Burning cash at the rate of knots

Renergen CEO Stefano Marani famously said, ‘Cash is king.’ However, the company faces a cash crunch with huge expenses and very low revenue.

Renergen’s 2024 Integrated Annual Report revealed that it generated R29 million in revenue over the last financial year.

To put the revenue amount in perspective, it is not much more than the R17 million it paid its top three executives last year.

It recorded a loss of R110 million, up from R27 million the previous year. This was mainly because of an operating loss of R135 million for the year.

The company further revealed a negative cash flow of R54 million for the 2024 financial year.

Simply put, Renergen’s cashflows paint a picture of a company that is dependent on external funding to operate.

It does not generate meaningful cash inflows from selling LNG or liquefied helium.  In fact, it had not sold any helium.

Since Renergen was listed nine years ago, it has only recorded operating cash flow deficits. It means it can’t sell its LNG gas for more than it costs it to operate the business.

The chart below shows Renergen’s net operating cash flows over the last five years.

Renergen has also experienced significant cash outflows as it has to subsidise its operations and fund its plant expansions.

Renergen has been funding the expansion by borrowing large amounts of money and by raiding money from investors.

The company’s interest-bearing debt has skyrocketed from around R40 million in 2019 to R1.24 billion in its latest annual report.

There has also been a big increase in Renergen’s list of creditors. This means it is borrowing money from more lenders as time progresses.

Renergen’s lenders include Molopo Energy, DFC USA IDC, IDC, Standard Bank South Africa, and Airsol.

The interest cost to service this debt has become a significant line item in Renergen’s books. It reached R23 million for the latest financial year.

This is a major expense if one considers that Renergen only generated revenue of R29 million over the same period.

The table below summarises Renergen’s debt, which grew from R911 million to R1.2 billion over the last year.

Renergen Debt ‘000201920202021202220232024
 Molopo Energy R34,498 R38,940 R43,053 R46,761 R51,036 R46,960
 DFC USA IDC R  –   R312,242 R491,240 R614,004 R678,180 R624,181
 Convertible Notes R5,179 R  –   R –   R –   R  –   R –  
 IDC R –   R –   R –   R162,075 R181,799 R173,437
 SBSA R –   R –   R –   R –   R  –   R333,798
 AIRSOL R –   R –   R –   R –   R  –   R57,753
Total  debtR39,677R351,182R534,293R822,840R911,015R1,236,129

The large amount of debt that Renergen has taken on over the past few years has kept the company’s cash flow positive and helped it cover expenses.

However, the debt has been piling up, and with it, the interest cost to service it.

Renergen’s operations are incredibly small at the moment and nowhere near the levels that the company promised investors.

Itis generating revenue breadcrumbs in comparison to the guidance it gave investors.

Without operations picking up and the company selling large amounts of LNG and helium, it has no way to repay its debt.

With its current revenue, Renergen cannot repay its debt by itself. The only way it can is by turning to investors.

Renergen recently received a R550 million investment from BEE investor Mahlako Gas Energy for a 5.5% stake in Tetra4 (Renergen’s primary asset).

Renergen said that part of the proceeds from the MGE transaction would be used to progress the Virginia Gas Project (VGP) construction.

The company added that the remainder of the R550 million was to be used to repay the debt owed to Standard Bank South Africa.

However, since the funds were received, most of this cash injection was used to pay off R418 million in debt.

This means, at best, that a very small portion of the R550 million investment would be allocated to the expansion of the VGP.

In the span of about three months, virtually the entire investment has been used to pay off debt.

Within a quarter, the large cash injection has been depleted without any expansion to show for it.

In the last quarter, Renergen took on an additional R75 million loan in addition to Mahlako Gas Energy’s R550 million.

This means it undid a big portion of the debt repayment it made with the R550 million investment.

Despite the R75 million debt cash inflow, Renergen only has a little over R60 million left in cash.

In the last quarter alone, Renergen had an operating cashflow deficit of R48 million, which means that it does not have much time left before the R60 million runs dry.

Until Renergen can produce meaningful LNG volumes and at least start selling some helium, it will continue to rely on additional sources of funding to cover its losses.

It raises the question of what will happen when these sources run dry.