Emerging helium and natural gas group Renergen, which is in the process of commissioning the first phase of its Virginia gas plant, says it is evaluating a possible $500m (R7.7bn) loan for the second phase of the project, which will be about 12 times larger than the first.
Renergen said in a statement on Monday that it has signed a retainer letter with the US International Development Finance Corporation (DFC), a development financier that has already provided the energy group with $40m.
“We find ourselves in a very strong position as we embark on turning on the Virginia Gas Project plant in the coming weeks,” CEO Stefano Marani said in a statement.
“The company has grown significantly in size and scale and importantly, now has the ability to sculpt terms to suit our financing requirement,” he said.
Renergen’s subsidiary Tetra4 wholly owns a gas plant in Virginia, Free State, SA’s only onshore petroleum development right, which contains among the world’s highest helium concentrations. Helium is a byproduct of natural gas and is used in the production of items such as computer chips and cellphones.
The first phase was initially expected to be ready by the end of 2021 but was delayed by Covid-19. A further delay due to global shipping constraints has already pushed the project back by a number of months in 2022.
The group said at the end of May that it was making progress in commissioning the first phase, and was encouraged by a lack of surprises during testing, which indicated that the plant should operate as designed. Marani told Business Day that the phase 1 plant will come online before the end of June.
The first phase is to have an expected output of 2,700GJ of liquid natural gas (LNG) a day and 350kg of helium.
Renergen will market its LNG product primarily for the SA transport industry as a “greener” and cheaper option than diesel. According to Marani the payback period of converting a diesel truck to use LNG as a fuel source is about six to 12 months and from then on, the cost saving on fuel can see profitability on the truck double under the right circumstances.
Renergen has received multiple letters of intent to co-lend alongside the DFC for phase 2 operations from additional lenders, with a cumulative value of more than $700m in senior debt. This would exceed the remaining debt requirement, the company said.
“We are in the process of optimising phase 2 operations as part of the ongoing due diligence process and are aiming to achieve a target of up to 65% debt funding, the balance equity, on the phase 2 project capital amount,” Marani said.
In March Renergen announced that, subject to various conditions, the state-owned Central Energy Fund (CEF) would acquire a 10% interest in its Tetra4 subsidiary for R1bn with the money to be used for the development of phase two of the gas project. It was announced at about the same time that Canadian miner Ivanhoe Mines had invested more than R200m in Renergen by buying more than 5.6-million of the company’s shares, at R35.625 a share.
Ivanhoe had secured a conditional option, subject to its evaluation, that provides for the company to potentially become a major shareholder by investing up to $250m in Renergen to help fund the phase two development.
At the Junior Mining Indaba in Johannesburg last week, Marani accused SA asset managers of being at least 50% to blame for the lack of investment in the development of the country’s junior mining sector.
He later told Business Day that there were not enough asset managers in SA with the depth of skills to analyse projects based on the inherent value of resources instead of only measuring value by a price to earnings ratio.
The company’s latest announcement should counter any sense of uncertainty in the market about Renergen’s potential to become a serious player in SA’s energy market, analyst Anthony Clark of Small Talk Daily Research said.
Renergen’s announcement of phase two funding from the DFC and other lenders makes the development of phase two of the Virginia gas project “an absolute certainty”. This should prove an antidote to the “miasma” or sense of uncertainty with which the market has viewed the company, according to Clark.
Part of this sentiment, he said, stemmed from doubt over “where the money will come from to pay for phase two” of the project, but the latest announcements prove that Renergen now has “more than enough money in the bank to complete this project”.
All evidence point to the company meeting its proposed targets for phase one. “[Phase two] of the project should start producing sometime early in 2025. Much of the underlying infrastructure for the project has been developed and installed in [phase one], all that must happen now [in phase two] is to scale the site,” Clark said.
Further expansion could occur in years to come after the first two phases of the Virgina project has shown to be commercially viable and profitable. “I believe less than 20% of the Virginia gas field has so far been tapped — this has the potential to truly deliver SA’s first onshore energy operation,” Clark said.
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