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.
ENDS
Copyright © 2007 RWE Australian Business News. All rights reserved.
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