Ann: Response to ASX Query, page-34

1. I think you are confusing what QIN puts in their project level (MIS) accounts, and what they put in their company accounts to support the valuation of their assets. From the half year accounts:


The fact that the project level accounts show that they are nowhere near that number tallies very closely with what Glaucus say - they should be using a number around 10kg at best.

That seems totally fair, given the evolution of those yield numbers at the project level - from north of 25kg at marketing to less than 10 for trees just 4 years away from harvest. (2006 vintage)

"The overall DCF value of all the Biological Assets has to be a summation of the DCF values for each project, not a company level DCF using 19.8kg pre tree yield right" - no that's not true on two levels.
1) the project level accounts contain a disclaimer that the actual performance is worse than the projected curve, so the DCFs are bunk.
2) the company accounts are really important - they support a large amount of debt after all. If the assumptions used to value their assets (the trees in the ground) are overly optimistic, then the asset base of the company is a fraction of what they claim it is. From the company sensitivity analysis, each 10% decrease in yield decrease equity by $52.3m - so reducing the company's assumed yield from 20 to 10kg per tree would reduce equity from ~770m to about 250m. That's seriously important considering QIN has debt of $250m.

Pricing:

QIN have only ever sold wood/oil in tiny quantities - from the table they published about 2t/yr of oil, plus (once you back out the fake chinese buyer) no wood. Small quantities warrant higher prices - 5ml of oil from young living will cost you USD20,000/kg! https://www.youngliving.com/en_US/products/sacred-sandalwood-5ml

The point is that QIN are supposedly about to increase production to 10000t of oil equivalent over 5 years, whilst maintaining pricing. Year 8 economics tells you pretty simply that this is unlikely to happen, and that pricing at even $2800/kg is massively optimistic.

Chinese buyer:

This is just such a huge problem. In september, they announced:

That is at best very misleading, and in my view potential cause for a class action, given they didn't make any announcements that shipments had stopped.