Renergen’s story about turning a Free State helium and natural gas deposit into a massive profit generator attracted a horde of retail investor fans. But in recent months, Renergen’s share price has fallen 34% and at its current R27, is a world away from respected small cap analyst Keith McLachlan’s R67 valuation. The stock returned to earth after its pilot plant’s production deadline was missed – first because of Covid-lockdown related delays, then by a faulty oil heating system. CEO Stefano Marani has also had to deal with a cold shoulder from controversial mining company Ivanhoe, and leaks in Australia that aborted a capital raising exercise. On the upside, he reckons the glitches have all been dealt with and expects the pilot plant to produce its first helium soon (“not months”) – triggering funding of a massive $1bn commercial plant (half via the US government) which will potentially transform the company. Stefano spoke to Alec Hogg of BizNews.
Excerpts from the interview with Renergen CEO Stefano Marani
Stefano Marani on the expectation to start production at the beginning of the year and why it was delayed
So to say that we were expected to start producing at the beginning of this year that was it. That was a target set down in 2019 prior to COVID. So obviously, COVID changed the game for everyone. What happened in terms of the delays? Where we got to was with the with the turn on the turn on the revised schedules with the turn on would have seen the plant come online in about commissioned in August and then coming online and production in September. We managed to get the plant into production in September and by production that means bringing the energy online first. And then you go systematically through the different modules. There are three modules, there’s an energy module and then there’s a nitrogen module and then there’s a heating module and you need all three running in to produce liquid here. Once we commissioned, fully commissioned and got the energy system working and in full production, we then turned our attention to the nitrogen module, got that under wraps, got that working and got the helium module switched on. And helium going into the plant was great and recoveries were excellent. We were about 10 hours away from reaching liquid helium status in the liquid helium tanks. And then one of the system utilities, a conduction oil system, went down the installer and installed the conduction oil system properly. It had worked on and off, but once it was stable we got the plant working to within literally 10 hours of liquid helium and then the conduction oil system went down. So we decided to do the Yeah. And make the hard decision and, and be responsible about it, shut the plant down. And we have subsequently removed the conduction oil system. We reinstalled the conduction system that is now operating 100%. So since then touring the plant on it and now we’re going through the motions of turning the plot back on due to full operational capability.
I’m loath to give an exact date, but it is very close. It’s very, very close. It’s not, you know, it is not months away, let’s put it that way.
On the production of the pilot plant phase one and phase two and is there enough generated there to turn Renergen into profitability
Yes. Phase one. Phase one is profitable. That washes its face and it produces positive results. And that’s the important thing. So to put it into context, phase one will accept 3 million standard cubic feet of gas, per day phase two will accept 24 million cubic feet of gas per day. It gives you an idea of the order of magnitude. Now, the benefit about that is that you get massive economies of scale with these large scale gas plants that are significantly more profitable.
On what happened with the book build and what is going on with the listing in Nasdaq given that you’re an altechs listing on the JSE
So I’ll first address the CapEx for phase two and how we’re getting there. The phase two project is about $1bn all in the US of which $500m is earmarked from the US government from the DFC our current lend is for phase one. And then there’s a further $250m which we’ve had several banks put on the table and we’re busy working through the motions as to, as to who the lead arranger is going to be for the remaining 250. But that gets a 750 out of the billion. A potential IPO is earmarked for back in the first quarter next year. And that will be after we have secured the debt facilities. And we’ve essentially reached a financial investment decision. So the financial investment decision is earmarked for the first quarter next year. In addition to that, there’s obviously also the Central Energy Fund, which is looking at their billion for the 10%. That’s a transaction which is a work in progress. And again we’re running in marking closing that transaction when we reach FID next year. So that takes us roughly between the IPO or call it 150 million US plus the transaction with the Central Energy Fund and then the debt from the DFC and the debt from the lender that basically gets us to the CapEx needs that we have for the building of phase two. So those are the sources and the sources and uses in terms of the uses, it’s CapEx for the plot, it’s midstream, downstream equipment, etc.. The recent placement, was by all means pretty much done and dusted, other than for the fact that the Australian market tends to be quite leaky and and, and someone had basically leaked the transaction before we’ve actually done the transaction and so just on the basis of sensitivities without having to go through the motions and, try and get into a trading halt, which is just a painful process because you can’t put a trading halt on the JSE and so you’d only have a trading halt on the one side and not the other. And it just causes a huge amount of confusion as we ended up seeing after the fact because the ASX went and put us into a trading halt in any event, because someone had broken the news to the AFR. It’s a difficult market. It’s a difficult market to try to reconcile their legislative framework with our legislative framework. The ASX rules and the JSE rules are not exactly the most compatible in the world.
On the $500 million coming from the US Development Finance Corporation and why are they so interested in Renergen
Helium is a critical mineral. It is part of the critical minerals list. It is absolutely essential in many, many fields, from rocketry to nuclear power to all sorts of things. But now the more technical aspect that is critical is the semiconductor industry. To give you an example. Everyone talks about the semiconductor shortage that we’ve had for the last two years, which is why if you try to buy a new car, you either didn’t get the car that you wanted or it had limited functionality. The fact of the matter is, the reason that you can’t get the car you want is because the microchips aren’t available and the microchips aren’t available because there’s been a helium shortage for the last two years. So it all boils down to one fact that helium is critical to so many aspects of the modern economy and we just don’t realise it. And for the United States moving from a position where they were a massive helium exporter and literally controls most of the world’s helium trade, they are now at the position where they’re about to become a net importer of helium now, if you’re sitting in a position where your economy is dependent on critical, rare earth elements being produced by another superpower. And now you’ve got the quid pro quo that you’ve become a net exporter of helium. You need to think long and hard about your supply chain verification.
On the share price decline
Yeah. Look, I think at the end of the day, it’s just that we missed our targets on the turnon. And these things happen. While we’re not proud about the fact that we missed the helium turn on especially having gotten to within 10 hours of achieving it and knowing full well what the repercussions would have been and the fact that we were going to be hammered in the markets, we needed to do the responsible thing and protect the plant. Pushing through and reducing liquid for the sake of producing liquid was not an option. A lot of the risk of the plants. So yeah I think what’s reflected in the share prices is a market reaction to just missing our anticipated turn on of the helium facility.
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