Renergen — the owner of SA’s only onshore gas development, which is believed to have one of the world’s largest concentrations of helium — appears to release a Sens announcement every time it blinks.
It has issued more than 14 voluntary Sens announcements this year, leading some to wonder if it is just hype. But Renergen CEO Stefano Marani says he is happy to be a “clown on a soap box” because he has to raise capital given the lack of interest from large asset managers. It’s well known that small caps in SA struggle to raise capital; many give up and delist.
Marani, a former investment banker who is now highly critical of the industry, says: “We know that the banks in SA are conservative, which means SA’s economy has limited growth potential. You look at the size of the exchange … 90% of the total market capitalisation sits in the top 100 companies, and 10% is shared by [the bottom] 200.”
Marani and his COO, Nick Mitchell, ran the exploration company Windfall that discovered the natural gas field now named Tetra4 in Virginia in the Free State. Instead of selling it on to a firm with the pockets to develop it, as is usually the case, Windfall stayed on.
Marani tried to raise capital in SA three times and failed, which led to him listing in Australia.
Small-cap analysts Anthony Clark and Keith McLachlan punt the stock and its fundamentals: an 87,000ha property with proven reserves of 25-billion cubic feet of natural gas and high-quality helium.
But Renergen raises a few red flags. Phase 1 of the operation, due to produce 2,700 gigajoules of liquefied natural gas (LNG) a day and 350kg of helium, was supposed to start up in July after almost a year of delays, but has been further postponed.
Marani is unperturbed, saying it is only 10 months behind schedule and that much of the delay was a result of the global shipping crisis disrupting equipment deliveries.
When will phase 1 start? Marani is tight-lipped and says he is working on a seamless, co-ordinated switch-on at all customer sites
Renergen is not making money yet as natural gas production is a lengthy and risky exercise. But it did develop a cold storage solution for the transport of Pfizer Covid vaccines, called Cryo-Vacc. Renergen helped to transport almost 1-million vaccines free of charge, says Marani. It was marketing genius, but it didn’t produce cash flow.
Engineers at the plant are investigating cold storage for biotech products, he tells IM.
But when will phase 1 start? Marani is tight-lipped and says he is working on a seamless, co-ordinated switch-on at all customer sites.
One helium client is Linde, parent company of local gas company Afrox.
Afrox itself is not a client, though it signed a deal with Renergen in 2016 whereby it would operate a helium plant for Renergen. At the time, Afrox MD Schalk Venter said: “The discovery and commercialisation of the Free State onshore helium source is great news … the signing of this agreement marks a historic moment.”
But nothing came of this, and it is not clear why.
Marani has been fundraising for phase 2 of the project, set for 2025, which aims to produce at least 5% of global helium requirements, along with LNG.
He raised R200m funding from Canadian miner Ivanhoe Mines, with the possibility of a further $250m investment in exchange for 55% ownership. There was a 120-day period to work out the conditions before the buyout contract became binding, but the deal didn’t go ahead.
Marani rejects the notion that Ivanhoe walked away from the deal.
“The nature of the transaction had a few regulatory hurdles. The first … was exchange controls [as] we would have been paid with Ivanhoe stock on the Toronto Stock Exchange. That is already a huge hurdle. The second is that because they opted for control, it became a Competition Commission issue.”
Instead, Marani has signed a retainer letter with the US International Development Finance Corp, which has already provided the energy group with $40m of a possible $500m loan for phase 2, which will be about 12 times the size of phase 1.
The Central Energy Fund has completed due diligence on an agreement to invest R1bn for a 10% stake in Tetra4, at a significantly higher price than simply buying 10% of Renergen’s shares.
Last year, with much fanfare, Renergen said it would trade digital helium tokens, using blockchain technology, on the Argonon Helium platform. The initial coin offering in March was set at $0.27; the price is now down to $0.22. The platform has attracted 71 buyers, but about 99% of the tokens are in the hands of a single owner, presumably Renergen.
Another challenge Renergen faces is what to do with LNG in the absence of pipelines to the industrial areas of Gauteng. Renergen aims to sell it to the transport industry as a green alternative to diesel for long-distance trucks. It has converted four of its own trucks to use LNG.
Is it realistic to build LNG filling stations on highways? Marani believes it is, saying all that is needed is one such facility in Durban, one in Harrismith, one in Joburg and a handful along the N1.
Another 2017 plan in partnership with the International Development Corp for buses and Free State taxis to use LNG did not materialise.
In the meantime, some analysts want to see the helium flow first, generating more cash and less hot air.
The most promising prospect is the Venus oilfield 290km off the coast of Namibia. Impact holds a 20% stake
The other JSE company offering SA investors exposure to natural gas (and oil) is Hosken Consolidated Investments (HCI), which has a 49.2% stake in the UK-based oil exploration firm Impact Oil & Gas.
HCI founder Johnny Copelyn generally keeps quiet about the stake in Impact Oil, which explores for oil off the Southern African and West African coasts.
HCI — with major holdings in gambling, eMedia (Yfm and e.tv), hotel group Southern Sun, platinum and coal mining — is one of a few companies with a committed interest in exploring the SA coastline.
The most promising prospect is the Venus oilfield 290km off the coast of Namibia. Impact holds a 20% stake, giving HCI an indirect 10% holding. TotalEnergies holds a 40%, QatarEnergy 30% and Namibian state-owned oil company Namcor 10%.
The field could have 3-billion barrels of recoverable oil, according to oil publication Upstream, which cited a leaked report by consultancy Wood Mackenzie.
In September TotalEnergies is due to conduct another appraisal of the reserve, including the flow rate.
Impact — of which Copelyn is chair — has to raise $60bn for this, it announced last month.
Neither HCI nor Impact has the deep pockets of an ExxonMobil or Shell to fund seven or more years of drilling. Reuters reported in June that Impact had hired investment bank Jefferies to begin the process of selling its stake. The news agency said the stake was estimated to be worth between $500m and $1bn, which means HCI’s share could be up to $500m before tax.
Cobus Cilliers, equity analyst at All Weather Capital, says the value will be calculated according to confirmed reserves, probable reserves and possible reserves. Each category carries a different price.
“If you know what the proven reserve is and how much they’re going to sell it for, then it’s easy to work out if the HCI share price is undervalued,” he says.
As an optimistic guesstimate, assuming Venus has 3-billion barrels of proven reserves worth between $1 and $5 per barrel, at a mid-range price of $3 Impact’s 20% stake would be worth $1.8bn. This would translate to $900m before tax for HCI.
But Cilliers notes that drilling is high risk and the field could be a lot less valuable; the payoff for HCI would be correspondingly more modest.
Cilliers expects TotalEnergies to announce the appraisal findings in February 2023.
At least some, if not all, of Venus’s value is priced into the HCI share price, which is trading in line with its NAV — unlike most holding companies, which trade at a discount of about 30%.
Impact is just about the last man standing in terms of SA exploration — most big players, scared off by years of policy uncertainty, have walked away. Apart from the Orange Basin, where Venus is located, Impact’s exploration rights include several blocks off the Transkei coast.
In HCI’s annual report, Copelyn names ExxonMobil, Equinor, BHP, Cairn, Cosmos and Anadarko as having ditched SA exploration. “As the years go by with no clarity on the legal rights of explorers in SA … the degree of accommodation of BEE required, royalties claimable and the tax structure of production right holders, there has been a growing disillusion with prospecting for oil and gas in SA.”
And then there are the environmental activists who recently blocked Impact’s partner Shell from conducting seismic surveys off the Transkei coast.
Copelyn called the concern about possible harm caused by seismic surveys “poppycock”. But such concerns do tie his hands in SA.
Cilliers says the Namibian government is far more committed to oil exploration.
IM asked Impact about any plans for further exploration, but it did not respond.
While exploration off the SA coast is increasingly unlikely, it is only a matter of time before Venus could make HCI shareholders very happy.
* The writer has shares in HCI
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