We need to talk about Helium One.
Good Tuesday MINING AIM and welcome to your thought of the day.
I spend a reasonable amount of time covering small cap helium plays; Helix Exploration, Georgina etc - and at least two more are set to hit the market before the end of the year.
Helix should be reporting another RNS shortly as the drill will by now have hit all four formations at Ingomar - and investors will soon know if it's time to get very excited.
But today, I wanted to briefly touch on Helium One (HE1). For context, I have never had a financial interest in the company - but think it is one of the most interesting case studies on AIM today.
At its launch at the height of pandemic funny money in early December 2020, it had a market capitalisation of £14.1 million, a share price of 2.84p, and 496,894,111 shares in issue; raising £6 million by way of an oversubscribed placing of 211,267,597 shares
So, less than 500 million shares in issue at launch.
Today, HE1 has raised £6.43 million by placing 590,000,000 shares at 1.09p per share. Or in other words, to raise the same £6 million four years after its launch, it needs to dilute by three times as much. There are now 5,905,710,763 shares in issue - meaning that IPO investors have suffered almost 12x dilution, to see the share price fall to about 1.5p at the time of writing, with a £74 million market capitalisation.
Here's a selection of the placings over the years:
April 2021: £10 million placing at 10p per share (14.5% discount), 100 million shares issued.
December 2022: £9.9 million placing at 5p per share (26% discount), 197,922,716 shares issued, increased from £7 million due to demand.
September 2023: £6.8 million placing at 6p per share (10.4% discount).
December 2023: £6.1 million placing at 0.25p per share (72% discount), 2,420,842,500 shares issued. Directors subscribed between them for £18,000.
February 2024: £4.7 million placing at 1.5p per share (30% discount), 313,333,333 new shares issued.
June 2024: £8.0 million placing at 0.5p per share (56.5% discount), 1,600,000,000 new shares issued.
August 2024: £6.43 million placing at 1.09p per share (37% discount) 590,000,000 new shares issued.
There's a few things to unpack here.
The first is that these placings raised circa £52 million for the company; add in the £14.1 million market cap and you get to £66.1 million - throw in a few warrants and the market cap pretty much matches the cash ploughed into the company - but either no enterprise value has been created in four years, or the market is not recognising it.
Second, this is not a long-term investor's stock at present. Had you taken the April 2021 placing at 10p per share, then you would be well and truly in the red. Traders timing the placing dips and subsequent peaks have made a fortune.
Third, the company got blindsided in December 2023. It raised £6.8 million placing at 6p per share at a small discount three months earlier, and yet was forced into raising £6.1 million placing at 0.25p per share with a 72% discount in mid-December. Consider the update on 5 December just before the placing:
'Having completed the costing exercise, the Company has identified a need for additional funds before Itumbula can be drilled. In addition, the Company is in receipt of a number of unsolicited approaches from potential investors and, in light of the findings of the costing exercise, is advancing these discussions while also assessing other financing options. The Company is confident of securing the additional funding in the near future so as to realise the cost synergies of avoiding a delay to the drilling of Itumbula and will provide an update in due course.'
CEO Lorna Blaise noted 'The Company is advancing discussions with potential investors while also assessing other financing options and is confident of securing additional funding in the near future.'
I think all investors were unsurprised about a placing today as it was needed; you even had the classic selling into close last week as those in the know were given the heads up. But the December placing took the market by surprise - and there are many possible interpretations.
My view is that these 'potential investors' rug-pulled HE1 at the last moment. There is no way that the company would be highlighting potential interest at 0.25p per share.
But you can also argue that directors only taking £18,000 at 0.25p between them is not a good look.
Clearly, there was some behind the scenes politicking we are not party to.
Fourth, there is a competitive tension between the fact that every HE1 raise is massively oversubscribed, but usually at a substantial discount. It's difficult at present to raise capital in London, but this business can do it with ease - however, only if it lets family offices and HNWs in with cheapies. I suspect the acquisition of the Colorado asset is at least partially designed to reduce future discounts (as the justification is that development risks are high at the flagship in geological, infrastructure and political terms).
HE1 is also one of few AIM companies that is well-known to large cap investors - it has pervaded the wider consciousness, featuring in all the national publications on a regular basis.
The bottom line is that the prize on offer could be worth many, many multiples of the current market capitalisation - but it's likely there will be more dilution before we get there.
Of course, you never know when the big RNS might land; big picture backers are likely happy to just bide their time.
It's a trader's share until it's not.
Charles Archer - 27/8/2024