The world is changing fast and to keep up you need local knowledge with global context.
The Renergen share price has been hit by various factors lately, most recently by social media attacks and the poor trading statement last week. But the real story remains intact – a $1bn Helium plant in the Free State with the funding and requisite licences. In this interview, Renergen CEO Stefano Marani provides context for his company’s 45,000 shareholders, suggesting they consider the company’s real story, which is its goal of using SA’s plentiful natural reserves to become one of the world’s leading producers of Helium. He spoke to Alec Hogg of BizNews.
An edited transcript of the interview between Alec Hogg and Renergen CEO Stefano Marani
Alec Hogg: This interview is brought to you by Renergen, and welcome to Stefano Morani, the Chief Executive of Renergen, which released a trading statement, a trading update, I guess you could call it on Friday. It saw a volatile session for its share price, down 20% at one stage before recovering pretty much all those losses. You’re going to find out what is going on at Renergen, a company that many members of the business tribe are invested in. So Stef, maybe the best place to start is to give us a little summary of what happened in the most recent quarter, i.e., your… if you could give us a nutshell of the trading update, then we can go into other stuff about the company.
Stef: Alec, thanks for the time. So, in a nutshell, I mean, look at it this way. You would have seen from previous announcements that the company went into production during the course of the year last year, and steadily, we started to increase the output of the [liquefied natural] gas (LNG). So month on month, we’ve set new records for increased production of LNG, and that’s had a significant impact on increased revenues because previously, we were only operating a small C&G plant for a couple of buses in the Free State. There’s a full-on LNG operation. But the analogy to what we’ve been doing is that we’re operating an entire plant, however, without the helium module on. You’re only generating revenue for a portion of it, which means that losses occur while the plant is not operating at full capacity. You’re only receiving revenue for a portion of it. You’ve got the expense of the entire plant, but you’ve only got the revenue from a portion of it.
So, running it at an overall loss is inevitable. It’s unfortunate, but it is inevitable. What we will see in terms of updates in the future from here is that as the plant gets closer to the end plate capacity and once we’ve brought the helium module on, we will start to gain the benefit of increased operational efficiencies. And we expect that by the time we reach the first half of next year, a calendar year, we will be at full nameplate capacity, and the helium will be on. That should be before the end of this calendar year. Then, we will be in a position where the business is profitable. Just in terms of what people should be looking at and expecting for before the end of this financial year for us, it’s important to note that the reason the helium isn’t on was because of a leak. It happens. It’s not ideal. We couldn’t plan for it. It is what it is. We had to take the mature decision to repair the thing to gain the efficiencies. That’s meant taking the cold box off-site and bringing the cold box back. So from an LNG production perspective, that means the plant was down. But we’ve also had to annually go through a maintenance cycle of about 20-25 days.
So given that we had to take the plant down for that and there is an impending maintenance cycle, we decided to combine the two and bring that forward. So I don’t expect that we’re going to be in a position where all of a sudden the helium cold box is going to be on and the second half is going to be profitable. We’ve lost a lot of production time. So I think the second half of the year will be a little bit more of the same as this year. But in a nutshell, this isn’t unexpected, and it doesn’t change the fundamentals of the business. The fundamentals are still there. Remember at the end of the day, the Phase 1 project was always a proof of concept. Yes, it is a profitable proof of concept when it’s in full operation, but it is still only a proof of concept. The fact of the matter is that this entire project has been designed for the Phase 2 operation, which is a meaningful and globally significant helium operation.
Alec Hogg: That’s a good summary, just so that we understand a little better. The production in the last four quarters has gone from 233 tonnes to 720 tonnes to 823 tonnes to 1564 tonnes. Where is the nameplate capacity, as you say, how much further upside exists in the production?
Stef: So we anticipate that we can probably push this thing to about 1.1 times from where it currently sits. And that’s on the LNG side. It can go an infinite amount on the helium because we haven’t produced helium for sale yet. We’ve only produced it for our own tanks. But you know that’s…That’s kind of what it looks like from a production perspective. We’re at about 40%, just over 40% of nameplate capacity, and we’ll run it somewhere between 95 and 98%.
Alec Hogg: In the helium itself, when does that start kicking in?
Stef: So the helium module has now been repaired. There was a leak in the cold box. That’s been brought back to the site. The leak has been repaired. That’s now being connected to the plant. In addition to connecting to the plant, as I mentioned before, the one thing that we had to do was bring forward the maintenance. So every single year, out of the 365 days, there’s about a 20 to 30-day maintenance site.
And that’s to lubricate the moving parts, to replace the seals. It’s like any machine. Now we brought that forward, that should have been done in December. The worst thing that you can do is warm the plant up, cool it down, warm it up, cool it down, warm it up. And what we would have done is if we turned on the helium module now or any time around now, then in a month’s time, we would have to warm it up again to do all of the repairs. So right now what we’re doing is we’ve started the scheduled maintenance, lubricating all of the parts, replacing the seals, etc. And like I said, we anticipate that we’ll be in helium production before the end of this year.
Alec Hogg: But I think the real story of Renergen has always been, as you say, phase two, the big plant, the plant that is going to be $750 million, massively bigger than the proof of concept that you have at the moment. It appears as though shareholders or traders, I don’t know if they’re shareholders, but anyway, the people who are playing in your stock at the moment, they are focusing on phase one. And I guess you’ve got to get that right for all kinds of reasons. But are your funders running scared? Are they concerned? Are they still on board for the $750 million? In other words, is phase two, the big one, is that still coming?
Stef: Yeah. Look, the funders, I don’t think the funders are particularly worried about what happens with the share price. From their perspective, they’ve been on-site, they’ve kicked the tires, they looked at the plant. You know, the DFC was with us right in the very beginning when we were selecting which EPC to go with, and it was quite an extensive… the net that we cast in terms of looking at who is the best technology provider for the first phase of the project. They’ve seen phase two. In many of these cases, they send out these LNG experts from Europe and the United States, qualified engineers that build these plants all over the world that came down, they kicked the tires, they looked at the geology, they looked at the equipment, the P&IDs, all of the schematics and the designs, and everything got approved. I mean, you know, it’s a massive, massive undertaking going through one of these due diligence. And we’ve been through several of them. The lenders aren’t particularly perturbed about all of this noise in the system. This noise in the system at the moment is quite unfounded, to be quite frank.
Alec Hogg: Is it worrying you, though?
Stef: No, not particularly. I sleep pretty well at night.
Alec Hogg: So looking ahead, when is that, when is the big part of Renergen, when is the real Renergen story, I guess you could call it, going to begin?
Stef: So look, we’ve got a few milestones. It’s turning on the helium. That’s critical. There, we acknowledge, and we’ve acknowledged the fact that we dropped the ball on that a long time ago. And I think that’s the cross that we have to bear. The next step is turning on the helium. Then we’ve got to unlock the equity for phase two. And there are many, many irons in the fire. Obviously… front and centre is an impending IPO. But we’d be remiss to say that the IPO is the only horse we have in that race. So again, it’s having the main plan you’re sticking to and then having the backup plans in case the first plan doesn’t work. Does that mean that I don’t believe that the IPO isn’t going ahead? No, I’m incredibly optimistic. It’s looking very good. But yeah. The one benefit that we do have is flexibility on timing because, as everyone can see from the recent IPO market, which has sold off, we’ve had two or three IPOs now that have sold off like 25%, which means that there are significant headwinds in the IPO market in the United States right now. So, listing now would be a very silly move. We’ve got the flexibility in timing. We don’t need the IPO until May of next year, which will have no impact on the construction timetable of the project. So we’re going to bide our time, and we will IPO when the time is right. And once we start to see those two key milestones unlocked, we’ll go into construction. It’s a 30 to 36-month construction. But then at that point, based on the profit guidance that we gave, it’s producing a significant amount of EBITDA. Contrary to what everyone thinks, the assumptions that we put in there are very, very conservative relative to some of the articles that we’re doing around, which are using meaningless data. The fact of the matter is that our estimates are incredibly, incredibly conservative. And they’re all verified by the lenders as well. We went through a thorough due diligence with independent market experts weighing in. So the real Renergen kicks off, and the real Renergen becomes a cash cow from 2027 onwards.
Alec Hogg: In this kind of market, and that’s what we did at BizNews, we had Renergen in our portfolio, and we saw that the markets had changed. It’s almost like investors have lost their risk appetite, and hence, you will see an impact on the share price. But as far as the real Renergen is concerned, or phase two, that’s irrelevant to you until you have to come and list your company’s shares on the US markets. How many shareholders do you have at the moment through your other listings?
Stef: It’s a phenomenal number, and I stand to be corrected, but the last time I got a report, it was somewhere in the region of about 42 to 43 thousand shareholders. It’s a monstrously high number.
Alec Hogg: So there are lots of people who believe the story. There are a lot of people who are pulling for you. But on the other hand, there seem to be quite a few people who are pulling against you. What’s going on there? What’s the motivation?
Stef: Listen, I’ve heard every speculation, and I’m not in the game of speculation. What I like to think of it is we’re kind of like Marmite. You either like us, or you don’t. If you’re a stock picker and you pick your stocks based on looking at a PE multiple, we’re not that company. We’ll be that company once phase two is on. Until then, we’re a high-growth stock. And that is what it is, and not everyone has the appetite for high-growth stocks. Aside from that, I’m certainly not going to speculate on what people’s motives and agendas are. Like I said, I’ve heard every single theory out there. Some of them are more colourful than others, but yeah. I don’t think what… none of that impacts the business. And what we’re about, core to our DNA, is we’re developing the country’s first LNG project, a helium project in Sub-Saharan Africa. This is a monumental achievement for the country. We should be celebrating the fact that we’re endowed with these riches. You know, it’s been a labour of love. It’s taken ten years to get to this point. And you know, we’ve got a long road to walk ahead, but it is a truly proud South African opportunity.
Alec Hogg: You say that, and some people are sceptical of it, but certainly, the conversations that I’ve had with both James Lorimer from the Democratic Alliance, the shadow minister there, and from the chief geologist of the state is that we do have an incredible endowment in South Africa of natural resources that haven’t yet been unlocked. In fact, with the chief geologist he mentioned Renergen, and he mentioned your helium project in the Free State. How much is there? Maybe looking on the upside, if you can overcome the challenges that you’ve set for yourself in putting the plant together, etc., and beneficiating the helium that’s in the ground, how much, how big a helium producer could you be?
Stef: Let me put the numbers in context. This is where concentration becomes key. To say that helium is running out is a completely unfair statement. There is a lot of helium left on planet Earth. But the point is the concentration at which you find it makes it economically unviable. So to put things in context, you’ve got some producers in the Middle East. They produce an inordinate amount. But to evacuate a certain amount of helium, they must evacuate a certain amount of corresponding methane. For countries like that and deposits like that to increase their helium meaningfully to meet demand, the amount of additional LNG that needs to be produced is so significant that it changes the entire planet’s LNG dynamics and the associated LNG plant would cost tens of billions of dollars. So countries like that can’t just ramp up capacity. It’s a very, very slow progress.
You’ve got additional deposits with no methane, only nitrogen in the gas. And that means that the running cost of producing liquid helium is incredibly high. We use the methane to generate the energy that allows us to liquefy, so we get cost advantages in our process. That means that pure nitrogen-based, no methane, but pure nitrogen-based helium means that you end up with a significantly higher cost number, and you’re virtually incapable of producing liquid. You can only produce gas, which only goes to a very small subset of the helium. So these are kinds of the challenges that a lot of helium opportunities face. By contrast, given the concentration that we have and where we are, the net result is that we’re currently only using in our second phase 14% of the acreage. That’s it, 14%. That’s the total footprint out of the total production right that we have. Is there a phase three and a phase four and a phase five? Of course, we’re planting the plant. Yeah, we’re putting aspects in the plant that are modular to allow us to expand. If we had to match the single largest producer of helium on planet Earth, say Qatar, and we had to produce 25% of the world’s helium, where Qatar produces 77 million metric tons of LNG per annum to produce that amount of helium, which is a gargantuan amount. It’s an absolutely gargantuan amount. By contrast, we would only have to build a 280-megawatt power station, and we would match them in terms of helium output. That is the power of concentration. That is the amount of legs this deposit has. It’s huge.
Alec Hogg: And well, it sounds a little bit like the South African gold mines when you used to have very high percentages or very high yields. 12, 15 grams per tonne doesn’t sound like much. But when you compare it with Canada at one or two grams per tonne, and that’s kind of I get it. And I suppose the big question for shareholders would be, but why has it taken so long? Why? If South Africa’s got this treasure chest. Has nobody else gone in there and unlocked?
Stef: It’s massive.
Alec Hogg: Thank you for unpacking that. Just to close off with, have you got the licenses? We know that the Department of Mineral and Energy can sometimes be tricky and certainly has been in the past. Have you got the licenses you need? In other words, are there any legislative obstacles to going ahead with the big plan, which, as you say, will be only completed in 2027?
Stef: We’ve got all the permissions we need. We’ve got all the licenses, and we’ve got all the permissions we need. There are a few silly little licenses here and there, like a license for this and a license for that, but you can only apply for those once you’ve bought the equipment. But the big ones, the big licenses relating to the mineral tenure, the environmental, all of that stuff, that’s all done.
Alec Hogg: So if I understand correctly, you got the licenses, you’ve got the resources, you are in the process, you’ve got the finance for the plant, you’re going to be needing to raise more capital, but the markets aren’t in your favor at the moment, so you’re waiting until May next year, by which time maybe the markets have changed, maybe they haven’t, but then as you say, you’ve got a plan B, so you look at plan B if things aren’t conducive at that point.
But in the short term, the attention for your investors, for those 42, 45,000 investors would be, this is a proof of concept. Our long-term game is in phase two. That’s the $750 million plant. That is what you should be focusing your attention on. It’s a different story to the one that we just update you with every quarter. Is that, am I understanding this story correctly?
Stef: Yeah, by and large that’s correct. The fact is, this is a proof of concept. There is a bigger play over here, and that’s what we’re working towards. That’s what our lenders see. That’s what we see. And looking at international investors, international investors aren’t interested in the Phase One project. It’s just too small. For them, their minimum investment size is $50 to $100 million. It’s a different kind of fish out there.
Alec Hogg: So, look at this company through different eyes if you are an investor. Stefano Marani is the chief executive of Renergen. I’m Alec Hogg from BizNews.com
- BrightRock loving life in the Sanlam family, growing strongly – CEO Schalk Malan
- Premium RW Johnson: Assessing ANC’s potential divorce with EFF in municipal coalitions
- The Road to Dictatorship in South Africa
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.