Ferrets Stock to Watch: MISSION BIOFUELS LTD 08:29, Wednesday, March 07, 2007
LOCAL BIOFUELS COMPANY HEADED FOR CHINA
Sydney - Wednesday - March 7: (RWE Aust Business News) ******************************************************
OVERVIEW ********
Mission Biofuels Ltd (ASX:MBT) could not have timed its move into China any better as the giant shakes itself awake over the perils of pollution and will spend funds to tackle the problem almost immediately.
The WA-based company plans to enter the Chinese biodiesel market through landmark production and off-take agreements.
The company expects the China operations to generate immediate revenue and profits.
Mission has signed a Memorandum of Understanding for a joint venture production contract with East River Energy Resources and Science Technology (Zhejiang) Ltd (ER).
East River Energy will commission a 50,000 tpa biodiesel manufacturing facility at Tongxiang, about 140 kilometres from Shanghai, which Mission Biofuels will use to produce biodiesel to be sold into the booming Chinese market.
ER and Mission have agreed to replace the Memorandum of Understanding with a definitive agreement within 90 days.
ER will reserve up to 30,000 tonnes of its annual capacity to be used by Mission.
Mission will deliver the feedstock on a monthly basis to the facility at Tongxiang and ER will convert the feedstock into biodiesel at a fixed processing cost for Mission.
Mission will deliver up to 1,000 tonnes of feedstock to ER during the first 90 days for trial production runs.
ER will pay for this feedstock upfront.
All biodiesel will be produced to the draft proposed Chinese biodiesel standard.
Mission has also signed a letter of intent with Wuhan PetroChina Lubricant Co, to be replaced by a definitive agreement within 90 days.
Wuhan PetroChina markets refined oil products to gas stations, wholesalers and distributors.
Wuhan PetroChina will grant a put option to Mission to supply up to 2,000 tonnes per month of biodiesel from Mission on a take or pay basis at a price based on the published PetroChina daily wholesale mineral diesel price.
Wuhan PetroChina will collect biodiesel from ER's facility.
"This is an excellent development for the company and a very pleasing start for our business in China," Managing Director Nathan Mahalingam said.
"I believe there is the potential to earn revenues of about $16 million in the first year of China operations with a net EBITDA of over $2.4 million.
"According to our projections, Mission would start earning this revenue from July 2007."
The expected production throughput is 24,000 tonnes in the first year and ER is agreeable to expand its capacity, at its own cost, to cater for another 50,000 tpa exclusively for Mission Biofuels.
Should Mission Biofuels give the go ahead, ER has indicated that this additional capacity will be ready for Mission Biofuels within nine months.
SHARE PRICE MOVEMENTS *********************
Shares of Mission Biofuels yesterday rose 6c to $1.06. Rolling high for the year is $1.88 and low 94c. The company has still to pay a dividend. The company has 46.9 million shares on issue with a market cap of $46.94 million.
In the December half year the company continued to focus on the construction of the biodiesel refinery at the port of Kuantan in Malaysia.
To date its only revenue has been interest earned on funds deposited with financial institutions.
The company has incurred various costs in connection with the establishment of the biodiesel refinery in Malaysia.
Sales revenue is not expected until the plant is commissioned around October.
The after-tax loss for the current half year, when compared to the budget (after tax loss of $831,000 - Prospectus Financial Forecast) represents a 30 per cent improvement.
The main areas that contribute to this outcome are a substantial increase in interest income ($154,000), less-than-expected employee benefits expense ($34,000) and reduced payments to consultants ($37,000).
At the annual meeting last November, Mr Mahalingam told shareholders the company had performed exceptionally well on a number of fronts in the short period since listing on the ASX.
"Firstly, I am pleased to report that the company made a smaller after-tax loss of $0.6 million as compared to our prospectus forecast of a net loss after tax of $2.3 million," he said.
"This is reflective of the prudent financial practices put in place by the executive team.
"Immediately after the IPO, a senior management team has also been assembled at our Malaysian operations.
"Our project manager, Mr K H Wong, has been overseeing the construction of the plant from day one.
"He is a chemical engineering graduate from the University of NSW and has more than 16 years of experience in the design, operation and management of oleo-chemical plants in Malaysia. Mr Wong has been appointed plant manager once operations commence at the plant," Mr Mahalingam said.
"Our operations director, Mr T Venthan, is a bio-chemistry graduate from the University of Malaya.
"He has more than 25 years of post graduate experience in various management positions in the automotive and IT industries."
The managing director said the company has already contracted a leading IT supplier to install an ERP system for its operations.
It has also secured a second manufacturing licence for an expansion plant to be built alongside the first plant site.
This project has also secured a 100 per cent pioneer tax status which exempts the project from paying any income tax for five years from commercial production.
Against the backdrop where the Malaysian Government has put a freeze on the granting of additional licenses for Biodiesel production, Mission says this development is a significant and important one.
It said that as the industry gathers pace, more changes can be expected, such as revisions in biodiesel standards, eco-certification of biodiesel and new uses for biodiesel.
Mission pointed out that the transportation industry in Europe is predominantly a diesel market, with more than 50 per cent of new vehicle sales being diesel driven.
According to EU forecasts, this trend is expected to continue and the market for diesel as a transportation fuel is set to increase from the current 165 million tonnes to 202 million tonnes in 2020.
The trend for gasoline is, however, the other way around.
Mr Mahalingam concluded by saying Mission Biofuels is extremely well placed to become the pre-eminent biodiesel producer in the region, with its competitive advantages being:
* Selling into well-developed and deep markets;
* Feedstock - abundant supply and stable pricing;
* Technology - established and proven;
* Construction - ahead of schedule;
* Excellent portside location, good fiscal incentives; and
* Low-cost producer, robust business model.
Revenues are predicted in July, three months ahead of schedule due to the agreement with ER.
BACKGROUND **********
Mission Biofuels is a relative newcomer to the Australian Stock Exchange list, being first traded in May 2006.
The shares offered to the public were heavily oversubscribed.
At the annual meeting last November, Chairman Dario Amara told shareholders it had been an interesting and eventful period for Mission Biofuels.
He said the company has raised a total of $42.6 million, and is fully funded to construct and operate its first biodiesel refinery at Kuantan Port in Malaysia.
Construction of the project officially commenced on May 18 and on June 26 the Deputy Prime Minister of Malaysia officiated at the ground-breaking ceremony at the site.
Since then construction of the plant has proceeded exceptionally well, Mr Amara told shareholders.
The company's consulting engineers, SKM, have reviewed the progress made by the contractors against the construction schedule and SKM has expressed confidence that the project construction schedule will be met quite comfortably.
The team is focused on completing and operating the plant ahead of schedule as every month of operation means another $3 million or so will be added to the EBITDA.
"I am optimistic that the coming year will be a rewarding one and that the management team will rise to any challenge that the company may face," the Chairman concluded.
