SHARES

Financial Mail - Investors Monthly - - Contents - Stafford Thomas

Afrox, Ren­er­gen, Nu-World, Oc­todec

Be­ing listed on the JSE AltX board and with a mar­ket cap of un­der R1bn, Ren­er­gen is not on many in­vestors’ radars. There is good rea­son to be­lieve it will not al­ways be the case for this al­ter­na­tive and re­new­able en­ergy group.

In Au­gust 2015, Ren­er­gen ac­quired a 90% stake in Molopo SA Ex­plo­ration & Pro­duc­tion, sub­se­quently re­named Te­tra4. Te­tra4 is the only holder of on­shore nat­u­ral petroleum gas ex­plo­ration rights in SA.

When the deal was struck, Molopo had al­ready proved the ex­is­tence of a sub­stan­tial re­serve of meth­ane gas. As a bonus the re­serve also con­tains a high con­cen­tra­tion of he­lium.

Te­tra4 has se­cured pro­duc­tion rights over a sub­stan­tial 187,000 ha sin­gle block in the Free State around Vir­ginia, Welkom and The­unis­sen. It also holds nat­u­ral gas ex­plo­ration rights over a fur­ther 98,000 ha in the same area and 52,000 ha around Evan­der, Mpumalanga.

Ex­plo­rative drilling is on­go­ing in the main 187,000 ha block, known as the Vir­ginia project. With it comes a ramp­ing up of proven reserves. “Proven reserves are in­creas­ing as we gain more ge­o­log­i­cal in­for­ma­tion,” says Ren­er­gen CEO Ste­fano Marani.

In the lat­est as­sess­ment of the Vir­ginia project’s reserves

un­der­taken in mid-2016 by in­ter­na­tional con­sul­tancy Ven­myn Deloitte, proven reserves were put at 32.4bn cu­bic feet (cf) and val­ued at R2.2bn.

In all prob­a­bil­ity, the Vir­ginia project’s reserves are sig­nif­i­cantly higher. Ven­myn Deloitte put proven and prob­a­ble reserves at 100.9bn cf and proven, prob­a­ble and pos­si­ble reserves at 256.4bn cf.

How­ever, proven reserves are al­ready suf­fi­cient for Ren­er­gen to meet its strate­gic ob­jec­tives. “We have the crit­i­cal mass we need,” says Marani. “Any in­crease in proven reserves from now on will add fur­ther blue-sky po­ten­tial.”

The Vir­ginia project’s re­serve also has an amaz­ing char­ac­ter­is­tic. “It is in a con­stant state of re­gen­er­a­tion,” says Marani. “It is the first meth­ane re­serve in the world found to do this.”

Ren­er­gen has al­ready taken the first im­por­tant step in the com­mer­cial­i­sa­tion of its meth­ane re­serve. In May 2016 it be­gan sup­ply­ing com­pressed nat­u­ral gas (CNG) to Me­gabus, a unit of KAP’s Uni­trans lo­gis­tics di­vi­sion. CNG is used to power 10 buses op­er­at­ing from Me­gabus’s Vir­ginia de­pot.

“Cost sav­ings are quite sig­nif­i­cant,” says Marani. “CNG is cheaper than petrol or diesel and also al­lows far longer in­ter­vals be­tween oil changes.”

There is a mis­con­cep­tion — born out of fire risks meth­ane cre­ates in some mines — that meth­ane is a dan­ger­ous gas.

“Meth­ane is a lot safer than petrol and diesel and vastly safer than LPG (liq­ue­fied petroleum gas),” he says.

Ren­er­gen’s he­lium re­serve also rep­re­sents a valu­able as­set. “Our re­serve has a con­cen­tra­tion of 3%-4% by vol­ume (of meth­ane),” says Marani. “It is one of the high­est con­cen­tra­tions in the world.”

The he­lium re­serve grabbed the at­ten­tion of the world’s largest in­dus­trial gas com­pany, Linde Group, owner of a 53% con­trol­ling stake in Afrox. Ren­er­gen and Linde en­tered into an agree­ment in May 2016 to com­mer­cialise the re­serve.

A plant which will sep­a­rate the he­lium from meth­ane is un­der con­struc­tion and due to be­gin pro­duc­tion in 2018 or 2019. “Afrox will op­er­ate it and dis­trib­ute the he­lium for which we will be paid an in­ter­na­tional mar­ket-re­lated price,” says Marani.

Ren­er­gen is no low-risk in­vest­ment, but it is one with ex­cit­ing prospects, high­lighted by its abil­ity to at­tract KAP, Linde and Afrox as part­ners.

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