ferret's stock to watch: australian renewable fuel

Ferret's Stock to Watch: AUSTRALIAN RENEWABLE FUELS LTD
08:12, Friday, 3 June 2005

BIODIESEL COMPANY PITCHING TO BECOME VIABLE ENERGY PRODUCER

Sydney - Friday - June 3: (RWE Australian Business News)
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OVERVIEW
********

Here is another alternative to fossil fuels which in the longer
term could reduce the pressure on rising energy prices.

Australian Renewable Fuels Ltd (ARW) is well down the track to
produce Biodiesel from renewable resources such as animal fats and
vegetable oils including (but not limited to) canola, soybean oil, palm
oil, tallow and used cooking oils.

The company's plan is to set up Biodiesel plants within
Australia.

It is expected that production will commence in Adelaide in
November and in Picton (Bunbury WA) in March 2006.

Directors claim a number of vehicle and diesel engine
manufacturers have confirmed that biodiesel is suitable for use in
certain of their engines.

It can be used in conjunction with mineral diesel, as well as
being used as a lubricity agent in mineral biodiesel.

Biodiesel proclaims its benefits compared to mineral diesel
include: emissions; safety; environmental outcomes; and it is
biogradable and non-toxic.

The company aims to achieve a minimum biodiesel production
capacity of 220 million litres a year (mlpa) within three years of
listing.

To achieve the targets, ARW's strategy is to develop five plants
around Australia.

The Federal Government grant of $7.1 million for the Adelaide
plant (the remaining 75pc upon commissioning/domestic sales) strongly
endorses the business model.

The business was given a boost late last year via the issue of
$16 million convertible notes which provided the funding required for
the second biodiesel plant in Picton.

Post IPO and receipt of the grant, ARW will have had a total of
$50 million of funds injected towards the development of its business.

The Australian biodiesel market is at an infancy stage,
according to Shaw Stockbroking which rates ARW as a speculative buy.

It offers growth opportunities in the fledgling industry that
hasn't even got off the ground.

The 220 mlpa is about 1.5 per cent of the total usage of diesel
in the Australian market.

Biodiesel can be used directly or as a blend.

Shaw Stockbroking says growth in the European biodiesel industry
offers most relevance as a comparable market, where production now
exceeds three billion lpa.

Whilst start-up risks and business risks are involved, the
broker's modelling of ARW suggests a profit level from a minimum of two
plants at $15 million.

It believes a mid-teen P/E is relevant, noting additional growth
opportunities.

This would suggest a share price substantially higher than IPO
if targets are achieved.

In addition, if oil price strength continues the FY07 profit
could prove conservative.

Share price performance may benefit from renewable/ethical funds
accumulating a position noting comparable opportunities for these funds
appear infrequently.

SHARE PRICE MOVEMENTS
*********************

Shares of ARW yesterday rose 5c to $1.03. Rolling high for the
year has been $1.03 and low 82.5c. Dividend policy is 40 per cent of
net profit after tax from 2006, subject to capital requirements.

ARW's intention is to be Australia's pre-eminent biodiesel
producer, with plans in progress to grow sales in Australia with support
from contracted sale options into the established European market.

Initial capacity of 88 mlpa is targeted in 2007.

The Adelaide and Picton plants each produce 44 mlpa. ARW has the
benefit of operating in an emerging dynamic industry yet to be fully
explored or understood by emerging peers.

Shaw Stockbroking reiterates that an investment in ARW brings
with it the usual start-up risks, classifying it as a speculative risk.

Assuming successful commissioning the broker believes the
company will outperform over the longer term due to its first mover
advantage which should enable it to capture several additional business
opportunities.

BACKGROUND
**********

Australian Renewable Fuels Ltd was listed on the Australian
Stock Exchange on May 10, 2005 although it was founded by Amadeus Energy
in 2001.

Biodiesel has been in commercial production in Europe since 1991
and in the United States since 1997.

Production in Europe has almost doubled every two years since
1991.

Global consumption is now estimated at about 3 billion litres
per annum.

Biodiesel is rapidly becoming a desirable alternative to mineral
diesel.

The Australian market is still in its infancy with SA and WA
consuming about 1.2 billion litres and 1.8 billion litres, respectively,
of mineral diesel.

ENDS

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I don't hold ARW