Renergen – Funding (Almost) Secured

Share Code: REN – Market Cap: R5.0bn – PE: -139x – DY: 0.0%

Phase 2 Debt Funding: Quantum Points to Larger Phase 2

  • Renergen has signed a Retainer Letter with the US International Development Finance Corporation (DFC) for Phase 2 debt funding of up to $500m. The DFC provided debt of $40m in Phase 1.
  • Added to this, Renergen has received multiple Letters of Intent to co-lend alongside the DFC of up to $700m in senior debt.
  • The lenders are currently conducting a due diligence to finalize their offers &, assuming a positive outcome, it leaves Renergen in the envious position to pick and choose its debt funding.
  • These lines of debt are up to $1.6bn in potential funding that—when combined with potential equity funding from Ivanhoe Mines & the CEF—points a clear path to a fully-funded Phase 2.
  • Renergen is now targeting 65% gearing & the implications of the amounts are that Phase 2 will be materially larger than originally envisioned; we originally assumed a c.R12bn capex cost for Phase 2, but the above figures imply >R15bn – Gas projects tend to get returns to scale & a c.25% larger size may produce >25% more gas.
  • If we assume a c.$1bn Phase 2, & Ivanhoe (capped to c.$250m) & CEF (c.R1bn) both follow through for their equity and Renergen management draw down on their debt with a 65% gearing (drawing c.$650m), this implies that there remains equity funding of c.$45m or c.R700m (c.1-for-10 rights issue at current prices).

Valuation and Implied Return: Updated for latest spot prices

  • While Phase 2 size is rising, output upgrades & the Ivanhoe & CEF equity needs to be pinned down for us to correctly model. These are large variables and, currently, still have conditions outstanding.
  • For now, we have kept the size of Phase 2 flat (which creates upside risk to our valuation and forecasts), assumed debt is drawn down at the end of FY 23E (but interest capitalized until FY 25E), Ivanhoe & CEF follow their full equity rights, 11.5m REN shares are placed during FY 23E (1-for-10 rights issue), & Phase 2 production starts during FY 25E (9 months) with steady-state in FY 26E (albeit, we have used flat spot prices as based on the current basket, ArgHe token price and exchange rates).
  • This produces a fair value of 6337cps (previously: 6344cps) & 12m TP of 7491cps (previously: 7501cps).