Share Code: REN – Market Cap: R4.4bn – PE: -123x – DY: 0.0%

Phase 1: First gas-to-plant

• On the 8^th of July 2022, Renergen successfully achieved its first natural gas to its Phase 1 plant. This was signified by opening the main inlet line from the gas gathering system, to the process plant and then to the natural gas filtration and pre-compression system.
• This is a major qualitative derisking moment for the entire project and one that, strangely, its share price did not seem to notice.

Ivanhoe Mines: Option expiry allows for better options

• The Ivanhoe Mines’ option to ramp-up their stake in Renergen (at a discount to VWAP) has expired due to unfilled conditions (we believe that the specific outstanding condition is Competition Commission approval). Ivanhoe remains a c.4.3%-shareholder & there remains a potential LNG offtake deal on the table.
• This option expiry may appear to leave a funding gap for Phase 2, but it does remove a potentially very dilutionary action (especially if the share price remains well below our fair value).
• How dilutionary? Consider that the Ivanhoe shares could have been issued at a discount to VWAP/market price (currently c.R4bn or the low-3000cps) while the Central Energy Fund (CEF) deal values the project at c.R10bn or 6933cps (c.102% premium!). Indeed, a positive outcome from the CEF deal’s due diligence should peg REN’s implied fair value higher than the Ivanhoe deal.
• Finally, as evidenced by the appetite for Phase 2 lending (see our note) & following discussions with management (they have just come back from a well-received global roadshow), we believe that the Phase 2 equity-funding should be filled and we hope it could be done so at a better price, i.e. with less dilution.

Valuation and Implied Return: Unchanged

We have left our model and forecasts unchanged, even though they incorporate Ivanhoe’s now expired options because there should still be some equity dilution for Phase 2 and this allows us to somewhat account for it in our forecasts and valuation.