ticking up on biodiesel ipo?

AMU's biodiesel fledgling is ready to leave the nest, enter the big bad world and no doubt kick some commercial butt.

AMU announced yesterday that the IPO for its biodiesel arm (Australian Renewable Fuels) has been released. The on-line prospectus is available at ://www.arfuels.com.au/default.asp?V_DOC_ID=897.

The capital structure is 108 million fully paid shares at $1.00 each, with 20 million shares of those issued in the IPO - with 5 million reserved for existing AMU holders and the 15 million balance up for grabs. AMU will retain ownership of around 32% of ARF.

Two plants are currently under construction - in Adelaide SA and Picton WA. The Adelaide plant is expected to be in production and making sales by November this year. A quick path to profitability is envisaged, with a profit for fiscal 2006 expected of around A$7+ million.

The IPO had a good bit of press this morning on page 14 of the Financial Review. I have banged on about what a great business model AMU's biodiesel arm represents often enough on this forum so I wont repeat it again. Suffice to say that each plant when fully operational could be expected to deliver profits in excess of A$8 million. With two plants imminent and five planned for Australia in the not too distant future you don't have to be an Einstein to figure out where the share price of this one will go.

As an existing AMU shareholder you bet I will be applying for my ARF shares. Just wish I had more money to get as many as I would like to have.


On another note, the AMU share price has kicked up nicely today on decent volume. While the crystallisation of value in the biodiesel arm is no doubt contributing to that, another article in todays AFR could also be helping (thanks for the reference Rakia). That article, 'Petroleum players strike it rich in the US' on page 21, sets out why nimble juniors like AMU are well placed to make a motza. AMU gets a good mention - as well it should:

"Geoff Towner's Amadeus Energy has been a top Australian performer in the US petroleum sector in the past year. Amadeus made a record after-tax profit of $5.2million for the December half, after sales revenue rose 72per cent. Oil production rose 24per cent and gas output doubled from its Texas properties.

Independent oil industry analyst Peter Strachan, producer of the Stock Analysis report, said: "The big plus for the US market is that it has largely been vacated by 'Big Oil'.

"The exploration costs are low - but property costs are high - and time to commercial production from discovery is very short."

Mr Strachan said the key to success in the US was a solid US partner.

"The successful ones, such as Petsec, Amadeus, First Australian Resources, Sun Resources, Victoria Petroleum, etc., have been there a long time; they know who to deal with and who to trust."

In the US petroleum market, massive infrastructure means any petroleum discovery can be brought into production very quickly."

But then, maybe today's price and volume action for AMU is just the sleepy market waking up to the fact that AMU's share of the successful Byczynski #1 well in Lavaca County is likely to deliver annualised profits in excess of A$2.5 million with Henry Hub gas at $5.50mcfg and oil at $40 a barrel, and in excess of A$4 million if today's prices of $7.15 and $56.62 continue. Pick a number in between depending on your view of longer term oil and gas prices - whichever number you choose will show a very hefty dollop of joy to AMU's bottom line.

Or maybe it is the penny dropping that success like this is likely to be repeated in spades from the remaining program of at least two wells a quarter to be drilled on Lavaca County, or the balance of the 32 well drill program on Raccoon Bend, or maybe from the South Grosse Tete well (to spud when the partners can rustle up a drilling rig in the tight US market).

In any case, look for more upside from AMU over the rest of 2005 and the years to follow!!

(I hold and am biased).