Chemeq stuns investors with 50pc cost blow-out
MICHAEL WEIR
Embattled biotech Chemeq has secured a $5 million line of credit after shocking investors by revealing an almost 50 per cent blow-out in the cost of its state-of-the-art animal antibiotic factory in Rockingham.
At the end of a week when a sharemarket battering stripped $65 million from the company's value, Chemeq said the cost of the plant would be $52 million compared to the September 2003 budget of $35 million.
It also revealed it would cost up to $342 million to expand output of the patented drug Chemeq polymeric antimicrobial to its goal of 400 tonnes a year - a level analysts believe is required to justify the company's $355 million market capitalisation.
The company, which has raised more than $65 million from investors in the past 18 months, had $6.3 million in the bank at June 30.
The cost bombshell, released after the market had closed, could lead to a further sell-down of the company's shares on Monday.
Chemeq has released six investor updates in the past week as it scrambled to calm nervous investors frustrated with delays in commissioning the Rockingham plant and concerned about the lack of firm sales contracts.
The stock closed steady at $3.99 yesterday, down from $4.72 a week earlier. The week's turnover of 5.5 million shares was almost 10 times its normal trading volume.
Executive chairman Graham Melrose broke a five-day silence last night, telling WestBusiness that contractors had found it difficult to estimate the time and cost of the complex manufacturing facility.
Dr Melrose defended the company's decision to remain silent on the blow-out in the factory's cost until now. He said the final cost had not been known until the plant's recent completion.
"It has hurt us," he said. "It has hurt our reputation, it has hurt our timing and it has hurt our costs.
"But if we had not adopted such an aggressive construction program, if we had waited until we had every cost absolutely fixed, we would be another three years behind where we are now.
"We made that decision at board level. We knew it would cause difficulties, we knew we would be vulnerable, but we are three years ahead of where we would have been."
Dr Melrose said he expected completion of the plant to advance various regulatory approvals, which together would lead to sales.
The company had been "conservative" in taking orders before the plant was finished and only "entered back into the marketing process" in the past two months.
He was "very confident" a sales agreement with South Africa that lapsed in June because the plant was not finished would be renegotiated.
A multi-million-dollar Australian contract is conditional on regulatory approval.
Dr Melrose said $11 million had already been spent on the $22 million needed to lift capacity to 50tpa by June.
The 400tpa expansion, which the company hoped to commit to in June, would require additional capital.
The company hopes the revolutionary drug will replace the use of human antibiotics in pig and poultry production.
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