The Helium One (LSE: HE1) share price plunged as much as 20% in early deals this morning after the company published an update on its drilling activities in Tanzania.
According to the update, the company has discovered yet more helium gas at its Rukwa Project, but the drilling programme has suffered a minor setback.
Helium One share price update
While drilling the Tai-1 well, the company has identified helium gas in the so-called Red Sandstone Group between 552m and 561m. This was supported by helium gas “bubbles in drilling mud returns at surface.”
Unfortunately, soon after reaching a depth of 561m, drilling at the prospect had to be suspended. The “parting of a drill pipe” caused the delay. The drilling operator has been unable to recover the missing piece of equipment. Therefore, management has decided to sidetrack the well from above the lost pipe at 483m.
This update only reinforces earlier indications that the company will strike it rich at the Tai-1 well. It also illustrates the boom and bust nature of resource exploration.
As CEO David Minchin explained alongside the update, the discovery of helium gas was an “unexpected, but positive result.” However, further work is required to determine a pay zone.
Moreover, the loss of the drill string will delay and add costs to the drilling programme. Still, by sidetracking the well from above the lost pipe, the company can make the most of its existing work.
Mixed outlook
So, what does this all mean for the Helium One share price? Based on the market’s reaction this morning, it would appear that some investors are worried about the impact the drilling delay will have on the company’s development.
That may be the case. However, I don’t think a huge amount has changed following this update. The drilling delay may set the company’s programme back a few weeks. But, in the grand scheme of things, this delay is only a minor setback in what could be a multi-year development effort.
In addition, the update also shows the company may have stumbled upon more helium than it was initially projecting. This could undoubtedly be good news, especially if it’s confirmed by further drilling.
Nevertheless, while I don’t think much has changed for the Helium One share price following this update. It remains an incredibly speculative investment.
Today’s update is a stark warning that exploring for commodities is an uncertain and volatile pastime. There’s no guarantee the company will find commercially viable amounts of helium. Even if it does, there’s also no guarantee it’ll be able to extract the gas.
As such, I won’t buy the stock today. I’d rather wait for the company to publish further updates on its drilling efforts. These should provide additional colour on the total value of the resource and how much it could be worth. In the meantime, I think there’s just too much uncertainty.
