Renergen’s projects are full of helium and so is the share price, with another 9.7% increase yesterday. The year-to-date performance is now a 27.7% jump, which is a wonderful return especially when viewed against global equity markets.
The latest rally was driven by the news that the state-owned Central Energy Fund (CEF) will subscribe for a 10% stake in Tetra4 (which holds 100% of the highly coveted Virginia Gas Project) for R1 billion. The proceeds will be used in the development of Phase II of the project.
This transaction still needs to go through due diligence and approvals at levels as high as National Treasury. It’s not a foregone conclusion by any means, but deals like this usually aren’t announced unless the parties believe there is a high probability of completion. There are 141 days for all conditions precedent to be fulfilled (I guess 140 days was just too much pressure…)
This is another feather in Renergen’s cap after a recent announcement that Ivanhoe Mines will take a strategic stake in the company and put in capital towards the Phase II development. It’s clear that Renergen’s operations are attracting major strategic investors.
Phase I operations at Virginia Gas Project are due to commence in April. The nature of energy companies is that the lead times between investment and revenue are long, so the Phase II capital is being lined up before Phase I has even started producing.
The introduction of the CEF as an equity participant in this project is an important political step, as the government now has a stake in the project. This gives the CEF economic participation in South Africa’s first and only onshore petroleum production right. It’s usually a good idea for energy companies to have a strong working relationship with government, so this is positive news for Renergen for reasons beyond the injection of R1 billion.
Renergen’s share price has increased by nearly 370% over the past five years. The army of retail investors in this business will be thrilled to see institutional and strategic investors putting their money behind Phase II.
