Renergen finances raise concerns

Delving into Renergen’s latest finances and promises to shareholders reveals why investors are dumping the stock.

Renergen’s financial results for the six months ended 31 August 2023 revealed revenue of R23.8 million and net losses widening to R43.5 million.

The results disappointed investors, and the share price continued its decline. Since April 2022, Renergen has lost 70% of its value.

While the latest results were disappointing, it is only part of the reason why many investors have lost trust in the company.

Renergen had consistently missed its targets, and while talking a big game around helium, it has not proven that it can make money from this commodity.

In May 2016, Renergen CEO Stefano Marani said they had signed a deal with Afrox and would be producing helium in the 2018/2019 financial year.

Marani described the deal as a “monumentous occasion” for Renergen, adding that it will supply 100% of the country’s helium needs.

This deal has not amounted to anything as yet, and it is unclear whether the commercial agreement is still in place.

In August 2019, the company told investors that it would be producing 350 kg of liquid helium (LHe) per day by 2021.

Again, this deadline came and went without any liquid helium production. To this day, Renergen had not sold any helium.

Phase 1 of its Virginia Gas Project, which Marani described as a proof of concept, has, to date, been a big disappointment.

It has not shown that Renergen can meet deadlines or produce liquefied natural gas (LNG) or liquid helium profitably.

This concerned many investors but is only part of the concern stakeholders raised about the company’s performance and promises.

Some of Renergen’s price, revenue, and earnings targets also seem misguided based on publicly available information.

One of the main questions is how Renergen plans to meet its earnings before interest, taxes, depreciation and amortisation (EBITDA) target of around R6 billion by 2027.

In March 2023, Renergen said its Virginia Gas Project could generate an estimated R5.7 billion to R6.2 billion in EBITDA once the Phase 1 and 2 plants are fully productional.

Marani said they expect to produce 2500GJ to 2700GJ of LNG per day and between 300 kg and 350 kg of liquid helium per day from the phase 1 expansion.

He told Matador Investments in October of 2022 that he expects to sell LNG between the high R200 and low R300 mark.

He added that they will sell helium between $55 and $60 per kg and that the plant expects to be operational for 345 days per year.

Based on these estimates, Renergen should produce revenue of between R347 million and R421 million when phase 1 is fully operational.

Phase 2 is significantly larger. Renergen said it would produce 4,200 kg of LHe per day and 34,400 GJ of LNG.

Using Marani’s previous price guidance, the combined LHe and LNG phase 2 revenue should be around R5.1 billion.

Adding Phase 1’s production, Renergen should generate around R5.5 billion in total revenue when Phase 1 and Phase 2 are fully operational.

The company’s R5.7 billion to R6.2 billion EBITDA guidance, therefore, seems misguided and in conflict with its possible revenue figures.

Daily Investor asked Renergen how it reached its high EBITDA, considering the publicly available information about pricing and production targets.

However, the company did not respond to these questions by the time of publication.

The table below shows Renergen’s peak revenue from the Virginia Gas Project based on information shared by the company and its CEO.

Renergen Revenue	Volume	Price	Revenue
Phase 1	–	–	–
Helium	350 kg per day	R1,094 per kg	R132,063,309
Liquefied Natural Gas	2,400 GJ per day	R300 per GJ	R248,400,000
Total phase 1	–	–	R380,463,309
Phase 2	–	–
Helium kg	4,200 kg per day	R1,094 per kg	R1,584,759,708
Liquefied Natural Gas GJ	34,400 GJ per day	R300.00 per GJ	R3,560,400,000
Total phase 2	–	–	R5,145,159,708
Total phases 1 & 2	–	–	R5,525,623,017