After the Bell: Can Renergen still cook with gas?

What an extraordinary investment story Renergen’s Virginia Gas Project in the Free State has turned out to be. The latest twist, as if there weren’t enough already, is the involvement of social media in the form of a very critical commentator on Twitter (now X). 

It’s all been enough to drag the share price down by 40% this year, although over the past week, it bounced back a bit. But there is a larger issue at stake: to what extent do SA investors have the confidence to back longer-term projects? From this case, it appears very little, and that is in itself something of a problem.

The story so far, in case you haven’t been following it, is that Renergen is SA’s only inland liquefied natural gas (LNG) and helium mining company because of its gas project in Virginia in the Free State. Ironic, I suppose, it being a virgin project. Ba dum tss…

In fact, we’ve known that there were LNG deposits around Virginia for years, but they were deemed uneconomic. After Renergen bought the reserves in the early 2010s for $1, better testing methodology indicated that the methane reserves estimated to be 18Bcf (billion cubic feet) were more like 82Bcf. And they included high levels of helium.

That was what might be described as “encouraging” and the company set about establishing a mine, which involved the tricky business of raising cash and a listing via a special purpose acquisition company in 2020. The share price drifted along for a year or so, but as the company got closer to actual production, the share price took off, at one stage last year reaching over R41 a share. 

This was preceded by a string of boosterish announcements, including but not exclusively the announcement in 2021 about “Over a 600% increase in 1P Helium reserves”. According to Renergen’s plan, it will produce 50 tonnes of LNG and 350kg of helium per day in the fully funded first phase of the project. 

The second phase of the project is monumentally more ambitious: to produce 700 tonnes of LNG and five tonnes of helium per day. I’m sorry, but it’s impossible not to say it: if they achieve this, the company really will be cooking with gas. 

Anyway, things were going swimmingly (apparently) until a self-styled activist investment manager, Albie Cilliers, earlier this year accused the company of misleading stakeholders about the progress of its helium production. 

It turns out the company had two separate leaks in its systems. I presume this is not good when you are dealing with gas. The leaks were acknowledged, quietly, but the question is whether the full implications were fully acknowledged. The leaks, the company says, have been fixed.

In response to the tweets, however, Renergen CEO Stefano Marani reacted curtly, coming close to threatening Cilliers. Marani told Cilliers his comments were “sailing close to the wind”, and in response to another post questioning the reported fault in the cold boxes, Marani said: “The JSE has clear rules on misinformation.” Well, that really got up Cilliers’ nose — as it should have — and he has continued his campaign.

Anyway, last week Renergen retracted and put out a detailed Sens statement answering some, but not all the questions Cilliers and others have raised. I have to say, I think this was the right thing to do, and the answers were impressively forthright.

So, where do we stand now? For me, Renergen still has some questions to answer and some points to prove. First and foremost I suspect it needs to demonstrate that the first phase of the project is producing at nameplate capacity, which the company says it will be doing in the first half of next year. 

Investors are now tetchy and worried. The income figures the company has put out are kinda low, but the company has said there was always going to be a “build-up” process. There are a whole bunch of investments Renergen was supposed to be getting, but it is understandably constrained from pre-announcing. Still, it does mean it’s difficult to estimate the cash burn rate. Everything seems to be taking longer than expected.

But, you know, my father always used to say that if there is one absolute, unshakable rule of construction projects, it’s that they will take longer and cost more. When you stand outside a complicated construction project, it’s almost impossible to imagine all the things that can go wrong. And as we know from a certain Mr Murphy, if things can go wrong, they will. 

I really hope this all comes right; I think SA investors need examples of ambitious investment projects that succeed. But I applaud Cilliers too. It’s far too easy for companies to present only the good news and forget that what investors want is not always just cheerleading. In the end, what they want is honesty. DM