2016 The Year For Seafarms

Some Success Stories in Agri-business Shares in 2015
Blackmores, BKL. Share price from $33.93 $204.55 Market Cap $869 million. P/E 70
Bellamy’s, BAL. Share price from $1.65  $13.02. Market Cap $1.217 billion. P/E 128
Capillano, CZZ. Share price from $7.40 $21.23 Market Cap $183 million. P/E 23
A2Milk, A2M. Share price from $0.56 $1.38 Market Cap $728 million. P/E -
Tassel, TGR. Share price from $3.80 $4.59 Market Cap $652 million. P/E 13
Why is Seafarms Group Ltd (SFG) The Next Big Thing In Food For 2016
“...The next 12 months will be a defining period focussed upon substantially increasing shareholder value …” (2015 AGM Presentation).
Seafarms Group is the largest Australian producer of aquaculture prawns, producing 1,450 tonnes of primarily Black Tiger prawns from its Northern Queensland operations located near Cardwell. Its Qld operation, whilst commercially sized in its own right, has been a proving ground for Project Sea Dragon (PSD).
PSD refers to the development of a mega aquaculture prawn farm, located on the Northern Territory cattle station of Legune, close to the WA/NT border. At full scale this envisages the production of more than 100,000 tonnes of Black Tiger prawns annually, with estimated revenue of US$1.5 billion, which by comparison is more than that derived from the entire Australian beef industry.
SFG has decided to “gear up” its Cardwell operation in order to provide for technical staffing etc for its larger PSD, thus impacting negatively on recent bottom line results. These results also carry considerable expense for current BFS work on PSD. Therefore current financials for the Group are not a good indicator of future performance once PSD is established.
Stage 1 of PSD is planned for development post PFS in late 2016, at a cost estimated around US$150 million, producing around 10,000 tonnes of prawns.
Considerable upside to the share price, multiples of its current share price (6.1 cents) for SFG is likely if/when PSD goes ahead. Key steps for its development, each of which should be accompanied by jumps in the share price, include announcement of:

1. Finalisation of an Indigenous Land Use Agreement (ILUA). The ILUA is a necessary element that must be finalised prior to commencement of development works.
2. Finalisation of the BFS. The BFS commenced April 2015 and along with base line environment studies is due for completion in the second half 2016.
3. Successful Completion of a suitable financing arrangement. Stage 1 development requirements are assumed to be independent of the larger future staged development.

There are a number of drivers that collectively suggest the development of PSD will occur:

1. Robust project economics – And since the prefeasibility study results there are further particular benefits arising from:
   1. A$ decreased approximately 30%;
   2. Engineering inputs reduced;
   3. Improved food inputs (likely use of NOVAQ feed – CSIRO development).
2. Market research – confirms the growing demand for quality prawns world-wide
3. A “Green” Project – considered acceptable by Greenpeace and World Wildlife Fund.
4. Combined Government and Opposition support
   1. Federal Govt Initiatives
      1. White Paper on Northern Australia – specific reference to PSD
      2. Declaration of Major Project Status by Federal Govt
   2. State Govt Initiatives
      1. NT Govt Declaration of Major Project Status
      2. WA Govt Declaration of Major Project Status
5. Provides significant local employment within the region – approximately 1,500 new jobs estimated at various phases through development and operation for the region.

The Chairman of SFG, Ian Trahar, a wealthy successful businessman has personally committed considerable funds to SFG in recent years, totalling around A$25 million in equity. In addition he has provided debt funds to ensure project works continue on PSD.
SFG has recently raised $15.5 million at $0.07 and $0.065 through placement and rights issue respectively, during July and August 2015, to increase cash liquidity for PSD work.
SFG completed the Pre-feasibility Study (PFS) in June 2013 for PSD which envisaged prawn production from 10,000 hectares (ha) of ponds producing over 100,000 tonnes per annum developed in 5 stages over a 7-10 year development horizon. Stage 1 is expected to be approximately 3,000 ha of ponds starting initially with 1,000 ha in the first year.
mce-anchor Since completion of the PFS Seafarms has concurrently procured prawn farms in Northern Queensland to become the nation’s largest supplier of farmed prawns, and from that experience base has moved into the BFS stage of PSD with considerable.
It is my view that SFG WILL make positive announcements during early 2016 regarding PSD, and once the market recognises the potential SFG share price WILL move appreciably higher. Exact timing of share price re-rating depends entirely on the timing of positive developments with the ILUA, the BFS and financing arrangements.
BUT until that Re-Rate SFG is a Hold. IF you want a jump in share price within the next couple of months then SFG is not the investment for you. It is unlikely to move up appreciably until the key steps are achieved, and none of those I would suggest are likely to be achieved in the coming months, due to the works involved and the holidays ahead of us. If anything it is a time for slow accumulation, nothing more than that IMO.
Merry Christmas and Happy New Year to all.
GLTAH