Renergen on ‘much stronger footing’, despite Covid-19 headwinds

31st May 2021 By: Simone Liedtke - Writer

With the financial year, ended February 28, having been an “exciting” one for natural gas producer Renergen, the company believes it is on a “much stronger footing” towards becoming a significant helium and liquefied natural gas (LNG) producer, despite headwinds presented by the Covid-19 pandemic.

Despite a slow start to the financial year, which saw headline earnings for the year decrease by 23% to 36.29c a share, Renergen completed the design of the Virginia gas plant, in the Free State, in June 2020 – 22 days ahead of schedule.

The company’s loss a share decreased by 23% to 36.29c a share during the period.

Meanwhile, the customer base for the LNG produced at the Virginia gas plant will predominantly be logistics companies operating trucks along the main routes across the country, with a significant portion of the initial production already allocated to customers.

Renergen’s strategic partnership with Total, which also started in June 2020, “could not have come at a better time”, the company enthuses, as this strategic tie-up adds credibility to the Virginia gas project and gives the company access to strategic sites on which to establish filling stations to dispense LNG to customers.

The conclusion of the agreement between Total and Renergen is considered a win-win for both entities, making Total part of the rollout of the first LNG in South Africa, which aligns with its global strategy of becoming the largest supplier and distributor of LNG.

Renergen says the agreement also enables the Renergen group to add the N1 route between Johannesburg and Cape Town as another major transport corridor for LNG, as the N1 carries the most refrigerated trucks in the country.

Currently, however, the construction of the Virginia gas plant is ongoing and is nearing completion.

Renergen made a second drawdown against the Development Finance Corporation (DFC) loan facility to fund the ongoing construction of the plant, which is expected to become operational in the fourth quarter of this year.

During the year under review, Renergen also designed and patented the Cryo-Vacc for the efficient transportation and storage of cold biologics for periods of up to 25 days or longer in transit, where access to an external power source is not possible.

Overall, the company says it has made significant progress in a very short space of time, from developing the concept in December 2020, to having a working prototype entering clinical validation just after the middle of March this year.

The completion and successful operation of Renergen’s first Cryo-Vacc prototype was announced on February 21.

Further, the global helium market is expected to grow at an average rate of 11% by 2023, and this growth, Renergen says, is expected to be driven by the growing demand from the healthcare, technology and aerospace sectors.

The decline of existing helium supply sources, particularly in the US Bureau of Land Management’s (BLM) system, are causing industrial gas companies and distributors to seek new sources of helium supply, the company explains.

FINANCIAL REVIEW

Renergen’s revenue decreased by R700 000 and was impacted by the Covid-19 lockdown which resulted in Renergen subsidiary Tetra4 not trading in April and May 2020. Operations resumed in June 2020.

The group’s other operating expenses declined by R14.7-million primarily owing to a decrease in listing costs of R6-million (impacted by ASX listing in the prior year) and net foreign exchange losses of R6.1-million.

Share-based payment expenses decreased by R5.3-million, with the prior year expense including shares granted to advisers pursuant to the listing of the company on the ASX.

Following completion of the Virginia gas plant design, Renergen spent an additional R163.1-million on assets under construction classified within property, plant and equipment (PPE).

The group also capitalised exploration expenditure totalling R23.2-million under intangible assets.

Further investment on Renergen’s non-current assets was partly funded by a second drawdown of $12.5-million (about R216.3-million) on the DFC loan facility, which occurred in June 2020.

This resulted in an increase in total borrowings by R183.1-million. Unrestricted cash resources of the group decreased by R10.1-million.

The net asset value of Renergen decreased by R40.8-million impacted mainly by an increase in debt and the loss for the year offset by the additional investment in PPE and intangible assets.

OUTLOOK

The outlook for the 2022 financial is said to be “promising” and is expected to be the most significant year for the group, to date, with the commissioning of the Virginia gas plant, sales of the first commercially available LNG in South Africa and sales of the first locally produced liquid helium.

Added to this is the manufacture and sale of the group’s patented Cryo-Vacc system for unparalleled biologics cold-chain solutions, which Renergen explains “not only demonstrates an untapped use for helium but also the group’s approach to innovation being at the forefront of its strategy”.