SEAFARMS GROUP LIMITED — Call Transcript 2010

Jun 10, 2010

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Our Ref: CO2 ASX Announce Media Release – CO2 NZ Broadcast (280)

11 June 2010

Company Announcements Office
Australian Stock Exchange
10th Floor
20 Bond Street
SYDNEY NSW 2000

Dear Sir

ANNOUNCEMENT 280

By ASX Online
Number of pages: 5
(including this page)

CO2 Group Expands into International Carbon Markets - Broadcast

CO2 Group Limited (COZ) announced earlier today it had signed an agreement to enter the international carbon market.

The Company's CEO Mr Andrew Grant was interviewed by Boardroom Audio Australia to discuss the agreement.

CO2 Group provides the opportunity to listen to this Boardroom Audio Interview with Mr Grant in a presentation titled "CO2 Group Targets International Carbon Markets – Mr Andrew Grant, Chief Executive Officer".

To listen to the interview, copy the following details into your web browser: brr.com.au/event/66318.

The presentation details are as follows:

• CO2 Group targets international Carbon Markets - Mr Andrew Grant, Chief Executive Officer
• Presented by Mr Andrew Grant, CEO
• Fri, 11 Jun 2010 10:00am AEST

Yours faithfully
CO2 Group Limited

Harley Whitcombe
Company Secretary

CO2 Group Limited
Level 11, 225 St Georges Terrace Perth WA 6000
PO Box 7312 Cloisters Square Perth WA 6850
Tel. 08 9321 4111
Fax. 08 9321 4411
ABN 50 009 317 846
www.co2australia.com.au

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TRANSCRIPT

Board Room Radio - Andrew Grant Interview
'CO2 Group Targets International Carbon Markets'
11 June 2010

Interviewer: I am joined by Andrew Grant who is the Chief Executive Officer of the CO2 Group and we are talking with him in regards to a pretty significant expansion that the company is going to be making. Andrew, thank you very much for your time.

Andrew Grant: Thank you, James.

Interviewer: The CO2 Group has announced the expansion into international carbon markets. To get things kicked off, can you give us a background into the environmental services market?

Andrew: Yes. Well, our business focuses on servicing the carbon economy and in particular giving big emitters a lot of cost scalable solution to help in managing their emissions exposure, and in particular the compliance market which internationally last year was US$140-odd billion in size. So, one of the frustrations operating in Australia is the way the rules have been set up is that we have not yet been able to access the international markets. And the announcement we are making today is expansion into New Zealand where there is a domestic trading scheme. And one of the really critical features of the New Zealand scheme is that it enables you to export the New Zealand credits and service the international carbon market.

Interviewer: OK. And why is this opportunity such an important one for your business?

Andrew: Well, it gives us growth and it gives us... We have always been very much interested in being able to service the broader global carbon market and we have built our expertise and skills in Australia and we have developed market dominance here. We had hoped that with the passage of the Carbon Pollution Reduction Scheme, we would see dramatic growth. We are still enjoying growth and we are in a very secure position in Australia. We have got long-term contracts that we are still managing and delivering, but we are ambitious and we want a bigger piece of the action and by virtue again in New Zealand, it delivers much of that growth that we otherwise couldn't get in Australia.

Interviewer: OK. And in terms of the potential size of the markets you are going to be accessing, can you provide some background on that?

Andrew: Well, the good thing about the New Zealand market is that the area where our gross expertise is in forestry and under the way the scheme is designed, the forestry credits are exportable and equivalent to an assigned amount unit. So, in the global carbon market, which I mentioned is $140-odd billion last year assigned amount units alone is a subsection of that market of $2 billion. And there is a shortage and all the modeling and forecasting going forward is that the price of that carbon, trading at about 12, 14, 16 US dollars at the moment,

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will grow in price and we are seeing that if Europe were to take, for example, a 30 percent reduction target, which is what they are debating at the moment, we will see the price of carbon there grow to anywhere within north of 30 euros. So, to be able to have a low cost supply of carbon and be servicing the international market is a tremendous opportunity.

Interviewer: OK. And why isn't this access available through Australia?

Andrew: Well, as yet and we are lobbying the government strongly on this, is that the government - because it is a regulated market, you need in effect the government to put the administrative mechanisms in place to allow you to export your credits, because they need to be netted out from the government's compliance reporting and the government needs to assign what is known as an assigned amount unit which is your tradable credit. So, our projects as yet in Australia can only be utilised for the domestic market and we would like to be able to service Japanese and European and North American companies not only in helping in their compliance and their carbon needs in Australia, but we would like to be able to broaden our role with them to be able to service their needs internationally and the really wonderful opportunity that New Zealand presents is that it will give us that.

Interviewer: Moving to the New Zealand operation, can you provide a bit of detail on how you are going to set things up and how it will be working?

Andrew: What we are particularly excited by with the New Zealand opportunity is that the partnership that we are forming is principally with Tukia Group, which represents the large Maori groups on the North Island of New Zealand. And what's exciting about that is that under their scheme that they are given a substantial allocation of carbon credits for their existing forests and we are targeting about five million tons of preexisting carbon credits that will be brought into the joint venture. So, we start with a substantial base of carbon credits.

And in addition, they manage 176,000 hectares of forestry and so there is tremendous opportunity within that estate to develop a dedicated carbon forest. So, by virtue of the preexisting allocation of credits, which gives the business might and size instantaneously and their vast amount of land that they manage on behalf of the various Maori groups.

We are going to be able to bring a unique offer to the international carbon community in that we can give long-term supply of carbon at a known price, high quality and manage the whole delivery risk on behalf of the emitters. So, we are going to be very powerful player internationally in the forest community.

Our third partner there is Carbon Energy Partners who got very strong and established relationships with New Zealand business and particularly the energy sector, and that will help us form very strong relationships with the compliance parties in New Zealand.

Interviewer: OK. And in terms of the actual asset or the product that you are going to be planting; in Australia you have been using the mallee eucalypt, what are you going to be using in New Zealand and is there a difference, is there a performance measure for it?

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Andrew: Well, the exciting thing about New Zealand is that the scheme is more generous for forestry, and by that I mean it permits harvest in part, so you can have a combination carbon forest and a traditional forestry harvest model. So, the species that we will be growing there will be the ones that are grown commercially in the New Zealand forestry sectors, so the pines and the spruce and the eucalypts. We are also doing some development work on growing indigenous New Zealand trees for doing landscape restoration work and there's substantial areas of marginal land in New Zealand that need to be restored, but will deliver large volumes of carbon.

The other great thing about New Zealand is its natural features are very strong. It has incredibly high rainfall, high quality soils, very low risk environment, they don't have fires like they do in Australia. And consequently, the carbon yields are sensational and that means that the cost of carbon is cheaper, so we get highly productive carbon forests with a low cost of carbon.

So, ultimately, your competitiveness is a function of what it costs you to create a unit of carbon and, therefore, your ability to sell that into the market. Australia has a great advantage in scale. We have huge areas of land that are available, but they are low yielding areas. New Zealand is not the same amount of land, but nonetheless substantially areas are marginal land that will be high yielding and, therefore, very productive.

Interviewer: OK. And in terms of the environment, the regulatory environment, what was that like in New Zealand? How is the government approach to what you are doing?

Andrew: They have borrowed a lot of experience from Australia, which we have been impressed with and they are very easy to deal with, they have good science. And the advantage of going into New Zealand now is it's young and you can work collaboratively with the regulators and make sure that our experience as the largest forest carbon company in Australia, and I think largest in the world as best I can determine, is that we are in a position to collaborate with the regulators in such a way that there are practical lessons and to make sure these projects are efficient and effective, and you can share that knowledge with them, so we are looking forward to building that strong relationship.

Interviewer: OK. And just to finish up, in terms of contract wins or the size of the deals that you could be writing through this business, can you give us any indication as to that and I guess moving forward, you have announced this deal, what's the new flow, what are the next steps for your business?

Andrew: In terms of contracts, the way our business will work in New Zealand is that we are going to attract third party investors into dedicated carbon forests, and the partnership gives us that instantaneous relationship. So, we have got a partner who will also be an investor in their own right by virtue of their own land and their own carbon, so it's self-funded. In terms of scale, we have got very ambitious plans. We think we can get programs of 50, 80, 100 thousand hectares up. And so our first and immediate challenge is to get a funded carbon project implemented for next year's planting season.

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So, our priority over the next few months is working towards that target, identify the land, getting the structure ready and then from that we will have a number of carbon funds that we will develop and bring third party investors, compliance parties as well as passive third party investors. And it is a very secure environment over there by virtue of the fact you got legislation, got a compliance market and you have got export, so all of those are the necessary preconditions for that kind of opportunity.

Interviewer: In terms of the marketing, how do you attract these partners, is that a difficult process given our geographical location, is there a liquid market for people to look at what you are doing?

Andrew: Well, we were approached, so it is pleasing to know that the good work that we have done in Australia and the brand we’ve built, the international recognition we have got has led to this opportunity and I think it is testament to the success of the company to date. And to be able to build on the Australian operations and expand internationally is exciting. It is fantastic and it just means that the opportunity that we identified in the carbon market six years ago remains and we have been growing year in, year out. We are growing revenues since year one and we are confident we will continue that trend.

Interviewer: OK. Andrew, we appreciate you taking the time to speak with us today.

Andrew: Thanks James. I appreciate your time too. Thank you.