The Helium One (LSE:HE1) share price has been a stellar performer this year. Since its IPO in December 2020, the stock has moved up by nearly 400%! And recently, it continued its upward trajectory following the release of preliminary drilling results. Let’s take a closer look at what’s happened and whether this upward momentum can continue.
The surging Helium One (HE1) share price
I’ve previously explored Helium One’s business. But as a reminder, it’s an early-stage helium exploration company operating out of Tanzania. The last time I looked at the firm, its drilling equipment was on its way to its flagship Rukwa project, estimated to contain 138bn cubic feet of premium helium gas. This equipment has now arrived, and the drilling process has commenced.
Three wells will be explored to try and find shallow trap structures that might contain helium gas reservoirs. This process is expected to take around a month. Final results won’t be available until mid-July. However last week, the management team announced that enriched helium gas was detected in drilling mud of the lake bed formation at its Tai-1 well. This is quite an encouraging sign and does suggest the existence of a helium reservoir. Therefore, I am not surprised to see the HE1 share price jump by 15% in a day.
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This discovery was made at a depth of 70.5 metres. But drilling will continue for the Tai-1 well to the base of the lake bed, which is anticipated to be around 400 metres. At which point, wireline logging tests will start collecting far more data on the existence of a reservoir.
The risks remain high
Suppose Helium One succeeds in finding and extracting helium deposits at its Rukwa project? In that case, this could be a game-changing opportunity for the business. After all, the demand for helium gas is high within the aerospace industry. But despite its abundance, it’s rarely found in concentrated pockets that are economically viable to extract. That’s why the existing supply is quite restricted.
But as encouraging as the progress made so far is, there remains a long road ahead before any commercial production can begin. The wireline tests will undoubtedly provide some much-needed clarity as to the future prospects of Rukwa. And if they return positive, then the HE1 share price could be in for another round of explosive growth.
However, any negative results could just as quickly send the stock crashing back down. Why? Because with no other revenue sources or self-sustaining cash flows, it seems the HE1 share price is being entirely held up by investor expectations and speculation. Needless to say, that adds a considerable level of risk for investors.
The bottom line
Young exploration businesses can be a source of enormous growth in the stock market. However, due to the high cost and sheer difficulty of finding profitable extractable resources, most of these businesses fail. Helium One certainly looks like it could be an exception. However, for now, I’m keeping it on my watchlist until the results of the wireline tests are in.
