Although it has recovered around 10% at the time of writing, the Helium One (LSE:HE1) share price fell by about 50% yesterday. Shares in the hopeful Helium miner halved in price just a few weeks ago.
The Helium One share price crashes followed a spectacular run-up from April through to early August. It’s time to find out what has been going on.
Looking for Helium
Helium One holds 4,512 square meters of prospecting licenses across three project areas in Tanzania: Rukwa, Balangida, and Eyasi. In all three areas, helium has been found bubbling up from the ground. Helium forms underground but will escape up into the air unless the geology in the area traps it. All three sites have the right kind of geology that could form reservoirs of helium to be mined, and helium is a valuable commodity.
The Rukwa project is the largest and most advanced of the three. Helium One shares hit the AIM market of the London Stock Exchange in December 2020 at 5.88p. Floating on the stock market raised £6m to fully fund an exploration programme of high priority prospects in the Rukwa project. Helium One raised a further £10m in April 2021, to allow appraisal work to follow the exploration programme at Rukwa immediately.
For much of the time between listing and April 2021, the Helium One share price was range-bound. Its price moved between 6p and 9p per share. In early April, it started to climb — perhaps the positive interim results released on 29 March 2021 was the catalyst — reaching a high of 29p in late July 2021.
Then, on 11 August 2021, the Helium One share price dropped by 50%. That was the same day a report that drilling at an exploration well in the Rukwa project had been completed. Although thick claystone was identified, which could act as a seal over a helium reservoir, the drill hole deteriorated before deep analysis could be done. A helium reservoir has not been ruled out, but nothing worth mining was identified at shallower depths.
After a brief recovery, the Helium One share price collapsed by about half again yesterday. The company completed exploratory drilling at Rukwa. Although the geology at the Rukwa project looks promising, and there is definitely a lot of helium gas around, Helium One has not identified a proven reserve to mine.
What’s next for the Helium One share price?
The company is planning to begin the second phase of exploration. There is £10m of cash on the balance sheet to start phase two at Rukwa, before the seasonal rains start in November 2021. I have to assume the £6m raised on floatation has been spent. The £10m in cash is presumably what was raised to start the appraisal process. Now it will start being consumed in further exploration. I expect Helium One to raise more funds to start developing any reserve if one is found.
I would buy Helium One at this price, which is just about where it was before the run-up began. If a large reserve of helium is found, then the Helium One share price should move higher. However, this is a highly speculative share. I have to be aware that no viable reservoir of helium may be found in the second phase of exploration, the search could go on for some time and it could come up empty-handed.
James J. McCombie owns shares in Helium One. 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.