The Helium One Global (LSE: HE1) share price has risen by almost 400% since the helium explorer floated on the London market in December. Drilling is now underway at the company’s flagship Rukwa project in Tanzania.
Helium gas is essential in medical equipment and electronics manufacturing, and global supplies are limited. I reckon good drilling results could trigger share price gains for Helium One. With the HE1 share price now taking a breather, should I buy the stock ahead of the next big move?
A “must drill” opportunity
At 4pm local time on Saturday 12 June, Helium One started drilling the first exploration well at its 100%-owned Rukwa Project in Tanzania. External consultants SRK Consulting have reported a best estimate unrisked prospective helium resource of 138 billion cubic feet at Rukwa. This is — potentially — a world-class resource.
The first well is being drilled at Tai, which management describe as “a ‘must drill’ three-way dip closure, upgraded by the Company’s recent 2D infill seismic”.
Three wells are planned for this drilling programme, each of which will test a different type of trap. In other words, they will each target different underground rock formations to see which — if any — have helium deposits trapped within them.
HE1 expects each well to take about month to complete. So we could see results from the company from the middle of July. I think that a positive early result could push the Helium One share price higher.
How risky is this?
New drilling campaigns are a hugely exciting time for an explorer. It has taken five years of surveying and analysis for Helium One to get to this stage.
Surface seeps containing more than 10% helium have given the company confidence that there’s helium in the ground. However, there’s no guarantee that this will convert into a commercial find.
The reality is that only a small minority of exploration companies make it big. This is why the pay-offs for winners are so huge — most explorers don’t strike it lucky.
It’s incredibly hard to value a stock like this without any information about its commercial potential. But it’s worth remembering that even if HE1 is successful, the company will probably need a lot more money to develop Rukwa. April’s £10m fundraise isn’t likely to last long, in my view.
Helium One share price: high enough already?
Helium One shares have four-bagged since December. This has given the group a market cap of £129m, even though it has no revenue, limited funding, and no proven resources.
I think this is an interesting situation with real potential. But I think that the Helium One share price may already be pricing in a successful drilling campaign.
Markets tend to look forward and value shares on what’s known. Right now, the information we have about HE1 and Rukwa is pretty positive. But if early drilling results are mixed and investors turn cautious, the stock could fall quite sharply.
Without specialist knowledge about HE1’s assets and about the helium market, I don’t feel confident buying this stock after such a strong run. I think the share price is probably high enough today. I’ll be staying on the sidelines for now.
Roland Head 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.