Image source: Getty Images
With no revenue, it’s hard to know what the Helium One Global (LSE:HE1) share price should be. Since April 2024, it’s bounced around between 0.5p and 2.15p. Today (11 April), the stock changes hands for 0.96p, valuing the company at £56m.
Theory and practice
Those who believe in the efficient market hypothesis — which says that current asset prices reflect all publicly available information — will claim that the group’s present market cap is equal to its intrinsic value.
And this is a good starting point.
We know that the company has a 50% interest in a project in Colorado, at which test drilling is currently underway. Revenue from the mine is expected in the first half of the year.
Also, the group recently formally accepted the offer of a mining licence for its larger Rukwa project in Tanzania. Additional funding of $75m-$100m is required to fully commercialise this one.
Armed with this information, investors believe the group’s worth just over £50m.
Can this be justified?
The most common valuation techniques require the preparation of a cash flow forecast.
In December, for its Pegasus project in America, the company said there were “indications of $2m per annum accruing to the Company over a period of five years”. In addition, extra revenue could come from the sale of carbon dioxide.
This is a relatively modest sum. In fact, it will just about cover the group’s present level of overheads for a year. And when discounted to reflect what this cash is worth today, it contributes very little to the group’s current market cap.
It’s the group’s African operations that really matter.
However, the company’s given no clues as to what the future inflows and outflows might be from Tanzania.
That’s probably because, at the moment, there’s no indication as to the potential volume of gas that could be extracted. During testing, up to 7.9% helium – 5.5% on a sustained basis — has flowed to the surface. According to the company, this makes it the fourth-biggest helium concentration in the world. However, there’s no indication as to what this means in terms of total reserves or cash.
And without any idea of the volume of gas that’s underground, other valuation measures cannot be used including, for example, the total acquisition cost. This comprises the cost of buying, building, and operating the mine divided by the expected output.
Another valuation
In the absence of detailed information, Panmure Liberum has done some sums and come up with an estimate of what Helium One should be valued at.
The bank’s set a price target of 3.6p – a potential premium of 275% to today’s share price. The broker’s analyst described recent updates as “very encouraging” and suggests there’s “substantial upside on offer from the development of the resources in Tanzania“.
But in the absence of further information, I don’t think it’s possible to come up with an accurate valuation for Helium One. On this basis, making an investment would be too speculative for me. I have no doubt there’s a growing market for the gas. And supply restrictions should keep upward pressure on prices. But there are presently too many moving parts, not least questions over how the group’s going to fund its expansion. For these reasons, I don’t want to invest right now.
