Edison Investment Research Limited
London, UK, 26 June 2019
Edison issues outlook on Renergen (RENJ)
Renergen is fully funded for stage one development of its flagship Virginia Gas Project in South Africa. This initial phase of development will produce c 19k tons of LNG and c 112 tons of helium per year. We estimate cash flow from operations of c ZAR91.0m, after first production in FY22. We value Renergen based on the monetisation of the company's audited 2P reserve base, on the basis of staged development as set out in the company's ASX IPO prospectus. Key investment considerations include the pace of LNG adoption in the South African trucking market and realisable LNG prices. Our risked valuation, inclusive of the company's entire 2P reserve base (net 138.3bcf of methane and 3.3bcf of helium), is ZAR20.5/share.
Our base case valuation, based on net methane 2P reserves of c 138.3bcf and net helium 2P reserves of 3.3bcf, generates a NAV of ZAR20.5/share. This includes adjustments for commercial and development risk, potentially conservative long-term LNG price assumptions and a discount rate of 12.5%. Limiting our valuation only to stage one results in a valuation of ZAR6.2/share (A$0.63/share). Successful delivery of stage one should, in our view, de-risk further phases of development.
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