Commissioning of Probiotec's new Jervois, SA plant means the...

Commissioning of Probiotec's new Jervois, SA plant means the company seems set to control about 20pc of the Australian lactoferrin powder market.

At present there are four main lactoferrin producers in Australia:

1. Warrnambool Butter & Cheese, ASX:WBC. MC $472m - Allansford, Vic - 16-20 tonnes pa

2. Bega Cheese, ASX:BGA. MC $787m - Tatura, Vic - 17.5m tonnes pa

3. Murray Goulburn Cooperative, Leongatha, Vic - 15 tonnes pa

4. Probiotic, ASX:PBP. MC $31.8m - Jervois, SA - 14 tonnes pa

My research tells me these four producers account for about one third of the world's lactoferrin output and are well-placed to profit from the global boom in dairy derivatives.

In dairy, lactoferrin is deemed "white gold".

Bouyed by Asian demand for infant formula, Lactoferrin prices have more than doubled in the last three years.

Apart from infant formula, lactoferrin is used for manufacturing yoghurt, food supplements cosmetics and toothpaste.

The price for lactoferrin currently stands at $1000 per kg or $1m a tonne.

This means that PBP will be grossing $14m from lactoferrin when Jervois reaches full capacity.

But PBP's Jervois plant is the world's only producer of dairy-protein immunublobulins.

It can produce up to 50,000kg pa of immunoglobulin, currently priced at $100 per kg.

At full capacity, total annual gross revenue from the Jervois operation will approach $20m - the cost of the plant.

Using whey from the United Dairy Power' nearby factory in Jervois, PBP's new operation may be highly profitable. It can be run by a manager and three full time operators.

And it's scalable at modest capex.

According to PBP managing director, Wayne Springer, the Jervois facility is the culmination of a large and long term investment.

"We expect the plant to contribute materially to earnings in calendar 2014.

"At expected whey volumes the plant is expected to generate…EBITDA of between $2m to $2.8m.

"If whey volumes increase to the plant capacity level, all output is sold and sales prices remain at present levels then the plant would be expected to generate EBITDA in excess of $10m."

On February 26, PBP advised the ASX that, while December half sales eased 5.4pc to $32.2m, EBITDA climbed 30pc to $3.75m.

Net profit climbed 226.9pc to $998,000.