When Renergen CEO Stefano Marani and COO Nick Mitchell acquired the petroleum production rights on a farm in the Free State for $1 in 2013, little did they know it would turn into the R5bn market cap company it is today.
Renergen’s subsidiary Tetra4, SA’s first and only onshore gas production rightholder, houses the Virginia Gas Project in the Free State that is expected to put the group on the map for the production of liquefied natural gas (LNG) and helium.
Helium, a byproduct of natural gas, is a chemical element used in the production of, among other things, computer chips and cellphones.
Mitchell told Business Times this week that Renergen is the story of a banker (Marani) and an IT engineer (himself) who decided to throw their hats into the energy ring, with no experience and a tiny, stranded gas asset that had no business plan, which they had bought for a dollar.
They turned it into a company with a proven resource and a globally strategic helium deposit valued at about R5bn, and an even bigger upside when the extent of the reserves is factored in.
“All this in the space of nine years,” says Mitchell.
Renergen acquired production rights for the project from Molopo Energy, whose focus was on shale and gas exploration in the Permian gas basin in Texas in the US.
“After an unsuccessful exploration campaign in the Permian basin, they ran out of money. That is when Steff and I caught wind of it, and that is when we decided to make an offer to acquire the opportunity ... the rest is history.”
Last month Renergen received a $250m (R3.6bn) commitment from Canada’s Ivanhoe Mines towards the construction of phase 2 of the Virginia Gas Project.
The state-owned Central Energy Fund (CEF) added further impetus by signing a non-binding term sheet to invest R1bn in Tetra4. It will acquire 10% of Tetra4 subject to conditions, including 141 days for the CEF to complete its due diligence and get necessary approvals.
The Ivanhoe Mines transaction is subject to a 120-day due diligence, after which it may, if satisfied, increase its stake in Renergen to 25%.
Keith McLachlan, an investment analyst at Blue Gem Research, said if Ivanhoe Mines acquires a minimum 25% shareholding in Renergen, it will have the right to increase its stake to as much as 55% in Renergen.
McLachlan said an investment by Ivanhoe in Renergen would be a vote of confidence for the group.
“Depending on how or if Ivanhoe Mines takes up their options to further invest, [this] may underpin the [equity] funding for [a much larger] phase 2 that further derisks the group.”
McLachlan said the CEF deal adds further momentum to a direct investment by Ivanhoe Mines. The CEF’s R1bn investment for 10% of Tetra4 implies a valuation of R9bn for the remaining 90% held by Renergen.
Mitchell said phase 2 requires an investment of about R15bn to complete the project, which will be funded through a combination of debt and equity.
He said LNG production from phase 1 and 2 would be for domestic consumption, which includes supply to companies such as Ceramic Industries, which is owned by Italtile, and Consol Glass.
The helium from phase 1 is destined to satisfy SA demand of 200kg per day and the balance will be exported. Phase 2’s output will be dedicated to the export market, 65% of which already has been sold on 10- to 15-year contracts, Mitchell said.
Our long-term ambition is to become a significant supplier on the global stage for helium
— Renergen COO Nick Mitchell
Regarding the CEF, Mitchell said the government’s commitment to the Virginia Gas Project was testament to what the company has done in the area.
“It signals that the government is really interested in developing the natural gas market in SA, specifically the onshore market. We can see similar moves by the CEF in the offshore sector as participants there continue to develop their opportunities. For us it is an exciting time and one that is needed for the country.”
Mitchell said Renergen is focused on finalising construction and commencing production at phase 1 in May.
Objectives for the remainder of the financial year include completion of the equity transactions with Ivanhoe and the CEF as well as debt funding so as to reach financial close for phase 2 of the Virginia Gas Project, he said.
“Our long-term ambition is to become a significant supplier on the global stage for helium, supplying as much as 15%-20% of the critical element into the market. I think watch this space, phase 3 may be around the corner, who knows?”
Mitchell said it took nine years for Renergen to raise R1.2bn for phase 1 of the Virginia Gas Project and was by far the the biggest challenge, he said. After Renergen was listed on the JSE, they thought funding issues would be a thing of the past, but investment from local fund managers dried up in subsequent capital raisings.
“So we had to explore listing in Australia, and we sourced the balance of our capital in Australia. Funding remains a key challenge for early-stage mining projects as well as oil and gas projects,” he said.
“One of the key reasons is that the market here [in SA] is very focused on the large caps. The small cap stocks are very unloved and that is one of the biggest challenges for developing our economy,” he added.
The company has been listed on the Australian Securities Exchange since 2019.
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