Raisebook

Emerging Helium Producer | One of the Richest Concentrations Recorded Globally
Renergen Limited
Renergen Limited
ASX:RLT
  • ASX investment exposure to helium - a rare, finite commodity with strong demand and supply fundamentals.
  • Helium BLM auction prices have increased by over 460% since 2007.
  • South Africa’s first commercial LNG project, with expected near term helium and LNG production
  • Helium reserves (3P) of 6.86 Bcf and contingent helium resources of between 7.9 Bcf and 20.9 Bcf
  • One of the richest helium concentrations recorded globally - with an average helium concentration of 3.4%, with its most recent well producing 11% helium.
  • Helium becomes economically viable to extract from natural gas at concentrations as low as 0.1%.
  • The company has a fully termed take-or-pay helium offtake agreement with Linde Global Helium to satisfy consumption in South Africa to a maximum annual volume of 24,000 mcf.
  • There is a ready domestic market for the Company’s LNG product, having entered into gas sales agreements with Megabus, Anheuser-Busch and Black Knight Logistics
  • 12 existing economically viable wells, which under Stage One of the expansion simply need to be connected to the New Plant, with no additional drilling required;
  • All regulatory approvals required to move into full scale production;
  • Significant exploration upside, with the Virginia Gas Project production right covering 187,427 hectares under a 23-year remaining term, as well as Tetra4’s additional onshore petroleum Evander Exploration Right in South Africa.
Raise Amount
$5,000,000
Offer Price
$0.8000
Closes
May 22, 2019

Renergen Limited is an emerging producer of helium and liquefied natural gas (LNG), with existing production and sales of compressed natural gas (CNG).

Renergen’s principal asset is its 90% shareholding in Tetra4 Pty Ltd, which holds the first and only onshore petroleum production right in South Africa - giving it first mover advantage on distribution of domestic natural gas. The production right was issued by the DMR and is valid for 23 years.

Tetra4’s Virginia Gas Project is located in the Free State province of South Africa, about 250 km southwest of Johannesburg and represents a major global helium resource and a significant natural gas resource.

The gas fields are situated in an energy scarce area, with high customer density and limited competition.

The natural gas contains one of the richest helium concentrations recorded globally.

The average helium percentage ranges between 2% and 4% and its most recent production well drilled in September 2016 produced 11% helium.

Renergen is undertaking a significant near-term expansion of the Virginia Gas Project to produce liquid helium and liquid natural gas (LNG).

Tetra4 has a ready market for its LNG product having entered into gas sales agreements with Megabus, Anheuser-Busch and Black Knight Logistics.

Tetra4’s CNG Plant has been in operation since May 2016, replacing diesel by supplying less carbon-intensive natural gas to Megabus, a division of KAP Industrial Limited, at its depot in Virginia. The plant will commence supplying CNG to a filling station in Johannesburg for Anheuser-Busch during H1 CY2019.

Tetra4 has entered into a fully termed take-or-pay helium offtake agreement with Linde Global Helium for up to a maximum annual volume of 24,000 mcf to satisfy its liquid helium consumption in South Africa.

Renergen was listed on Johannesburg’s AltX securities exchange in June 2015 as South Africa’s first listed alternative and renewable energy company, and has a current market capitalisation of approximately $77.7 million AUD.

The Offer

Renergen Limited is offering CHESS Depository Interests (CDIs) over ordinary Securities in Renergen Limited (Registration number: 2014/195093/06; ABN 93 998 352 675), a company incorporated in South Africa.

The issue price is $0.80 per CDI to raise a minimum of $5 million with the right to accept oversubscriptions up to a further $5 million.

Each CDI will represent 1 Share in the Company.

To download the Disclosure Document and participate in this Offer, please click on the ACCESS DISCLOSURE DOCUMENT button on this page.

Anyone who wants to acquire the securities will need to complete the application form that will be in or will accompany the Disclosure Document.

Before making an investment decision, potential investors should read the Disclosure Document entirely, and seek professional financial advice.

There are risks associated with an investment in the Company that may affect its financial performance, financial position, cash flows, distributions and growth prospects and the price of CDIs.

The South African economy is vulnerable to market downturns, currency fluctuation and economic slowdowns elsewhere in the world, and, generally, investing in emerging markets such as South Africa involves greater risk than investing in more developed markets, including in some cases significant legal, economic and political risks.

A complete set of risks is included in Section 7 of the Disclosure Document.

What are CDIs?

The ASX uses an electronic system called CHESS for the clearance and settlement of trades on the ASX.

Renergen is incorporated in South Africa which does not recognise the CHESS system of holding securities. Accordingly, to enable companies such as Renergen to have their securities cleared and settled electronically through CHESS, depositary instruments called CDIs are issued.

CDIs represent the beneficial interest in the underlying shares in a foreign company such as Renergen and are traded in a manner similar to shares of Australian companies listed on the ASX.

Each CDI of Renergen will be equivalent to one Share. Renergen will apply for quotation of the CDIs on ASX under the ticker code RLT.

Key Offer Statistics

Based on Minimum Subscription With over $5 million of over subscriptions
Ratio of CDIs per Share 1 1
Offer Price per CDI $0.80 $0.80
Gross proceeds of the Offer (before costs and expenses) $5,000,000 $10,000,000
Total number of CDIs available under the Offer 6,250,000 12,500,000
Number of Shares held by Existing Shareholders before the Offer 100,135,752 100,135,752
Total number of shares on issue at Completion (on an undiluted basis) 106,385,752 112,635,752
Indicative market capitalisation of the Company at Completion at the Offer Price (on an undiluted basis) $85,108,602 $90,108,602
Options on issue at Completion (over Shares or CDIs) 5,787,359 6,068,609
Indicative market capitalisation of CDIs listed on the ASX (on a fully diluted basis, that is, on the basis that all Options over shares are exercised) $9,629,887 $14,854,887
Indicative market capitalisation of Shares listed on the AltX (on a fully diluted basis, that is, on the basis that all Options over CDIs are exercised) $80,108,602 $80,108,602

Note: please see the Disclosure Document for more details of the offer statistics.

Key Dates

Date
Closing Date of Offer (5pm) 22 May 2019
Issue of New CDIs under the Offer 27 May 2019
Expected despatch of holding statements and confirmation advices 28 May 2019
CDIs expected to commence trading on ASX on a normal (T+2) basis 31 May 2019

All times are in AEST unless otherwise indicated.

Why is helium important?

Helium is a vital and irreplaceable element in many modern industries.

Helium is used for space exploration, rocketry, high level science, in the medical industry for MRI machines, fibre optics, electronics, telecommunications, superconductivity, underwater breathing, welding and nuclear power stations and lifting balloons.

There is no way of manufacturing helium artificially and existing naturally occurring resources are finite.

Demand for helium

Helium is a rare commodity and becomes economically viable to extract from natural gas at concentrations as low as 0.1%.

The Virginia Gas Project’s average concentration of helium is 3.4%, placing Tetra4 at the forefront of exciting new discoveries for global helium supply.

There is likely to be a global shortage of helium supply starting in 2019 and continuing until new planned projects in Qatar and Russia come online, planned for 2020, and around 2021 or 2022 respectively.

Depletion of the US-based Hugoton Field places additional supply constraints from 2023 onwards.

Background of Virginia Gas Project

The exploration right of Tetra4 for the Virginia Gas Project covers a large area where gas emitting boreholes were identified through other mineral exploration activities.

Several of these boreholes are flowing gas at high production rates, with high concentrations of helium, and have been doing so for decades.

The Virginia Gas Project also benefits from being in operation, with a pilot compressing station producing CNG for use in buses in the area.

Following the DMR’s award on 29 September 2017 of an Environmental Authorisation to construct all mid-stream and downstream facilities, Tetra4 has met all regulatory deliverables and contractual award of the New Plant is expected by June 2019, followed by completion and commissioning within 21 months.

Tetra4 intends to decommission the compression station and begin exclusively producing LNG and liquid helium once the New Plant is operational.

Tetra4’s natural gas offers a less carbon-intensive substitute for South Africa’s existing transport fuel, thermal fuel and power.

The gas fields are situated in an energy scarce area, with high customer density and limited competition.

Current Operations

Tetra4 is currently producing and selling CNG on a small scale from its existing CNG Plant, which can produce up to 200 GJ per day of gas from one well.

The CNG Plant includes a compression station, mobile storage units and a dispensing station located at the site of Tetra4’s customer, Megabus, which has been successfully trialling replacement of diesel with Tetra4’s CNG product in its buses since May 2016.

The CNG Plant commenced operation in May 2016 and was operating per design specifications since September 2016. The operation has been successfully supplying dedicated CNG buses in the area and has served its purpose of proving the business case for the substitution of CNG for diesel by local fleet operators.

Tetra4 will commence supplying CNG to a filling station in Johannesburg for Anheuser-Busch during H1 CY2019.

Once the New Plant is operational, CNG production will cease at the Virginia Gas Project and will be replaced with LNG.

Renergen’s Future Plans

The expansion will occur in stages.

Stage One involves connecting 12 existing gas wells to a new gas pipeline and constructing the New Plant for helium and LNG with a maximum daily production capacity of 74.6 mcf (or about 350 kg) of liquid helium and 2,700GJ (or about 50 tons) of LNG.

Contractual award of the New Plant is expected by June 2019, with completion and commissioning within 21 months.

Stage One is fully funded as a result of the Company completing a rights issue that raised ZAR125 million (or about $11.8 million) in November 2018 and committed debt funding of US$40 million (or about $56.3 million) from OPIC.

The conditions to OPIC’s committed debt funding include execution of formal agreements on or prior to 30 September 2019.

Renergen will commence Stage One of the expansion regardless of whether the Minimum Subscription is raised.

Use of Funds

The funds raised under the Offer will primarily be used to fund the drilling of additional production wells in Tetra4’s proven gas reserves, aiming to produce gas to operate the New Plant at maximum capacity.

The funds will also be used to partially fund a feasibility study for the commercialisation of the high concentration helium reserves contained in the Virginia Gas Project’s prospective sandstone deposit.

Subject to the outcome of this study, Tetra4 intends to proceed with Stage Two, being the commercialisation of these high concentration helium reserves.

Funds will be entirely expended on Renergen’s petroleum production right, which is valid for a remaining 23 years.

It is not proposed to expend funds on tenements subject to renewal.

Who are Renergen’s competitors in helium?

Helium is sold as a globally traded commodity and has traditionally been traded on confidential long-term private contracts, keeping prices opaque and reducing incentives for helium exploration.

Five major facilities (BLM storage, LaBarge, Hugoton, Algeria and Qatar) produce around 80% of global helium upstream supply. A similar number of large players control the distribution of helium, which is often carried out under privately negotiated contracts.

The entire global helium supply is produced by about 20 liquefaction plants, located in the United States, Poland, Russia, Algeria, Qatar, China, and Australia. The United States is still the major producer, but most new sources are developing elsewhere.

The bulk of US production is related to the Bureau of Land Management (BLM), which manages the world’s largest helium reserve.

In recent years, BLM-related production has diminished considerably.

Stocks of helium in US strategic reserve

Helium is a global product in tight supply and disruptions can easily create shortages.

Global supply of helium is difficult to estimate. The US remains the largest helium supplier, but the BLM, which represents approximately 20% of the world-wide supply, will cease supply by 2021.

This is due to natural depletion and the US Helium Stewardship Act of 2013, which mandates the sale of helium reserves previously stored in the US federal helium reserve.

BLM’s August 2018 helium auction is expected to be its final auction, as reserves are anticipated to reach the federally mandated 3 Bcf limit of strategic reserves.

Qatar is a significant supplier of helium globally, providing over 28% of the world’s supply. Qatar has been producing LNG since 1996 and has been extracting helium as a by-product of LNG production since at least 2005. During 2017, multiple Arab states cut diplomatic ties with and closed their borders to Qatar, disrupting helium production and transportation for several weeks.

This deal closed on May 22, 2019