another update announcment

Keeping us well informed.

Date of lodgement: 15-Feb-2007
Title: Open Briefing®. Agri Energy. Industry Issues & Corporate Strategy
Record of interview:
corporatefile.com.au
Agri Energy Limited (ASX code AAE) recently announced it had fully funded the
Beatrice Biodiesel Project in Nebraska, United States through debt and equity.
What total capital cost do you now expect compared with budget?
CEO Peter Anderton
The capital cost of the Beatrice Biodiesel Project is estimated at US$52.5 million.
This includes a US$3.8 million contingency which, at this stage, is less than 50%
committed. Capital funds committed by the project are now over 80%. The
Company is confident that the Beatrice Biodiesel Project will be started up and put
into operation to the point of positive cash flow within the current estimated
capital budget and by the August 2007 start up schedule.
The project finance package for Beatrice is US$65 million which includes a US$5
million working capital facility. There is substantial freeboard within the project
finance structure between the funds required and the funds available from the
project finance package. At this stage, the development is proceeding to planned
targets. Every effort is being put in by a lot of people to ensure this remains the
case. The project has the full focus of our Board and senior management. I
personally review the progress and financial commitment on a daily basis with the
project manager.

corporatefile.com.au
Your first biodiesel project, Beatrice, is in the United States. Why have biodiesel
producers in Australia struggled to meet growth targets? How will AAE ensure a
smoother transition to becoming a biodiesel and ethanol producer?
CEO Peter Anderton
The biodiesel industry in Australia has suffered a number of start-up issues.
Firstly, the legislative regime is confusing and not clearly articulated by the
Federal Government. The Government has an embarrassing political situation
because it has given capital grants to projects that have either not proceeded or
have not performed. The Government is now reluctant to fully embrace the future
as other international governments have done. The Federal Cabinet is divided and
the Prime Minister is struggling to demonstrate political leadership in the
renewable fuels industry.
Next, at this stage, Australia does not have the broader agricultural base to support
a significant biodiesel industry. In comparison, the US industry is underpinned by
a 100 million tonne per annum soy bean crop and the European industry has an
extensive canola, sunflower and oil seed industry with substantial growth
prospects in Eastern Europe. The Australian biodiesel industry is struggling with
low and inconsistent quality tallow and also imported palm oil which will not
sustain a significant future biodiesel industry. The agricultural industry in
Australia can address this in time, but alternative feedstock such as mallee and
tapioca need to be developed. Australia has the land and expertise, but the
producers need to address production of suitable crops in more arid environments,
be given more direction and commitment from the industry.
In addition, a number of the process technologies for the biodiesel plants
constructed in Australia to date have not performed. It appears that some of these
process technologies are underdeveloped and unproven at the commercial level.
As the quality specifications for the biodiesel industry tighten further
internationally, the quality of the biodiesel produced in Australia remains a
concern.
Finally, biodiesel take-up by industry and consumers in Australia remains an issue.
Consistency of supply and quality remain an impediment to consumer confidence
and commitment.
corporatefile.com.au
Can you reiterate the technology you are using at Beatrice and your feedstock and
product off-take arrangements?
CEO Peter Anderton
AAE has addressed all key issues in the development of our Beatrice Biodiesel
Project. The process technology provided by Axens is proven in a significant
commercial production facility at Sète in the south of France. Our oil seed supplier is a major cooperative group and Fortune 500 company
working from a substantial soy bean and soy oil production base in the United
States.
We have a biodiesel off-take agreement with one of the largest diesel distributors
and retailers in the United States. In the United States governments at all levels are
totally committed to the industry. The Federal Government has a US$1.00 per
gallon production subsidy and mandates are in place together with various
agricultural benefits available in a number of the mid-west states.
Feedstock costs make up about 70% of the production costs of biofuels. Proper
assessment and management of these inputs is essential. Feedstock arrangements
for our three projects have been varied to suit the particular environment in each
country and each location.
For instance, in the United States, we are supported by a strong partner who is the
third largest agricultural group in the country representing nearly half a million
growers and ranchers.
In Australia, our strategy for feedstock is to adopt a multi-grain approach spanning
a summer and winter cropping cycle. It is all about mitigation of supply risk. The
strategy includes irrigation in addition to dry land cropping with plans to grow and
control up to 50% of the requirements for the Swan Hill Ethanol Project ourselves.
Control of grain production has the effect of moving grain supply from a
commodity-based cost input which varies with the international commodity
market to a more controlled and manageable cost input.
In Europe, the feedstock strategy is one of identifying lower cost oil seed supply
particularly from the Eastern Block where grain is cheaper due to a lower cost
base, lower labour and land costs and less developed infrastructure. The Company
is developing plans and will be undertaking a definitive feasibility study for an oil
seed crusher in southern Hungary near the Romanian and Ukraine border.
Feedstock supply, land acquisition and environmental licencing are already well
advanced. In this region, grain costs are competitive on a world scale and there is a
real opportunity to improve yield and quality through the introduction of modern
farm practices and technology.
corporatefile.com.au
Can you give more detail on AAE’s plans for its agri business? Why is this so
important to meet your biodiesel and ethanol production objectives?
CEO Peter Anderton
Having an established and well run agri business is the key to global success in the
biofuels industry. As I mentioned earlier feedstock makes up over 70% of the
biofuels production costs. Each country is different and in many cases each region
is different, but the underlying philosophy is the same - world competitive
feedstock is the basis of our global growth strategy, whether it be growing our own
corn or barley in the Murray and Murrumbidgee River region in Australia,
competitive feedstock from our planned oil seed crusher in Eastern Europe, palm oil sourced out of Indonesian or Africa, or just working the CBOT basis
advantages available in south eastern Nebraska in the United States.
Our agri business plans are tailored to each country and each region. The common
link is technology and an understanding of the specifics of each local region.
Overall, our strategy is to put in place a local champion and then support that
individual with the best expertise and technology that we can muster. We then test
a range of scenarios based on a global perspective and expertise to optimise each
project.
We are well aware that, while we must plan and operate for the present conditions,
in this business we must include strategies and understand the future. The biofuels
crops for the next decade are possibly not yet in the ground.
corporatefile.com.au
What are the advantages and potential pitfalls of being an alternative fuels
producer in the United States, Europe and Australia?
CEO Peter Anderton
The advantages are the extensive number of opportunities being presented to the
Group. There is now a lot of expertise within AAE. Some of this comes from our
experience in developing global mining projects where the industry is tough and
the financing of projects requires innovation and tenacity. Global opportunities in
the mining industry are boundless, but quality projects are more difficult to create.
The alternative energy industry is much the same - there are an extensive number
of opportunities, but there is a need for sound technology, engineering, logistics,
project management and commercial innovation to proceed successfully.
Our Group is now globally well structured with terrific all-round expertise in
technology, engineering, agriculture, project development, finance and operations.
The Beatrice Biodiesel Project and the Denco deal in 2005 are examples of
successfully leveraging off that expertise.
The pitfalls for us are potentially looking at too many opportunities and spreading
the Group too thinly. This is a real focus inside the Company and we are
continually assessing and re-evaluating our global approach.
corporatefile.com.au
What are the immediate objectives to advance the Central EU Biofuels Pty Ltd
acquisition?
CEO Peter Anderton
Central EU Biofuels Pty Ltd (CEB) has created a real opportunity for Agri Energy.
The global focus of the Company has enabled us to address the key pitfalls of the
previous CEB plans and with some changes enable the opportunity to be realised.
CEB has two principle current objectives. Firstly, it has a 20% interest in the
almost funded Ennsdorf Biodiesel Project in Austria, but in reality the project
finance will not happen without the support of AAE or a similar group. By
bringing together the technical expertise from our United States management team, resource banking support from Australia, and the equity support from the
group’s brokers in London, AAE can make it happen. Along the way we will
negotiate a 50%-plus ownership position and possibly a total ownership option.
This is good business as we are leveraging our expertise at minimal cost which
will result in real equity benefits for our shareholders.
Secondly, CEB has an agricultural focus and plans to develop an oil seed crusher
project in the Eastern Block. AAE has reviewed CEB’s business plan and we
believe our Group can add further value from our highly experienced agricultural
personnel in Australia and the United States. The initial economics are strong and
robust and with an experienced CEO now based in Budapest, we are excited about
the opportunity.
Of significance is that we now have a European presence which has been
recognised by the London and European investment markets. In fact, over 60% of
the funds raised in the recent capital raising came out of the London market which
is important because the Australian investment pool is shallow and the United
States market is tough for an ASX-listed group.
corporatefile.com.au
What are some of the longer term growth projects you are considering?
CEO Peter Anderton
Globally, the transport fuel industry is at a very exciting stage for the investment
community. At US$70/bbl crude oil, current technology gives the biofuels
industry a commercial advantage over traditional fossil fuels, even if one
eliminates all subsidies. Further technology development will only serve to
enhance this further and allow the industry to be more competitive.
The AAE strategy is to consolidate the projects we already have in the growing
fuel ethanol market in Australia and the rapidly developing biodiesel market in the
United States. We also plan to take advantage of our presence, partnerships and
regional opportunities which are available in the more mature ethanol industry in
the United States. The heavily mandated Western European biodiesel industry
also is intended to provide a sound cash flow base for the Group.
AAE has developed a robust pipeline of new projects in all three regimes, and has
invested wisely in technology, engineering, IT & T, personnel, land options and
environmental licensing to enhance these opportunities. Our project pipeline is
ready for development. A move to plus US$70/bbl oil will open the floodgates,
but the real opportunity for the Group is in feedstock development. We will
progress our strategy to grow corn in Australia because it is an industry that is
currently underdeveloped. The opportunities include new cropping regions such
as the north west of Australia and Eastern Europe, together with alternative crops
to suit Australia’s arid environment, and technologies that promise crop yields that
were a pipedream a decade ago. Add to this the international concern on global
warming and the high priority of government and society to address it.
AAE has a fair way to go as a company, but with a strong cash flow base from the
Beatrice Biodiesel Project later this year, and Swan Hill Ethanol in Australia and Ennsdorf Biodiesel in Austria coming into production in 2008, we are well
positioned to springboard off a broader foundation as the only global and
diversified biofuels investment.
corporatefile.com.au
Thank you Peter.