The Industrial Development Corp (IDC) has shown its confidence in AltX-listed Renergen’s Tetra4 project, near Virginia in the Free State, by extending a R218m loan to take it forward.

Since the IDC ought to know a thing or two about due diligence, its backing could encourage Renergen shareholders to follow their rights if the company approaches the market to raise the R145m in equity that it needs as a condition to drawing on the loan. Renergen CEO Stefano Marani says the company will do what is best for shareholders and has not yet decided what form the equity will take, whether mezzanine capital or shares. A wider share offering would help address the lack of tradeability in the shares, which may be deterring some investors. Renergen’s two biggest shareholders are Tamryn Investment Holdings with 56.12% and Trillian Asset Management with 24.7%.

On average, about 200,000-300,000 shares trade each month out of 79.4m in issue. The independent valuation of the Tetra4 proven and probable gas resource is about R6.6bn or R77/share but the share price is nowhere near that level. It has been trading between a low of 727c and a high of R14.70 over the past year.

Renergen listed on the JSE two years ago as a special purpose acquisition company (Spac), which allows a team to raise funds from investors to acquire assets. It acquired Tetra4 in August 2015, so its track record is relatively short. Investor interest in the JSE’s renewable energy companies may grow as the sector expands.

Two other companies that listed as Spacs, Hulisani and Gaia Infrastructure Capital, have now acquired renewable energy assets. In the next couple of weeks another Spac targeting clean energy investments, African Energy Partners, will list on the JSE.

The IDC’s loan will help pay for the 107km pipeline and associated infrastructure to connect Tetra4’s wells in its vast Free State licence area. This is natural gas, formed by the action of bacteria on carbonaceous rock, so Marani says it is considered to be a renewable resource.

The first operating well is producing about 200gigajoules of gas a day. At full production from all 13 wells, the field will be producing about 1,300-1,500GJ/day.

An unchallenged environmental impact assessment has been completed, and Renergen is waiting for final approvals from the Petroleum Agency SA and the department of mineral resources before it starts construction of the pipeline. It will only connect the wells and there are no plans at this stage to build a pipeline to serve municipalities or industrial customers, Marani says. The gas pressure is below two bars, less than the minimum regulated by the National Energy Regulator of SA.

Marani says spending on the pipeline will be phased. It will cost R135m to connect the existing wells and another R50m to connect future wells, including compression equipment.

For the past year Renergen has been selling gas from the first well to Mega Bus as compressed natural gas for use in passenger buses. It has also signed an agreement with Linde Group and Afrox to commercialise the helium component of the Tetra4 gas, which at present is not being separated and is merely emitted from vehicle engines as an inert gas.

The company is still in the development phase. For the year to February its bottom-line loss was R15.3m.

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