Renergen accused of misleading helium claims

Renergen is accused of running a comprehensive public relations campaign, which created a misleading perception about its helium production.

Concerns were raised following Renergen’s interim results, which showed it only generated R23.76 million in revenue with a net loss of R43.5 million.

What stood out was that all the revenue came from selling liquefied natural gas (LNG) to two customers.

Renergen CEO Stefano Marani confirmed that they had not sold any helium during the reporting period.

He said they have only started with the commercial production of LNG, claiming it was the only thing they have told the market.

However, this claim is questionable. On 8 March 2023, Renergen said the first phase of the Virginia Gas Project had produced both liquid helium (LHe) and LNG.

“Phase 1 of the Virginia Gas Project has commenced commercial LNG and liquid helium operations,” it told stakeholders.

Marani explained that they had started to produce helium but that a leak in the helium cold box halted production.

“The leak in the helium cold box necessitated its removal for repair with a corresponding return and reintegration back into the plant,” he said.

“This requires downtime, so we decided to bring forward the annual maintenance to coincide with this reintegration.”

Marani explained that while the plant is capable of producing helium, they have, to date, not sold any helium.

The share price plummeted on the news, which is unsurprising considering Renergen’s previous guidance regarding helium production.

Since its JSE AltX listing on 9 June 2015, Renergen consistently promised investors strong revenue from LHe production.

In May 2016, Renergen announced signing a major helium deal with Afrox. It said this deal would enable Afrox to locally source and supply helium by 2018/19.

After the 2019 deadline was missed, Renergen provided new guidance regarding commercial LHe production.

In August 2019, Renergen said it would produce 350 kg of LHe daily by 2021. Again, this did not materialise.

In the latest update, published in October 2023, Renergen promises to start producing helium by the end of 2023.

“Commissioning is on track to commence production of LHe before the end of this calendar year,” Renergen said.

Allegations of a misleading public relations campaign

Renergen was widely associated with aggressive social media and public relations campaigns to promote its operations.

Marani said they had decided to scale down these campaigns, letting their operations speak for themselves.

However, it did not stop the company from investing in paid market researchers to produce reports and promote the stock.

A controversy developed after some paid researchers promoted Renergen in prominent financial publications without disclosing that they were paid.

Earlier this year, the company also organised a tour with high-profile journalists, investors, and analysts to its Virginia Phase 1 plant.

This is a common strategy among many companies to give credibility to their operations through using well-known people.

The attendees reported that they had been shown that helium was produced with a truck ready to take it to clients.

However, there was a concern. Cilandia Capital’s activist investment manager, Albie Cilliers, said, “The whole show with journalists, a Linde tanker, and cryogenic pipes was indeed fake”.

“Journalists also do not have engineering knowledge to know what they should have been looking for on such a trip,” he said.

He said they were not equipped to assess if LHe was produced and check the valves to see if any LHe was pumped into the ISO tanker.

There were also questions about why there would be a tanker at the plant, as Renergen had never produced commercial LHe or sold it to clients.

Marani previously said companies who buy helium from them are responsible for the transport and logistics.

“The helium is sold ex-work. The customers come to the site and collect the helium over here. They are responsible for getting their trailers in and out,” he said.

He added that Renergen does not get involved in the helium logistics in Phase 1.

As Renergen has not sold any helium, there was no reason for a helium tanker, which was supposedly being filled, to be on site.

“What is clear is that the public and investors were made to believe that liquid helium was being produced by Renergen and pumped into an ISO tanker,” Cilliers said.

Daily Investor asked Renergen for a timeline regarding its helium operations, but despite a promise to respond, it did not provide feedback.

It also did not provide feedback on what it did with the helium it said it produced before taking the plant offline to fix the cool box.

Questions raised about Renergen’s liquid helium price projections

Renergen’s ambitious earnings estimates – EBITDA of between R5.7 billion and R6.2 billion by 2027 – assumed a long-term spot price of $600 per thousand cubic foot (MCF) of helium.

Over the past few years, global helium demand has passed supply, causing prices to increase.

2022 was an especially difficult year for helium users as one of the world’s largest producers, the US Cliffside helium plant, experienced an unexpected shutdown.

Gazprom, a Russian natural gas extractor and helium producer, also experienced an explosion and a fire at its Helium extraction facilities. It halted its helium operations.

These simultaneous events created a significant helium shortage in 2022, causing prices to boom.

According to an annual United States Government Survey report, helium prices have hovered around $200 to $210 per MCF since 2016.

In 2022, the sudden supply shortages saw helium prices surge to $310 per MCF. This was the highest price in a decade.

Even at these elevated levels, it is still significantly lower than the $600 per MCF of helium that Renergen based its estimates on.

The chart below shows Renergen’s price estimates compared to historical liquid helium prices.