Why are investors buying Helium One?

So why such interest? It’s a good question, particularly given the recent performance of the shares.

On 23 August, Helium One’s stock traded for just under 17p. By the end of play on 27 August (last Friday), the share price had tumbled to just over 9p. At one point during the week, the stock was down as low as 6p. That’s only marginally above what Helium One’s shares traded at when they first arrived on the market at the end of 2020. 

As is often the case with junior stocks in this sector, with the collapse in price often attributed to a disappointing exploration update. My Foolish colleague Roland Head covered the less-than-ideal news on the firm’s Rukwa project last Thursday. 

A fall of 46% in such a short space of time is sobering. So is there anything that attracts me to Helium One shares? Actually, yes.

In short supply

Right now, helium supplies are running low. Yes, that means fewer birthday balloons. However, a far more important use of the element is for cooling magnetic resonance imaging (MRI) machines. These use radio waves and magnetic fields to create internal images of body parts. Through this, medical staff are able to diagnose and monitor conditions. This is clearly vital work. Moreover, the reduction in helium supply couldn’t come at a worse time given the delays caused by Covid-19.  

There’s another problem. Helium’s status as an inert gas means it’s also used in the manufacture of semiconductors, helping to prevent any unwanted chemical reactions. Unfortunately, the pandemic has accelerated a shortage of these chips which are now ubiquitous in everyday tech.

And these are just the near-term headwinds. Put it all together and the helium price should remain strong. This could leave HE1 in a sweet spot if it can find and extract enough gas. 

Dilution likely

Despite all this, it seems clear to me that the stock will likely remain a risky pick as drilling continues. All it takes is a bit of poor weather to halt progress.

On top of this, drilling campaigns are rarely cheap. HE1 has £10m in cash, at least according to management, but I suspect the need for more funding is pretty much nailed on. And capital raises would only serve to dilute any stake I owned.  

I also feel the need to question whether all this is, to borrow an expression from billionaire Warren Buffett, beyond “my circle of competence.” Do I possess sufficient knowledge of this (unprofitable) company to give me an edge over other investors?

If not, buying some Helium One shares today would be a speculative punt. That’s fine and it could pay off brilliantly. But it’s not investing.  

Better buy

Helium One has likely made some of its early owners wealthy. There’s a possibility it could still make great money for those investors buying in last week. For me however, there’s simply too much risk involved.

If I were to buy a penny stock, it would almost certainly be more of this one.  

The post Investors are buying Helium One Global (HE1) shares. Should I? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has recommended Hargreaves Lansdown and Lloyds Banking Group. 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.

Helium One share price rises

Helium is perhaps best known for its use in balloons. Fittingly, the Helium One share price has risen to lofty heights recently. It climbed more than 80% in the past month, and over 220% since its shares listed in December 2020.

Despite the sharp rise in share price, I think it still has vast potential as an investment. Some of the greatest investment potential can come from small-cap stocks. With a market capitalisation of around £80m, Helium One certainly fits this category.  

What so great about Helium?

Helium is commonly found as a by-product of liquified natural gas. The global helium gas market is expected to grow from $2.7bn in 2018 to $4.5bn in 2025. In addition, global helium supply is limited and demand is greater than supply. This is leading to higher prices.

The US Federal Helium reserve is a strategic stockpile started in 1925. But it ceased sales to industrial customers in 2019, further constricting supply.

Why is demand so high? Helium’s use in balloons is just 8% of the market. More importantly, 20% of helium is used in MRI scanners, which is a globally growing market. Other uses include high-growth areas such as in hard drives, data centres and rockets. Up-and-coming space exploration companies like Space X would be buyers of this non-toxic gas.

In the long term, in a world moving away from fossil fuels, alternate sources of helium will need to be found.

Why I like Helium One

This is where Helium One comes in. I’m bullish on it for a number of reasons. It has a pipeline of advanced and early-stage targets. Having been active in Tanzania for five years, it has a first-mover advantage in the area. It has also managed to secure some of the best locations.

At 138 billion cubic feet, it has the biggest resource of any listed primary helium explorer. It’s “drill-ready”, and well-financed.

Encouragingly, the management team also has a track record of delivering natural resource projects in Africa.

What about competition? Competitors have projects that are smaller, earlier stage and lower grade. The Helium One resource is 50 times larger than any other listed competitor.

The risks

Bear in mind though, the Helium One share price has risen significantly since it listed. Could its future prospects be priced in to the share price already? Possibly. There are certainly risks with investing in a small exploration company. There are no guarantees, in my opinion.

Encouragingly, Helium One has a good relationship with the authorities in Tanzania and licences were recently renewed. That said, there is a risk with authorities reviewing licences, particularly if the find is successful. However, it’s worth pointing out that there are several multinational and junior miners successfully operating in Tanzania. 

All things considered, the surging Helium One share price could signal further interest in this small explorer. I already own a small the shares in the higher-risk portion of my portfolio, but I might consider buying some more on further positive updates.

The post The Helium One share price is surging. Should I buy now? appeared first on The Twelfth Magpie.

More reading

• 2 UK shares tipped to more than double my money in 2026!
• Could Helium One Global, one of the UK’s most popular penny stocks, be about to take off?

Harshil Patel owns shares in Helium One Global. The Motley Fool UK has 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.