Thank you John for the excellent posts on this company. I was in...

Thank you John for the excellent posts on this company.

I was in Kununurra in mid 2013 and took the time to have a look at the plant and a plantation. I chose not to make an investment at that time but many of my concerns at the time have now been addressed. Here's a couple of thoughts about the competitive edge this company has.

The Ord River irrigation scheme was first established in the 1960s. It seemed like a waste to have all of the wet season water flowing out to sea unused. But for 30 years nothing that was grown really took off. Sugar cane was uncompetitive with Queensland - the Kununurra rum distillery now imports sugar cane from Qld; fresh fruit and veges were too far from large city markets, even mangoes which are still grown in the area are less competitive than Queensland. The best success story up until 15 years ago was seeds for market gardens closer to the major capitals. That solved the transport issues as seeds are easier to transport than fresh produce. But basically the Ord was a big white elephant with 20 times the water of the Sydney Harbour and no successful commercial use for it. Then along came Sandalwood and it is now by far the most successful industry to spring off the Ord River irrigation scheme. The point of the story is that there is basically no competing land use for the plantations used for Sandalwood plantations. That's got to be a competitive advantage. It keeps costs low and yet in Kununurra, there's a good community for a skilled workforce to live in. And now with Ord stage 2 and 3 there is more land being opened up for cultivation.

The second competitive edge for TFS is the complexity of growing the plantations. Sandalwood is a parasite tree. It's quite a complex task to grow the trees that host the Sandalwood and then grow the sandalwood on them. It makes replication of their plantations really quite difficult.

The third competitive edge is that TFS owns the only plant in the world that produces pharmaceutical grade sandalwood oil. This has clear benefits if a market can be established in the pharma space.

These competitive advantages add up to a wide moat. If the a robust market can be established, this should be an excellent business. I entered today with the plan of being a longer term holder.

Cheers,
Tim.