Below 1.4p, is this penny stock one helluva bargain?

Helium One (LSE:HE1) is a penny stock that’s hugely popular with private investors. A look at the company’s share register shows that more than half the company is owned by the clients of stockbrokers or wealth managers. That’s probably why it stimulates so much debate on investment forums.

But amidst the hype and speculation surrounding the African gas explorer, there are only two questions that really matter.

First, when will it be able to start selling helium? And second, what will this do to the value of the company?

Unfortunately, neither is easy to answer.

When?

In February, the company announced that it had successfully flowed helium to the surface of its Rukwa mine in Tanzania. This has helped lift its stock market valuation to just over £50m. But I fear it will take a while before the gas is sold on world markets.

In 2011, Pulsar Helium struck lucky in Minnesota. Thirteen years later, it’s still not been commercialised.

In March, Helium One’s chairman said his aim was “to achieve commerciality at the earliest opportunity”. Understandably, given the potential problems associated with gas exploration, this is a vague timescale. And the company’s latest presentation to shareholders does not give any clues as to when it will start selling helium. It could therefore be several years before the company earns any revenue.

And this brings its own challenges as loss-making companies will eventually run out of cash. By 31 December 2023, the company had accumulated losses of $32.6m. And it had only $8.7m of cash on its balance sheet.

Two months later, it had to ask its shareholders for more money. This was the sixth significant fund raising exercise undertaken since the end of 2020.

The table below shows the prices at which cash has been raised.

With a current share price of around 1.4p, those who bought shares in December 2023 have done well.  Investors who participated in April 2021 could be regretting their decision.

Without doubt, the fundraising has heavily diluted those shareholders who decided not to participate. At 30 June 2019, there were 139.6m shares in circulation. Today, the figure is 3.7bn — over 26 times more.

How much?

By volume, helium is one hundred times more valuable than natural gas.

Global demand is currently around 6bn cubic feet (Bcf) per annum. China alone accounts for 1Bcf. The gas is used in space exploration, semiconductors, and in the nuclear industry. By 2030, forecasts suggest the market could increase by over 40%.

Understandably, due to the exploration and production risks — as well as potentially volatile prices — the company is silent on how the discovery might transform its value. I suspect nobody really knows.

And in the absence of this information, along with a lack of clarity regarding its production timetable, I cannot determine whether the Helium One share price is currently at bargain levels. I therefore don’t think it would be sensible to invest right now.

The post Below 1.4p, is this penny stock one helluva bargain? 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.