Keith McLachlan remains upbeat about Renergen’s helium and LNG prospects

Integral Asset Management CIO Keith McLachlan said he remains positive about Renergen’s ability to profitably produce helium and liquefied natural gas (LNG) despite industry concerns.

McLachlan, under the Blue Gem Research brand, said in May 2023 that Renergen’s first phase would spend the 2024 financial year ramping up production.

“The first production of both LNG and helium during Full Year 2023 has shifted Renergen from developer status to producer status,” he said.

He updated and refined their forecasts in the May 2023 note. “We see Renergen’s current fair value at R64.00 per share with the 12-month target price of a little over R75.00.”

Fast forward a year, and this price target did not age well. Renergen’s share price has plummeted by 60%, trading below R9.00 per share on Monday.

The main reason is that the company has failed to show that it could profitably produce and sell LNG and helium.

It is burning through cash, and its latest financial updates show that it failed to produce and sell helium.

Cilandia Capital investment manager Albie Cilliers highlighted that Renergen’s latest quarterly update was not good.

Renergen produced 1,344 tonnes of LNG in 92 days, translating into 14.9 tonnes per day. This is 28.7% of capacity.

Revenue for the quarter was R11 million, roughly equal to the production cost of R10.7 million.

Cilliers said the quarter’s selling, general, and administrative expenses were R47.5 million, dumping Renergen deeply in the red.

It confirmed that Renergen was hugely loss-making – it is burning through cash to keep the operation going.

“Given that Renergen burned R109 million of cash in the last quarter, it’s difficult to see how they can state that their R60.5 million of cash left is adequate to last them,” Cilliers said.

Renergen risks running out of cash if it does not significantly increase LNG production and sales and starts producing helium commercially.

To date, Renergen has failed to deliver on its helium promises and is well behind its previously provided LNG production targets.

Linde tanker at Renergen’s Virginia site

Despite Renergen’s challenges, McLachlan remains upbeat about the mining company’s prospects.

He told Daily Investor he believes Renergen can produce both LNG and helium profitably despite disappointing operational misses.

“Indeed, it has done the former already, and the latter is near to commercial production,” McLachlan said.

He explained that the models they use for Renergen have been built to rely on the various Sproule reports published.

“Sproule is a very respected external party to Renergen and, thus, I consider that report the single most reliable evidence of the potential value of the underlying gas resource,” he said.

“Using the Sproule reports, any model on Renergen has had to make assumptions.”

These assumptions include size, quantum, various spot prices and exchange rates, timing, and end-dilution to shareholders for the Virginia Project.

These are major variables and changes in them over time can significantly affect Renergen shares’ potential value.

“This is the nature and risk of building models for an exploration company when the research you are referring to was published,” he said.

Referring to the Sproule Reports as the basis of the confidence in the gas resource, he said the only likely uncertainties are the timing of production and not the existence of the gas.