Despite its 9% rise today as I write, August has not been kind to the Helium One (LSE:HE1) share price. The early-stage exploration company has watched its stock tank after disappointing drilling results. And earlier this week, more bad news emerged. Since the start of the month, the stock has fallen by nearly 70%. And it’s been trading close to its December 2020 IPO levels.
So, what happened? And is this an opportunity to buy shares at a discount or a sign to run for the hills? Let’s take a closer look.
Drilling results impact the HE1 share price
I’ve previously explored the initial collapse of the share price following underwhelming results from its Tai-1A well. This week, new information has come to light surrounding the firm’s Tai-2 drilling activities, and investors aren’t exactly pleased. Drilling was completed as planned without any of the complications experienced at the Tai-1A well. Unfortunately, no helium was found.
Tai-2 marked the completion of the firm’s 2021 exploration campaign. In other words, Helium One has been unable to definitively confirm the existence of a high-grade gas deposit that is economically viable to extract.
That’s not good news for investors. And given the HE1 share price was being inflated by the expectation of a confirmed discovery this year, I’m not surprised to see the stock crash. But are things as bad as people seem to think?
Growth potential still remains
As frustrating as these results are, the company’s prospects are far from diminished. Despite not finding any helium during the drilling of Tai-2, geological discoveries continued to provide further supporting evidence of the existence of a reservoir at Tai-1A.
The wireline logging tests revealed additional layers of clay which act as a strong natural seal surrounding the expected reservoir location. Meanwhile, the company has uncovered a low-cost route to further explore and potentially develop the site. Put simply, if the reservoir exists, Helium One should be able to extract at a relatively high-profit margin.
Based on the latest results and economic potential, the management team has decided to continue pursuing the project. And it has begun the rapid deployment of the next phase of exploration. Additional geophysical investigations have already been launched and are scheduled to be completed before the end of the year.
All of this is to say, the project is far from over. And if the reservoir can be confirmed through future activity, I think it’s highly likely to see the HE1 share price explode.
The bottom line
Seeing this level of volatility in a young mining business is not uncommon. These companies have the potential to generate enormous returns. But they come with a substantial amount of risk.
Helium One has around £10m of cash on its balance sheet, which should provide more than enough liquidity to complete the next exploration phase. To me, the fate of the HE1 share price is tied to the successful discovery of the reservoir. But, even if the firm finds it, there is no guarantee that the helium gas will meet quality expectations.
Personally, I’m not interested in adding that level of risk to my portfolio. Therefore, this business is staying on my watchlist for now.
Zaven Boyrazian 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.