Sunday, January 16

Renergen ‘to the races’ with reserve and update of resources

SIMON BROWN: I’m chatting with Anthony Clarke now; you will find it on Twitter @smalltalkdaily. We are talking about Renergen, an action that I have. Anthony, a highly anticipated booking update from the company yesterday. In short, he got it out of the park. Helium reserves increased 620%, methane reserves increased more than 400%. In the case of helium, this should make it one of the largest deposits in the world, if not the largest.

ANTHONY CLARKE: Good morning, Simon. I think you are correct in your analysis. If you look at the largest helium producers in the world with the United States and Qatar, given what Renergen announced yesterday with the potential of that deposit in the Free State, they could boast of being, yes, the largest suppliers in the world ever. it is extracted, condensed and supplied to the market. So a fantastic reserve and resource update, and that caused the share price, as you saw, to have a huge surge overnight in Australia, and back to the JSE, and you’re ready for the races.

SIMON BROWN: Going back to Australia, I took a look at him just now, he’s under some pressure there. But they have the reservation. The first phase is scheduled for the end of this year; next month phase one begins. Phase two is yet to be built. [There are] challenges. They need about 12 billion rand around that.

I have spoken with CEO Stefano Marani before. They have multiple options for issuing financing rights, they have bank loans. Of course, they have those helium contracts that they are selling now. But there is still some way to make the project reach its full capacity.

ANTHONY CLARKE: Yes, they have until the end of 2024 to get Virginia phase two up and running, because many of the purchase agreements they have signed for liquefied natural gas and helium must be delivered to different parties by then. So we have two and a half to three years to get the whole project going. As you mentioned, that could cost, according to their estimates, 800 million dollars, about 12.3 billion rand as it is right now. There are various mechanisms to finance this. Now that we know what’s in the ground, all mining analysts can value this and I’m sure the bankers will be jumping on Renergen to offer them terms, because we know what can be mined.

A question of rights? Possibly down the track. And of course the helium tokens – $ 25 million is currently being raised. That could easily be increased.

At some point there will be a need for capital and I assume it will start to accelerate in 2022 as the plant must be up and running to meet those obligations by the end of 2024.

SIMON BROWN: I accept your point on that. In this case, the bankers are probably calling Renergen rather than Renergen having to call the bankers, which is a good way to do it.

There is a greater reserve. Does this mean that phase two of the plant, when in operation, can produce more? Perhaps it only extends the life of the reserve? How does it work? I’m not sure. I do not understand that process of the mining operation.

ANTHONY CLARKE: Basically what this update has given the market is the confidence that there are enough resources and reserves in the ground to make this a viable project for at least 20 years.

But the market seems to forget that Renergen actually has a license to operate on that land, which runs out in about 20 years, so they basically have to make money while the sun is shining.

Yes, the license could possibly be extended but, as it is now, under the presentation They gave, which is freely available online, can produce 44 million standard cubic feet of gas a day. But it is methane condensed into liquid natural gas and then the extraction of helium.

In layman’s round numbers, phase one is roughly 350 kilograms of helium and roughly 55 tons per day of liquefied natural gas. The most expensive phase two, in which they will work next year, will increase up to five tons of helium, which is equivalent to about 5% of the daily world production and between 750 tons and 800 tons of liquefied natural gas, which is small. . on the scale of things. But the real money maker here is helium.

The sites can produce up to 65 million cubic feet per day, so at just producing 44 million, they are within their thresholds, meaning this site in the Free State has longevity. So they really need it to increase production to the old saying of “milk the cow.” They absolutely could, but at a cost.

It truly is a world-class reservoir that is located just outside of Welkom.

SIMON BROWN: [Chuckling] In the middle of the Free State. I was saying to someone, where is helium found? Turns out you find it in the Free State.

One last question. He has had an epic career. I know you’ve been very optimistic about stocks since I think it was in your teens. I was a little late in that regard. In terms of pricing, are you a little ahead of yourself? I see this morning Australia is trading 10% lower, sort of returning some of the most recent pop, even though it is up almost 50% in recent days on the JSE.

ANTHONY CLARKE: Yes. From its low, Simon, in early August this stock is up 166%. As of yesterday it closed on the JSE at R40.90. Yesterday I wrote a 15 page note praising the resource data. We needed as a company to really value the business, but nothing goes up in a straight line.

At some point, a correction has to occur to make it look good as an action.

As you correctly said, in Australia this morning, and I’m looking at the screen right now, it’s down 8.76% to A $ 3.33, which is the equivalent of R37.90 in volumes of R570,000.

Initially in [its] Aussie open, the stock was very, very firmly at around R3.90. So it would have increased in the previous phase; that just didn’t hold up. So far we are with a 9% discount. So I think the JSE will open slightly weaker, but having almost doubled in a month some form of profit taking, as you and I know, is a healthy thing for stocks. But the outlook remains strong for this company. Now you need to invest in phase two.

SIMON BROWN: And for your point, nothing goes up in a straight line.

Anthony Clarke, you will find it on Small Talk Daily on Twitters, I appreciate the early morning.

Listen: Renergen CEO Stefano Marani on his increase in 1P helium reserves (read transcript)

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