Been a while since anyone did an overview of Renergens current situation and future potential so thought I'd go a little deeper today.
And what better time than on the eve of production just as the globe is feeling the pinch from yet another gas crisis and 'Helium Shortage 4.0'.
Not to mention the current macro outlook and how to best position yourself for the inflationary minefield that lays ahead.
*You will want to read this part but obviously none of this is financial advice so DYOR
Not all markets are the same so trade accordingly...
With a new headline to strike fear into the heart of any investor getting put out on the daily it's pretty easy to get caught up in the doom and gloom and forget that not all markets have the same driving forces.
Covid, inflationary pressure, QT, Russia and the list goes on but just because an index is getting slammed doesn't mean there aren't sectors that can flourish in amongst the mayhem.
Take Renergens performance vs the Nasdaq since the beginning of the year.
Currently RLT is up over 35% whilst the tech heavy Nasdaq has dropped almost -15%.
It's no secret that tech is out of favour with the possibility of rising rates however both helium and natural gas markets have had quite a spectactular rise and do not look like letting up any time soon - but more on that later...
First lets look at what helium is used for and what markets it effects the most.
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First thing that stands out from the info above is where did all the party balloons go, right?
Let's leave the party balloons for when RLT hits $20+ and focus on the biggest use cases and emerging markets for helium.
As you can see the number one use for helium is for cooling the large magnets in MRIs. The demand for this has been strong and quite stable over the last 5yrs.
The real eye catcher is in the tech space with semi conductors and fiber optics. That's right, you wouldn't be reading this without the use of helium and I can't see demand for tech dropping off anytime soon, do you?
This highlights the ever increasing demand for a finite resource for which Renergen is sitting on some of the highest grades ever recorded with potentially enough helium to supply the entire globe for decades (yes, you read that right).
Below is a table of Renergens prospective helium resources - keeping in mind that global consumption is around 6bcf per year.
With an incredibly high possibility of having multiples of that number and potentially many many mutliples of that it has Renergen positioned to be a major player in the global helium market going forward.
.Back to MRIs and check out the table below
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Although Japan have the highest density of MRIs per capita, the USA outdo them for total units significantly. Obviously because the USA population is more than double that of Japan.
This makes Stefanos recent trip to the USA a little more interesting, especially seeing as he was just over there only a couple of months earlier...
What about Elon?
Everyone talks about Elon, his links to Stef and his rockets.
I guess there is certainly enough fuel for speculation seeing as Stefano (Renergens CEO) and Elon both attended the same high school in SA.
To add to that Stef recently returned to Texas for 'work commitments'.
With SpaceX having a HQ there and Elon needing helium for that venture it's not hard to join the dots as to what could come from that trip.
However, I'd say Elon may have to get in line as the medical industry and semis might be pushing harder to get to the front of the queue as they may be crippled without a reliable supply of helium going forward...
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Helium Shortage 4.0If you missed Helium Shortage 1.0, 2.0 and 3.0 don't worry as they escalated quick enough for most to be blindsided but the latest shortage is definitely happening.
Helium was already getting squeezed before tension in Eastern Europe but recently there's been verified reports of buyers paying up to $10k per mcf - yes, you read that right.
Considering $300 per mcf would be considered 'normal' only a few months ago the recent rise has been nothing short of astonishing.
Yes, the $10k was apparently needed in an emergency so it may not be indicative of current pricing but it clearly highlights the current scarcity and what lengths buyers are willing to go to in order to get their hands on this vital commodity.
FWIW the new 'normal' cost per mcf is around $2k-$3k, with prices surging threefold since the war broke out.
*All prices are in USD
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So why aren't helium players reflecting this huge jump yet?Helium is an opaque market and therefore not open to seeing day to day fluctuations unlike some of the heavily traded commodities like gold.
As I write this gold had popped to nearly $2k in overnight trade. I'm guessing if it held those gains then all goldies would be popping hard today but was sold off into close.
If helium had a mainstream spot market that could show the current squeeze it would be the equivalent of gold popping to $10k-$20k in recent times.
Now tell me what you think gold companies would be doing if a rise like that happened???
Honestly think about it because thats the reality of whats happening in the helium market today.
And while we are talking about gold lets talk inflation and safe havens..
I know your best mates brother used to live with a broker and he said that gold was to go-to 'safe-haven' and he'd be right as it's proven track record is undisputed.
But lets looks at the real numbers on asset classes during periods of high inflation cause there could be better options....
Anyone investing in financial markets (or just doing grocery shopping) must have heard the word 'inflation' used A LOT lately.
I know we can't all agree when it comes to investing but I think most of us can all agree that inflation is here and the crap we were fed about 'transitory' is absolute BS.
Especially coming from the guys responsible for monetary policy - reckless and clueless would be words that come to mind.
Anyway, lets get back on track and look at performance of different asset classes during periods of high inflation.
Of course gold ranks highly amongst asset classes, however over the past couple of decades it's actually been commodities that have proved to be the real winners in such times.
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Obviously 'commodities' covers a huge variety of tradable assets so it's important to find the leaders of the pack.
We've already gone over the helium case as a front-runner but lets not forget that Renergen also have LNG sales that are about to start filling the coffers as Phase 1 gets switched on coming days.
With such a spectacular rise in helium prices it'd be easy to miss whats been happening to natural gas prices.
Not only have gas prices doubled this year alone, they are up around 400% from their lows in the last 12mths also!
Now this may seem like a big jump and one that is unsustainable but if history is anything to go by then we are only just starting the climb.
Was only one or two decades ago that energy markets were the talk of ALL markets. The period simply known as the 2000s Energy Crisis.
There was a host of issues over this time - also known as 'the perfect storm' - and you can see on the chart below that current pricing is no where near the peaks during this time.
You'll also notice that the runs up to those peaks took months and even years to play out (the chart below is monthly timeframe).
AND believe it or not the main reason behind the move to ATH of $15.78 in 2005-2006 was a dispute between Russia and Ukraine..
Talk about history repeating itself but current pricing hasn't even hit halfway from the peak so don't underestimate how far this run can go...
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Now over to the RLT chart
RLT has seen sustained buying over the past 7-8mths with a clear uptrend in place
(and of course there's some volatility in there - just look at the tiny SOI and you'll understand why)
Recently we've seen a breakout from a couple of bullish patterns and a continuation from those breaks.
Both of the recent breakouts offer a ST target just shy of $5 but with any number of near term catalysts about to drop it wouldn't surprise me to see this level blown past.
Momentum indicators have flipped positive and with the sp trading above all MAs the current set up is looking very bullish indeed.
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Now if we look at whats happened since the sp has been bought up from the $3 level (bottom of handle - in late Feb - daily chart below).
A rise such as this would normally see profit taking and a pattern of distribution however the RLT stats are telling a much different story with nearly 30% more buying than selling during this period.
This is very good news for holders as it shows constant accumulation even whilst the sp has kept rising.
There's also been a clear lack of sellers during this same period
(this combo normally results in the sp rising much more from current levels).
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Let's Talk ValuationsTheres been any number of sp predictions thrown about ranging from $7 going into the hundreds of dollars.
Whilst the triple figure sp predictions may seem far fetched they actually check out if you run the numbers - even before the dramatic rise in helium and gas pricing.
The recent investment from CEF had RLT valued at A$7.39 per share and the report from MST validating this with the updated valuation of A$7.12 per share.
Although it must be noted that MST came to their conclusions over RLTs 'base case' of 8bcf contingency.
With a prospective resource potentially having over 40 times that in the ground and current helium prices over 10 times working numbers it doesn't take Rainman to figure out that $7 seems very very modest going forward.
I personally see $20+ sp as very achievable and look forward to the dividends that come with that in the future
Snippet of MST report below
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Current markets are looking more fragile by the day however Renergen is looking the polar opposite as it's going from strength to strength - with the assistance of the underlying market.
Phase 1 should be switched on in coming days and Renergen will be launching the first ever global spot helium market this coming Saturday which should add another $25M to the bank without any SH dilution.
I'm also expecting some news on the 'dark-horse' of Renergens business - Cryovacc - in the coming months and I'm expecting this to have a substantial positive impact on our bottom line but thats talk for another day...
I see RLTs current set up as an incredible opportunity and one of the 'safer' spec plays going around with incredible upside from here.
There really is a 'perfect storm' brewing for Renergen atm...
As always be sure to DYOR
GLTAH
(20min delay)