Helium One (LON: HE1) shares are up 38% this morning. HE1 shares are up because the company has simply bitten the bullet and bought a drilling rig rather than trying to hire one. This might sound likie a slightly drastic thing to do - make a significant capital expenditure rather than simply renting the necessary capital equipment. But it has a certain sense to it. Getting a rented rig into the area in Tanzania was proving to be very difficult indeed, as Helium One announced last week: “Helium One (LON: HE1) shares are down 12% today. HE1 shares are down because they're having problems getting hold of a drilling rig. Which, when you're intending to drill for gas, is something of a problem - no drilling rig, no drilling, obviously. The more specific problem seems to be that they chose the wrong subcontractor: “Helium One Global (AIM: HE1), the primary helium explorer in Tanzania, provides a rig update in relation to the Company's contractual relationship with SOFORI taking into account today's announcement by Noble Helium (ASX: NHE). The Company has previously issued a number of deadlines to SOFORI but continues to have concerns about the lack of operational and contractual progress required under the terms of the non-binding Letter of Intent ("LoI") and, pursuant to legal advice received by the Company, have issued SOFORI with a rectification notice.””
There was then a certain amount of chin scratching and a note that Noble Helium (which is indeed rilling right next door) had hired another contractor from the UK and maybe that could be done etc. The news today is that a locally available rig has been purchased and should be on site in time to spud the well in Q3. The capital expenditure part, well, if you can afford it why not? A second had rig, after use, will still have some value after all which can be recouped.
Helium One share price from London Stock Exchange
We've commented before on the basic HE1 plan: “The creation process is that when uranium and thorium (well, complicated, but often this is true) decay they throw off an alpha particle. The other name for which is the nucleus of a helium atom. The other thing we know about helium is that it often turns up associated with natural gas deposits. So, think a little laterally and go looking for natural gas in areas where the rocks have a lot of uranium and thorium in them. We might well then find that the gas is high in helium. So far so good and that's just what Helium One has been doing. They've found exactly that in areas of Tanzania. OK, not everyone's favourite operating country but reasonable enough.”
We've really no doubt that there is helium there. The logic and geological signs convince us at least. The three questions become, first, is it there in good volume? Second, can Helium One deal with the inevitably difficult logistics of mining for a gas in rural Tanzania? Finally, what's the helium price going to be when they come to market? It's those three that mean we still don't think HE1 is a sure thing even if the prospects are favourable.