JSE-listed integrated alternative energy business Renergen plans to undertake a dual listing on the ASX on completion of a fully underwritten R125-million rights issue to shareholders.
Commenting on the proposed upcoming ASX listing, which is scheduled for early 2019, depending on market conditions, CEO Stefano Marani says the listing, if successful, will give Renergen the international exposure it requires and will also act as a global showcase for foreign investors on the prospects for natural gas in South Africa.
Marani, meanwhile, expects global market conditions to improve in 2019, with positive signs coming out of the negotiations between US President Donald Trump and Chinese President Xi Jinping.
In terms of the rights offer, the company will offer just over 16.6-million ordinary shares to Renergen shareholders at a subscription price equal to R7.50 a share, to raise R125-million, before expenses, in the ratio of almost 20-million rights shares for every 100 ordinary shares held.
This funding, once available, will allow the company to draw down on the debt facility of R218-million being provided by the Industrial Development Corporation (IDC) of South Africa, which will be applied to the expansion of its Virginia gas project to produce helium and liquefied natural gas (LNG).
A precondition of unlocking the IDC loan facility, Marani tells Engineering News Online, is that the company had to raise an additional R100-million, which has now been completed through the rights issue.
However, also critical to unlocking the IDC funding is the quality of offtake agreements for both helium and LNG sales that the company has with blue-chip customers.
The company has gone to tender from equipment suppliers for its Virginia gas project and intends to award contracts early next year.
With helium cited as an “extremely specialised commodity”, Marani notes that the shortlisted companies that are able to work in this field are in the process of submitting tenders.
The process to reaching production involves, besides others, the construction of a low-pressure pipeline to join the wells, the importation of natural gas and helium liquefiers, as well as the installation and connection of all the equipment.
Nine bidders are expected to submit bids within the next few weeks for the construction portion of the project.
Timelines on the project’s production can only be confirmed once tenders have been awarded. Marani, however, remains optimistic that the turn-on and first supply will take place in 2020.
Marani further tells Engineering News Online that the US’s shutdown of strategic helium reserves has “further improved the company’s prospects, given increased global demand for helium and decreased global supply”.
He explains that there is a deficit between production and consumption of helium reserves, which amounts to nearly one-million cubic feet a year.
Global consumption has reached an estimated seven-billion cubic feet a year, according to independent researchers, while global supply is just shy of about six-billion cubic feet.
This deficit, Marani elaborates, was being subsidised by the Bureau of Land Management in the US, which held its last auction in August this year.
Subsequently, prices for this natural gas have increased by 135%, he notes.
Renergen, while bolstered by its “world-class” helium reserve and unique bacterially formed methane project in South Africa, is unlikely to make a massive dent in reducing the global deficit.
“I believe that we are capable of doing, based on our proven reserves, around between 30-million to 50-million cubic feet a year [of helium supply].”
Renergen, however, has the potential to become a significant global player, he enthuses, considering that it has discovered a sandstone reserve with a helium concentration of around 11%. The global average is about 0.5%.
“11% is unheard of concentration. We need to do a little bit more work, and it’s difficult to give accurate projections, but we believe that once we have explored that field, and once we get a better understanding of the flow rates and what it’s going to take to get the helium out, Renergen has the potential to become a significant global player,” he further enthuses.
More geological work needs to be completed, with positive geological updates expected for 2019. This will happen in tandem with the pipeline and plant construction at the Virginia gas project.