go ahead for biodiesel plant

Excellent news for AMU holders today with the announcement that the first of the biodiesel plants has been given the go-ahead and AMU/ARF staff are off to Austria to sign the relevant contracts.

This outcome was always highly likely, given the knocking over of all the necessary milestones to date (eg. feedstock and offtake agreements, site selection and securing, construction contractor signed up, and financing approval). The announcement should surely knock over concerns that the project would not go ahead - perhaps a legacy of doubts lingered from the tardiness of ANZ to stump up the dough. (Although with Wells Fargo Bank clearly giving the business plan a vote of confidence I can't really see any such doubts had any real basis).

Excellent news too that the plant will be 5 million litres per annum (or 12.5%) bigger than originally flagged. Just means even more profits to AMU! Good news too that the company has confirmed that this is the first of five such plants to be built in Australia in the next few years.

I am not sure if the market has truly understood the significance of these plants to AMU, and how they will transform the company's profits.

These plants will be highly profitable. The 45mlpa Adelaide plant (with AMU's 67% ownership) is likely to drop annual profits in excess of A$6 million per annum into AMU's coffers. And the company has previously stated that the plant will be profitable from year one. Profits per plant for the remainder will depend on the share AMU retains. At present, for example, AMU still retains 100% of the next cab of the rank - the Picton (WA) bio-diesel plant. So lots of scope for that $6+ million per plant to be plenty higher.

With its USA bank already having shown its faith in the bio-diesel business plan, and a line of credit for AMU in excess of US$20 million sitting there to draw on, there is clearly plenty of scope for AMU to retain a higher share of ownership (and profits) in future plants.

Just play with the numbers with that scenario. Biodiesel profits from the first plant alone would justify valuing the company at over $60 million. And there are more plants to come. Add to this its profitable oil and gas business, where production has been growing 20+% and should continue to at least do so for the next year too, and you can see where the company is heading.

The future for AMU looks pretty bright to me.