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After three hours of trading this morning (11 June), the Helium One Global (LSE:HE1) share price was up 20% following a positive reaction to the company’s latest news release.
After several months of talks, the company was able to confirm that negotiations concerning its mining licence application in Tanzania have been finalised.
It has agreed to establish a joint venture with the government, which will take a 17% stake in a newly incorporated subsidiary of Helium One.
Formal execution of the paperwork is expected shortly.
Commenting on the news, James Smith, Chairman of the firm, said: “This is a pivotal period in the company’s increasing maturity and growth. The last 18 months has seen exceptional progress as we have met a series of challenges with vigour and professionalism.”
To be honest, I’m a little surprised at the market’s reaction. On 31 March, it said it had accepted the terms of a licence offer. It had also paid the first annual fee of £960k.
In my mind, the licence was never in doubt.
Anyway, today’s announcement is clearly a step in the right direction on the long road to commercialising helium production in Tanzania.
Other developments
And the news comes a day after the group announced that it had concluded the development drilling programme at its Galactica-Pegasus project, in which it holds a 50% interest.
It said the results confirm “the production potential and near-term monetisation opportunity”. Revenue from the sale of helium from the mine in Colorado is expected in the fourth quarter.
But this project is a relatively small one and it’s unlikely to significantly increase the market cap of the group. In my opinion, it’s the Rukwa project in Tanzania that really matters.
The hard work now begins
With all this good news, the group can now set about raising the money that it needs to generate revenue from its operations in Africa.
To help its case, it will be able to point out to banks, other debt providers, industry partners and shareholders that the market for helium is growing steadily.
Also, it will be able to explain that there’s no spot price for the gas. This means individual contracts are negotiated between buyers and sellers. And with the gas regularly in short supply, this works to the advantage of the producer.
Helium is predominantly used in the medical industry where it helps cool the magnets used in MRI scanners. It’s also necessary for the manufacture of semiconductors.
But without raising some cash, the gas will remain below ground. Indeed, in May, to pay a supplier it had to issue shares in lieu of cash.
Looking ahead
However, the company’s now on the front foot and once the agreement with the government of Tanzania is signed, it will be able to provide some additional security to a potential funder in return for some cash.
But I don’t want to invest.
It’s still too risky for me. A lender’s likely to require some form of equity to further de-risk their exposure. This would mean dilution for shareholders.
And mining is an incredibly difficult industry in which to operate. There are all sorts of safety, environmental, economic and geopolitical challenges that have to be overcome.
For these reasons, I’d rather look elsewhere.
