigger. However, there are numerous obstacles that must be overcome before it’s in a position to start generating revenue.
For a start, the gas is held within water aquifers. And it’s located thousands of miles away from potential customers. More immediately, the group’s going to have to raise further cash — $100m has been suggested – before it’s in a position to flow helium to the earth’s surface on a large scale.
Partnerships with larger companies, offtake agreements with customers, and debt finance have all been floated as possible means of securing the necessary funds. But whatever agreement is secured, I suspect more shares will have to be issued.
Undoubtedly, there’s a big market for helium. Its cooling properties are essential for medical and space exploration applications. And prices are likely to rise further with demand outstripping supply.
However, it will be a while yet before Helium One has to start worrying about finding customers for its African gas. I’m too old to wait for this. I wish the company well and hope it’s successful but there’s too much uncertainty around the viability of its project in Tanzania. In my opinion, there are many less risky opportunities to consider elsewhere.
