Can the Helium One share price surge continue riding news of potential reserves?

Helium One’s [HE1] share price is on a tear, rocketing by more than 50% year-to-date after the firm reported that remote sensing has revealed areas that may hold significant helium reserves.

The London-listed helium-exploration company was founded in 2015 to explore, develop and eventually produce low-carbon helium, which has applications in the aerospace and medical industries.

The firm’s report shows that natural gas at its prospecting area in Tanzania is up to 10% helium, a level considerably higher than normal. This could be down to underground helium seeping through the surface into the atmosphere. “We are pleased with the results of the recently completed MSS study which identified abundant helium anomalies,” said David Minchin, Helium One CEO.

But although this is encouraging, further tests are required to establish whether worthwhile volumes of helium can be successfully extracted. Are the atmospheric anomalies shown on the heat map in the firm’s report enough to convince investors that it’s worth following the jump in Helium One’s share price? Or would it be wiser to stand back for now, until the stock’s commercial viability becomes clearer?

 

What’s the latest with the Helium One share price?

The Helium One share price has climbed 52.78% to 11.00p year-to-date as of Friday 4 February’s close, soaring 121.43% from 4 January’s opening price of 7 00p to reach 15.50p intraday on 20 January, helped by the helium report’s publication on 17 January.

Over the last 12 months the stock has risen 37.50% at last week’s close – but that climb has been far from steady. After reaching an all-time high of 29.00p on 2 August, the share price slumped dramatically later that month, plunging 82.76% to a 52-week low of 5.00p on 26 August. So what’s causing this volatility, and what could influence potential investment in the stock during this current surge?

Drilling tests prompt volatility

While helium is generally abundant, it’s been difficult to mine effectively, as it’s rarely found in quantities large enough to be economically viable. So, when the firm announced last year that it had discovered 138bn cubic feet of the element, the Helium One share price soared amid investor excitement. But drilling tests at its Tanzania Tai-1A well revealed that although helium was present, it didn’t exist as free gas, and so couldn’t be extracted. Its Tai-2 drilling site couldn’t confirm the presence of high-grade gas and the stock promptly bombed, after being “entirely elevated by expectations rather than fundamentals” according to Motley Fool’s Zaven Boyrazian.

Next phase key for Helium One share price prospects

With last year’s episode in mind, the next phase – drilling to get more data on the quality and quantity of the gas – is crucial. With findings expected later in 2022 positive results could see another explosion in the Helium One share price.

However, if the drilling does reveal deposits worth extracting, the company may require additional funding. It announced in December 2021 that it’s “well-funded for current exploration activities”. Motley Fool’s Christopher Ruane said: “I take that to mean that the business that has no commercial revenue is spending money in an exploratory phase. If it finds significant helium and wants to exploit it commercially, it may need to raise more money by diluting existing shareholders”.

A fork in the road for investors

Investors are therefore at an intriguing fork in the road: hold off after the bitter disappointment of last year’s experience, or buy now with the potential for significant gains? Boyrazian can see both sides: “Investing in young exploration companies is fraught with risk … but for investors willing to take that risk, the rewards can be enormous”, he said, adding that he’ll be watching out for the upcoming drilling results.

“A reasonable expectation might be that the share price at Helium One will continue to be volatile and a real breakout might only occur when economic viability is fully proven” – Asktraders' Tim Worstall

 

Helium One’s future depends more on what everyone else does in the helium market, according to Asktraders’ Tim Worstall. The helium market is small enough that production increases can trigger sharp price rises – and the competition is liquefied natural gas producers who install the extra equipment to extract helium, rather than other companies looking for helium.

Worstall thinks Helium One’s prospects therefore depend not just on its own prospecting but also on what other gas producers do: “A reasonable expectation might be that the share price at Helium One will continue to be volatile and a real breakout might only occur when economic viability is fully proven,” he adds.

What’s the future for the Helium One share price?

Taking the plunge on the stock really boils down to investors’ risk appetite. Many will prefer to keep a keen eye on those drilling results, which could pave the way for long-term financial competitiveness. However, if the Helium One share price scales last year’s 29.00p peak, it would translate to a substantial potential upside of 163.64% based on last Friday’s 11.00p close.

While it appears to be a speculative investment, and memories of last year’s ghost reserves still linger, current investors will be watching closely for positive exploration updates, which could significantly move the dial once again on Helium One’s share price.