AAE agri energy limited

company update

  1. 153 Posts.
    Agri Energy Limited
    Level 9
    644 Chapel Street
    South Yarra, VIC 3141
    Date of lodgement: 07-Feb-2007
    Title: Open Briefing®. Agri Energy. Chairman on Strategic Additions
    Record of interview:
    corporatefile.com.au
    Agri Energy Limited (ASX code AAE) recently announced a name change from
    the previous Australian Ethanol Limited. The share price has slipped from around
    that time. Can you explain the fall in share price when it seems you have made
    several positive announcements lately?
    Chairman Peter Anderton
    The last few weeks has seen the Company conclude a number of outstanding
    issues which were hanging over the Group’s plans to proceed in a definitive
    manner. The most significant has been the finalisation of the total debt and equity
    requirements for the Beatrice Biodiesel Project.
    I had expected the investment market to see these announcements as extremely
    positive. We have now eliminated the project’s financing risks to progress the
    strategy and plans for the Group. Our flagship project, Beatrice Biodiesel, is going
    extremely well. Construction is progressing ahead of schedule. It is on capital
    budget and on time to meet the September 2007 production and cash flow target.
    Other positive announcements are the planned acquisitions of Central European
    Biofuels Pty Ltd and an agricultural services business in Australia. When
    completed these acquisitions will provide great impetus to our growth with a low
    cost of entry point. These are excellent deals and great opportunities for the
    Company. They are consistent with our strategy of becoming more integrated with
    the upstream feedstock supply, partly to capture more of the value chain, but
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    mostly to mitigate risk and increase our control over the critical components of our
    cost structure.
    Another issue that has come to light in the last few days and which appears to have
    caused some confusion in the investment market is the recent ASX substantial
    shareholder announcements. After the recent capital raising and placement, our
    substantial shareholders are reporting their revised shareholder position to the
    ASX. As a result, the overall percentage holding of the long standing core
    shareholders in the Company has reduced, despite the fact that these investors
    supported the recent capital raising and have actually increased their quantum
    shareholding in AAE. This is a result of the size of the placement which more
    than doubled the size of the company, and introduced of a number of substantial
    investors onto the register.
    corporatefile.com.au
    What about the impact of higher grain prices and how that is affecting the ethanol
    and biodiesel industries in the US?
    Chairman Peter Anderton
    High grain and commodity futures in the United States and a recent decline in oil
    price have put pressure on current biodiesel and ethanol producers. That appears
    to have spooked investors. The higher grain and vegetable oil futures have been
    driven by speculators who have entered the bio energy space through the
    agricultural input side and as a result have distorted the grain market futures. This
    is forecast to correct itself in the second quarter when the United States grain
    planting figures for this year are released.
    Soy and soy oil prices are forecast to come off in April 2007 once the new planting
    figures are released. This will occur for three reasons. Firstly, soy and soy oil
    stockpiles are at all-time highs. The current mismatch between the physical
    market and the exchange traded or derivative market is not sustainable. Secondly,
    world plantings have increased significantly in reaction to a perceived global
    increase in demand for oil for the purpose of biodiesel production. From this,
    we’ve seen higher derivative prices. Thirdly, a number of biodiesel projects
    announced over the past couple of years have not reached the financing stage, and
    so will not progress. These factors, together with the food industry’s worldwide
    switch to palm oil, have led to a significant reduction in demand for soy oil in the
    short to medium term against what was originally forecast. These assumptions
    were confirmed at the Biodiesel Conference in Arizona earlier this week. AAE is
    eight months away from production, so we are confident that the soy oil market
    will be more balanced by then.
    We in fact consider the high world commodity prices and the lower oil price to be
    good news for biofuels projects that are still in production (such as ours), as it has
    put a brake on biodiesel and ethanol development globally and in the US in
    particular. This has resulted in a rationalisation of the industry. That’s a positive,
    as it will stop poor quality projects from coming online as well as possibly shutting
    down those that aren’t performing either because they are either too small or do
    not meet biodiesel product specifications..
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    corporatefile.com.au
    What is AAE doing to mitigate the risk of high input costs?
    Chairman Peter Anderton
    The investment market does not appear to recognise the local basis (or discount)
    position on the purchase of feedstock in local regions such as south eastern
    Nebraska. In this region for instance, the physical price for soy oil currently trades
    US3-5c/lb below the futures price on the Chicago Board of Trade (CBOT). The
    current soy oil physical price in Beatrice is in line with our forecast for production
    later in the year.
    We are working with our soy oil supplier, CHS Inc., to lock in contracts and
    margins for when the Project comes on-stream. The Australian share market
    appears to rely on the CBOT commodity price to analyse project cash flows and
    not the local price that is negotiated in particular regions. South East Nebraska is a
    very competitive location for soy oil and corn, particularly in the current market.
    One of the hardest issues for AAE to deal with is that the Company is consistently
    compared to the biodiesel producers here in the Australian market where securing
    feedstock and offtake contracts are significant issues. These, along with
    unfavourable legislation, technology and engineering issues in a number of cases,
    have hurt all domestic producers and tainted the investment community’s
    perception of the biodiesel sector.
    AAE is not planning an immediate entry into the Australian biodiesel market and
    as such we should not be judged in that market. Our strategy is to produce
    biodiesel in the US, where producers of quality B100 receive a US$1.00/gallon
    subsidy, and ethanol in Australia where there is currently a significant fuel ethanol
    shortage. President Bush’s recent State of the Union address emphasised the
    growing dependence of the US on the biofuels industry - all of which is positive
    news for the industry and should be positive news to investors.
    corporatefile.com.au
    Can you explain the name change to Agri Energy, particularly the implications for
    your growth strategy?
    Chairman Peter Anderton
    The new name better reflects the Company’s businesses and strategy. We are a
    unique group operating both in biodiesel and ethanol, and possible in the future,
    bio-lubricants. We have a global strategy, in both ethanol and biodiesel, to be
    producers in the major markets in Western Europe, the United States and
    Australia.
    In addition, AAE is focussed on the key operating cost differentiator in the
    industry - agricultural commodities. Our global strategy for cost competitive feed
    stocks is intended to put AAE at the bottom of the cost curve once we are in
    production. For instance in Europe, low cost oil seed from Eastern Europe is sold
    into the heavily mandated and subsidised Western European biodiesel markets.
    Our European strategy incorporates this.
    4
    corporatefile.com.au
    Can you describe the corporate structure of Agri Energy and its main projects?
    Chairman Peter Anderton
    Agri Energy Limited is an Australian company listed on ASX and holds interests
    in subsidiary companies in each country in which the Group operates. The incountry
    subsidiaries hold an interest in each of the operating entities to optimise
    taxation and cash flow benefits to Agri Energy.
    AAE owns US Canadian Biofuels Inc in the United States, Australian Biofuels Pty
    Ltd in Australia and Central European Biofuels Pty Ltd (once the acquisition is
    finalised) in Central Europe. In turn, those holding companies own and operate
    each project which is structured as a separate corporate entity.
    For example Agri Energy’s subsidiary, US Canadian Biofuels Inc, a Delaware
    Corporation, owns all of the shares in Beatrice Biodiesel LLC and Beatrice
    Ethanol LLC which are the operating entities for each project. All international
    subsidiaries and operating entities are wholly owned.
    corporatefile.com.au
    What is the status of your two foundation projects - the Beatrice Biodiesel Project
    in Nebraska and the Swan Hill Ethanol Project in Victoria? Are these progressing
    to schedule? What’s the biggest risk for Beatrice?
    Chairman Peter Anderton
    I was in the United States last week and attended our US Canadian Biofuels Inc
    Executive Committee Meeting. The Beatrice Biodiesel Project is now fully
    funded and progressing to budget and to schedule. The implementation strategy is
    working as planned and is currently reflecting the cost saving benefits we factored.
    Alberici Constructions, the construction manager, is performing extremely well
    and we are very impressed with the site quality, safety and performance. At this
    stage, the Group remains confident of an August 2007 commissioning and to be
    fully operational by September 2007.
    Progress on the Swan Hill Ethanol Project was delayed until we secured finance
    for the Beatrice Biodiesel Project, which we have now done.
    Up until that point at Swan Hill, we had concentrated on completing engineering,
    purchasing equipment, minimising design and construction risk by completing
    final construction drawings, and locking in pricing. This process has been very
    successful in reflecting some significant design improvements including improved
    logistics and implementation options and securing firm prices for a major portion
    of the facility. The overall effect has been a reduction in project cost and a higher
    confidence level in the final costs.
    The biggest risk to the company lies in our ability to manage the remainder of the
    construction process. Alberici is the largest industrial contractor currently
    operating in Nebraska and has a history of delivering industrial projects
    successfully. We’re now committed to over 80% of the capital costs of Beatrice.
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    Design and procurement is complete, hence eliminating design and scope risk.
    The concrete works are substantially complete, and a so far mild winter has been
    of benefit. Our strategy of spending the money up front on the design and
    planning before we let contracts begin or commence on site works is paying off.
    We remain confident on this front.
    corporatefile.com.au
    Thank you Peter.
 
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