Helium One (LON: HE1) shares have not moved much in reaction to the update from the company concerning Rukwa. The reason could well be that while the results are both good and useful they are also largely known by implication from previous work. It is, after all, new news which moves share prices – what we already know is already there in the current price.
What Helium One is doing is going prospecting for helium. It’s an important industrial gas, chip-making and MRI machines wouldn’t work without it. The major source for many decades, the US govt reserve, is now closed. So, there’s great interest in finding new sources. As Helium One has linked to, here, the basic principles of helium exploration are simple enough. It is produced as the daughter product of the radioactive breakdown or uranium and thorium. So, explore rock structures which have high Th and U levels in them. If there are pockets of natural gas in those rocks – which there often will be – the helium is likely to concentrate into that natural gas. Methane which is as much as 10% helium might be found that is. That’s economic – if there’s a high enough volume of it – to extract for that helium content.
As we’ve noted before about Helium One there’s nothing wrong with this as a basic prospecting strategy. As we’ve also noted about Helium One the initial results from the prospecting area in Tanzania are also looking pretty good. The geology’s right, there are seeps of high helium content methane, there are good indications of at least some pockets of gas in reservoirs.
There are though two further issues to consider. The first is something common to all junior miners. Working through the theory of geology, even having that confirmed, is excellent. But there is always that point where the pedal must hit the metal – or the drill bit the deposit. That something is there, yes. But the next question is how much of it is there? A deposit has to be of a certain size before it becomes economic that is. This is the sort of thing that the next round of exploration – the actual drilling – will try to resolve. That’s the next round of proof that provides another valuation event that is.
The other worry that we’ve long had specifically about the helium market. Yes, the reserve is gone, yes helium is associated with natural gas, yes, it can – and will in fact – be found in certain wells in certain geologies. But we’re also changing the natural gas world with liquefied natural gas. And as a side issue with creating LNG the process also lowers significantly the energy required to extract low concentrations of helium from natural gas deposits. So it’s possible that LNG, rather than direct exploration, will become the helium source of choice.
Helium One’s share price, at this stage, is likely to be dominated by the exploration programme results. But that overall market question needs to be thought about at some point in the future.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.