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In early trading today (3 March), the Helium One Global (LSE:HE1) share price was up 20%. At one point it was over 30% higher.
The impressive rise came after the mining exploration company announced that it had received an offer of a licence for its flagship project in Tanzania. And to further please shareholders, it also gave a positive update on drilling at its 50:50 joint venture in Colorado, USA.
An encouraging development
According to the first stock exchange announcement, the government in Tanzania has issued an “offer letter” for a mining licence at the southern Rukwa Helium Project.
The terms are currently being reviewed by the company. Positively, the proposed licence is for the full area applied for. The company says this gives it the “best opportunity to fully leverage the helium potential”.
Of course, the terms of the letter might not be acceptable to the company. But I suspect its directors wouldn’t have issued a press release without them being comfortable with the proposed terms.
And that’s not all…
Meanwhile, over 9,000 miles away, development drilling has started at a project in which it has a 50% “working interest”. The project is managed by Blue Star Helium, which is listed on the Australian stock exchange. Curiously, its share price didn’t change after investors digested the news.
The Jackson-31 well at the Galactica-Pegasus helium development was drilled to a depth of nearly 369m and gas flowed freely at this level. Pending receipt of the test results, Lorna Blaisse, Helium One’s boss, said it was “a very positive start indeed” as “we advance towards helium production”.
Blue Star’s chief executive, Trent Spry, described it as a “fantastic start” and commented that it “validates our geological model”. He went on to say that it “significantly de-risks the project”.
This all sounds very positive to me. And naturally, this makes me want to take a stake, right?
Er, no.
Let me explain.
Pros and cons
Due to its special properties, demand for helium is growing. And this additional need can only be met by getting more of the gas out of the ground.
And encouragingly, although there’s no spot price, experts believe it currently has a value over 100 times higher than natural gas.
But there’s a long way to go before either of the two projects is fully commercialised. And for this to happen, more money is needed. For example, Helium One’s directors estimate that $75m-$100m is required for Tanzania.
This can only come from debt providers, industry partners or shareholders (or a combination of all three). Once the African licence is finalised, this’ll make the fundraising process easier.
However, in my opinion, pursuing all of these options is likely to lead to dilution for existing shareholders. Remember, the company now has nearly 12 times more shares in issue than when it first listed. This is not a criticism, just an acknowledgement that a pre-revenue mining company’s going to have to repeatedly ask shareholders for money.
That’s why I don’t want to invest now. It’s too risky for me. But I’ll revisit the investment case when it becomes clearer how much cash is needed, where it’s going to come from and what it means for shareholders.
