Helium One Global‘s (LSE:HE1) a penny stock that’s attracted a lot of attention lately. Earlier this year, a steady stream of announcements about positive developments at the Galactica-Pegasus project in Colorado, in which it has a 50% interest, helped drive the helium group’s share price higher.
Its most recent press release confirmed that the facility was “transitioning to continuous 24/7 operations following completion of automation and system upgradesâ€. It also revealed that the group’s first helium sales had been agreed.
This is an important milestone. The group’s now moved from being an explorer to a producer. And with helium prices high at the moment, its timing has been impeccable. Demand continues to rise due to the unique cooling properties of the gas.
Bigger and better?
However, its US operation is relatively small. Helium One’s joint venture partner, Blue Star Helium, which is listed on the Australian stock market, is valued at £23m.
However, the British company’s market-cap is £62m. This means investors are currently (2 May) placing a value of £39m on its other project, the Southern Rukwa mine in Tanzania.
Here, in February, it was confirmed that electrical submersible pump testing had been successfully completed. Flow rates exceeded expectations and helium concentrations were in line with previous estimates. The next stage in the development process is “to progress discussions with potential industry partners and seek external investment to advance the project towards developmentâ€.
Off the back of this good news, the company raised more money from both institutional and private investors in March. Since then, things have gone quiet. It’s sometimes said that no news is good news, but in the world of investing a void’s often filled with speculation.
Indeed, I’ve seen some online comments suggesting that the group’s licences could be terminated. This gloomy prediction is based on reports that the Tanzanian government has revoked 40 in the country principally due to a lack of development. Other reasons for the cancellations include a failure to pay the required fees. Non-compliance with corporate and social responsibility obligations has also been mentioned.
This seems very wide of the mark to me. The testing phase continues at pace and with a 17% stake in the Southern Rukwa project, the government has a vested interest in the mine’s full potential being realised.
What next?
I suspect shareholders will be hoping that the next announcement will be that the group’s found a suitable partner to help commercialise its project in Africa. To me, this is pivotal to the investment case. At this point, everything should become clearer.
Investors will know the terms of any partnership including the amount of equity required. And given that any funding arrangement is probably going to include some debt, shareholders will be able to judge how much of a burden this will be. Finally, a likely timescale for bringing the first helium to the surface in Tanzania is likely to be made clearer.
Because I have no clarity on these issues, I don’t want to invest. It would be too speculative for me at this stage. However, when a partner’s found, I’ll come back and revisit the position. Until then, I’ll be watching with interest.
The post Everything’s gone quiet at Helium One. What’s next for the penny stock? appeared first on The Motley Fool UK.
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James Beard has no position in any of the shares mentioned. 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.
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