What’s going on at Renergen?

You can also listen to this podcast on iono.fm here.

This interview was originally aired on RSG Geldsake (in English, with an Afrikaans introduction that has been translated here).

RYK VAN NIEKERK: Renergen is the company that owns that big gas project near Virginia in the Free State. This gas project apparently contains the highest concentration of helium worldwide. There have been huge expectations from the company. But despite its huge promise, Renergen’s share price has slid 62% in the past year, and since September 24 it 30% down.

This comes in the wake of shareholder activist Albie Cilliers of Cilandia Capital expressing various serious concerns about Renergen. He claims, inter alia, that the former owner of the Virginia Gas Project basically gave away these assets, and the Renergen founders then sold a 90% stake to Renergen for R655 million. So the amount I think mentioned was R5 million, and they sold this for R655 million.

The former owner was an Australian company, Molopo Energy, and it sold the assets because it did not consider them economically viable. Albie Cilliers also published documents that indicate that the founders, Stefano Marani and Ryan Otto, substantially reduced their stake.

Stefano Marani is on the line now. He is the chief executive. Stefano, thank you so much for joining us tonight. There are a lot of clouds over Renergen. There seems to be a lot of negative noise. Before we go into the details, how do you view the events of the past few weeks where there has been a bit of a spat between yourself and Albie Cilliers?

STEFANO MARANI: Good evening and thanks for having me. Yes, there is obviously a cloud of controversy, and really it’s more perhaps a case of misrepresentation or at least a misunderstanding of the facts. This is where I take it on board.

Perhaps the way that the narrative was delivered should have been better. Certainly from my perspective, the way that I engaged with Mr Cilliers on Twitter could definitely have been better.

But to say that there’s a cloud of controversy – the controversy here is obviously that the drop in the share price was a result of the lack of confidence caused by these allegations. But the original facts behind the project remain the same.

The fundamentals from six weeks ago to today remain absolutely the same. We did put out a clarification statement on Sens on Monday that addresses many of these issues and hopefully puts to bed a lot of the questions raised.

Obviously you are always welcome to put more questions to me if you want to unpack anything in more detail. I’ve got nothing to hide. But if you’re going to give the narrative, give the full narrative and the fact that we have also unpacked a lot of this and put to bed many of the questions.

RYK VAN NIEKERK: You see, Renergen is one of the most widely held retail shares on the JSE, especially [by] smaller shareholders, individuals rather than institutions. But let’s quickly go through some of the allegations Albie Cilliers made.

First of all, he said that you and some of the other founders bought the assets of the Virginia Gas Project for around R5 million and then sold 90% of those assets to Renergen for R655 million. That doesn’t sound right. Is that the case?

STEFANO MARANI: If you’re going to look at everything instantaneously at one point in time, then that statement is incorrect.

The fact is that there’s quite a bit of time that passed between when this uneconomically viable asset was acquired for a very, very low sum of money.

Then correspondingly there was a huge amount of work, some enormous discoveries were made along the way and for the first time a meaningful reserve statement was put in place, showing not only the fact that there was helium now in the reserve statement, where there hadn’t been before, it also speaks to the fact that previously there was only a 2P natural gas reserve of 17 billion cubic feet.

Now, these are a lot of numbers. They’re meaningless to people who don’t know the industry, but that [signifies], in oil and gas terms, a stranded asset or one that is economically not viable.

By the time we had spent the following two years after buying it, and putting in a lot of time, effort, and money in making the discoveries that we did, and the drilling and acquiring additional third-party data and borehole data from neighbouring rights, it was at that point that we managed to get an independent qualified reservoir engineer from Canada to come down, verify all of the discoveries that we’d made, and then turn it into an economically viable asset.

RYK VAN NIEKERK: The other allegation is that you and Ryan Otto, or the Otto family, who were significant shareholders in Renergen when the company listed in 2015, sold significant amounts of shares, and that your interest in the company is significantly lower than it was. Fingers have especially been pointed at Ryan Otto, who through the company Tamaryn [Tamaryn Investment Holdings], which in 2016, according to Albie Cilliers, held 43 million shares or 56% of the company, now owns just over 100 000 shares. So basically everything was sold.

Is that the case – did the founders sell out of Renergen?

STEFANO MARANI: From a company perspective and from a personal perspective, let me address my stake first. It’s absolutely false that I reduced my stake.

When I got into the business initially, way back when, I was granted a share allocation through the listing. And then as the company progressed I made one donation – which was publicly announced on Sens – to a family member.

Subsequent to that the only other disposal was actually a net gain of shares. We’ve got a share bonus incentive scheme within the company, and the way that it works is that to the extent that you’re allocated, for instance, 100 shares, 45 shares will be sold to pay Mr Kieswetter [Sars Commissioner Edward Kieswetter], and then the balance of the 55 shares is granted to you. It’s an absolute number of shares.

I’ve actually increased my stake in the business since it started.

Now, when it comes to shareholders of the company, the fact of the matter is – and I know everyone is going to say that I’m hiding behind confidentiality, but you’ve also got to remember that there is a certain level of liability that a company has in terms of disclosing information on shareholders, and this is a public show – I’m not at liberty to disclose on behalf of shareholders their dealings or their actions, and they’re not obliged to report to me on their day-to-day dealings.

The only obligation that I have as the director of the company is to disclose when I get notified of dealings by the shareholder in question. So I can’t necessarily speak to or answer on behalf of a shareholder. That’s just not cricket in the South African context.

RYK VAN NIEKERK: Let’s talk about the operational performance, because you have suffered some technical challenges. You had some pipes that leaked, you have a cold box which is also leaking. Tell us how much helium Renergen has actually produced since you announced that you started commercial production a few months ago?

STEFANO MARANI: We started with commercial production of LNG, and that was the only thing that we ever told the market. We were very, very clear about that.

In terms of how much helium we’ve produced, we produced helium in the helium cold box but, with a leak discovered in the cold box, it was uneconomical to continue. And the only way that we were going to set that right was by repairing the cold box.

And so, instead of protracted periods of attempting to make an inefficient process work, the necessary decision was taken to take the helium module down, get the leak repaired, and now we’re in the throes of recommissioning it and bringing it back online.

So has the plant been capable of producing liquid helium? Yes, it has. Have we sold any helium commercially? No, we have not sold any helium commercially.

RYK VAN NIEKERK: Stefano, thank you so much for your time tonight. That was Stefano Marani, the CEO of Renergen.