What’s going on with the Helium One share price?

Jon Smith reviews the recent company updates regarding drill progress and points out why the Helium One share price has been so volatile.

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After almost doubling in price in the space of a few days in July, the Helium One (LSE:HE1) share price is falling fast. In August, the stock fell by 27%, which means that over the past year the stock is down by 11%. The volatile movements aren’t hugely surprising given nature of a small-cap gas exploration company. Yet it does raise the questions, what’s going on and what could happen for the rest of the year?

The necessity for a drilling rig

Helium One holds licences for the Rukwa, Balangida and Eyasi projects in Tanzania. These exploration permits have so far shown that strong helium concentrations are present.

The aim for the business is to extract the helium in a commercially viable way in order to be a leading producer. Given the amount of uses there are for helium, the business strategy makes sense.

The share price had been falling for much of early summer due to headaches involved in securing a drilling rig for the Tai-C well. It had previously signed a letter of intent with Tunisia’s Société de Forage (Sofori) for a drill but hadn’t secured a firm contract.

In early July, it was understandable why investors would be nervy. After all, if the company doesn’t have a suitable drilling rig, it does render operations rather pointless.

Share price surging on positive news

In a swift turn of events, just a few days later the business announced the successful acquisition of an Epiroc Predator 220 drilling rig. It ticked all the boxes and meant that the start date for drilling at the well for Q3 was back on track.

The share price rocketed higher on this news, almost jumping 100% from the lows the previous week. Should the news have generated such a large reaction in the stock? I don’t believe so, yet it can often happen like this with small-cap stocks.

With a market-cap currently at £55m, it doesn’t take much volume and buy orders to materially push the stock higher very quickly.

We’ve also seen similar sharp spikes in the past, notably in Q4 2020.

Just the beginning

We’re now in a position where the phase-two drilling programme is almost ready to go, with the business saying it’s approximately 90% “rigged up”. Yet the share price has been falling lower in recent weeks.

I think this reflects some investors taking profits after the swift jump back in July. Further, even though the rig is a big step forward, the hard work of drilling is only just beginning.

Should the project be a success, I think the share price has a high chance of trading back to the year-to-date highs of 10p. However, calling for the success of the drilling is purely a subjective view.

Given the volatility and historic movements, investing in Helium One shares isn’t for the faint hearted.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith 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.

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