Renergen has officially ceased to exist on the JSE subsequent to its takeover by ASP Isotopes (ASPI), which closed out its takeover of the natural gas and helium company earlier last month.

It was one of the more eyebrow-raising mergers announced last year: both companies in their way highly speculative prospects (in Renergen’s case, helium and gas; in ASPI’s, uranium for modular nuclear reactors) that could be wildly successful if they achieve commercial production in their respective fields. Both at risk of disappointing the market, too.

In an update to the market last week, ASPI said the first phase of Renergen’s gas plant is now processing in excess of 60% more gas thanks to improvements and new production wells tied to the plant. Currency spoke to ASPI CEO Paul Mann.

Given the update, and restart of drilling, would you say it has been money well spent on Renergen?

Absolutely. We brought in more capital and that’s what Renergen needed. It’s a fantastic resource, vast – it just needed more capital and people, and we’ve done that.

You talk about “improving geological confidence”; what gives you confidence, given the drilling you’ve done subsequent to April?

We’ve run new seismics on the site and that tells us what’s beneath the ground more accurately and what’s needed to be done. We’ve also drilled in areas that were previously unexplored by Renergen, and there are huge resources of gas which will allow us to update the Sproule report [which tells you what the reserves are]. So when we now drill a well, we probably spend less money drilling the well, we have a higher success rate and we find the flow of gas is much higher. And that’s what needs to happen.

Is that because you’ve contracted Kinley Exploration to do the drilling for you?

Yes. They’re the best gas drillers in the world; if you want to drill for gas, get the best guys to do it.

Are they expensive?

Drilling for gas and not hitting gas is more expensive than drilling for gas and finding it. They cost more than a local Welkom person would, but if you end up drilling 50% of shallower wells and hitting gas more accurately, it works out cheaper. So that means we’ll get a higher return on capital.

Have you found anything you didn’t expect – and not necessarily in a good way – since you bought Renergen?

Not really. We’re going to make some changes to the plant between now and the end of the year just to improve the efficiency and de-bottleneck it. But we’re going to build up the capacity of the plant and we’ll start generating free cash flow around the middle of the year.

Will it be substantial?

No, small: $5m-$10m earnings before interest, tax, depreciation and amortisation (Ebitda) – that kind of number.

Just to clarify: what you’re drilling now – is it liquefied natural gas (LNG) or helium, or both?

You can’t get helium without getting natural gas – the two come together. Now, we’re getting both from the gas wells; the problem is we can’t run the helium part of the plant at a 35% utilisation rate. You have to fill the plant up in order to produce product. So right now we’re just producing LNG, and we can run the LNG side at 50% capacity, but we can’t run the helium side – we need to drill more wells.

So, we’re drilling more wells and once we have enough volume, or flow rate, we’ll start producing helium at some point in the first half of the year. Phase 1C is the completion of natural gas and helium from the first plant. Phase 2 takes the next four years and that’s where we’ll really ramp it up to produce large amounts of helium and natural gas. That will take us to about $300m Ebitda.

Do you have a clear sense of how much you have to spend in the next four years?

We need to put $170m into the project and that will unleash about $750m of debt finance from the US Development Finance Corporation and other lenders. And that’s why we raised $310m in the second half of last year, at ASPI.

So you’ve got all the funding you need now – there won’t be a crunch in future?

People wondering why we raised so much money last year – that’s why. We didn’t need that much money for the ASPI side of the business; we did need it for Renergen.

Renergen certainly suffered from a credibility problem after the initial fervour around its promise; how are you going to rebuild that credibility with the market?

By completing projects on time and generating free cash flow.

Are you getting a sense that local investors are warming towards ASPI itself? Besides the isotopes business you have, so much in terms of your uranium aspirations depends on getting regulatory approval. Can you give any further indication as to where you are with approvals?

I can’t – that would be material public information. What I can say is that it’s a combination of Necsa [the nuclear energy regulator] and the department of energy.

Is that not a material risk? South Africa’s regulators aren’t exactly known for speed.

That is a risk but the government understands the importance of this project. And this is on the Quantum Leap side of the business – not ASPI. [Quantum Leap is a subsidiary of ASPI and has two supply agreements with Bill Gates’s firm, TerraPower, to supply high-assay, low-enriched uranium]. Building a uranium facility is a bit different to building a facility for silicon 28 or ytterbium.

Is it possible to give the market a clear sense of the gas resource and value you now own in Renergen?

What Renergen has said historically is that phase 2 would deliver about $300m in Ebitda per year, and my maths suggests the same thing.

So given what you’ve seen now in the latest drilling results, would you say that’s not an outlandish figure?

No. I mean if anything I think we can do more than that.

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