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SEAFARMS GROUP LIMITED Capital/Financing Update 2017
65771_rns_2017-06-01_732efcaa-7024-4f27-be09-e2ffcb88cdbc.pdf
Capital/Financing Update
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seafarms
Market Update and Capital Raising Overview
June 2017
Transformation of Australia's largest aquaculture shrimp producer into a global player
Seafarms Group Limited
Disclaimer
This investor presentation has been produced by Seafarms Group Limited ACN 009 317 846 (Seafarms or the Company) only in relation to a placement to sophisticated and professional investors (Placement) and a Share purchase Plan (SPP). In accepting this presentation, you acknowledge and agree to be bound by the following terms and conditions.
To the extent permitted by law, neither Seafarms, nor any of its related bodies corporate, directors, officers, employees, associates, affiliates, agents or advisors (collectively, Related Parties):
- make any representations or warranties, express or implied, in relation to this presentation or the accuracy, reliability or completeness of any information in this presentation or the performance of Seafarms;
- accept any responsibility for the accuracy or completeness of this presentation and the information contained in this presentation;
- make any recommendation as to whether you should participate in the proposed Placement or SPP;
- accept any responsibility for any interpretation that any recipient or any other person may place on this presentation or for any opinion or conclusion that any recipient or any other person may form as a result of examining the information contained in this presentation;
- accept any liability, including, without limitation, any liability arising out of fault or negligence, default or lack of care on the part of Seafarms or the Related Parties; or
- accept any liability, whether direct or indirect or consequential, for any loss, damage, cost, expense, outgoing interest, loss of profits or loss of any kind suffered or incurred by any person (whether foreseeable or not) as a result of or by reason of or in connection with: the provision or use of information contained (or not contained) in this presentation; or any recipient (including its representatives or advisors) acting or relying on any information provided or referred to in or omitted from this presentation or any other written or oral opinions, whether the losses arise in connection with any negligence, default or lack of care on the part of Seafarms or the Related Parties.
Any recipient of this presentation acknowledges and agrees that:
- they will rely entirely upon their own assessment advice in relation to the business, assets, financial position and affairs of Seafarms, including conducting independent inquiries, due diligence or analysis with appropriate legal, financial and other advice, as required;
- any opinions expressed in this presentation are based on the knowledge and approach of the persons forming the opinion at the date that the opinion was formed and may have ceased or may in the future cease to be appropriate in the light of subsequent knowledge or attitudes; and
- neither Seafarms nor any Related Parties: have caused or authorised the issue, submission, dispatch or provision of this presentation, nor do they make any recommendation as to whether any potential investor should participate in the proposed Placement; makes or purports to make any statement in this presentation; or accepts any fiduciary obligation to or relationship with any investor or potential investor in connection with the proposed Placement or otherwise.
This presentation may contain forward looking statements that are based on management's current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward looking statements. The forward looking statements contained in this presentation include statements about future financial and operating results, possible or assumed future growth opportunities and risks and uncertainties that could affect Seafarms' business. These statements are not guarantees of future performance, involve certain risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate. Actual outcomes and results may differ materially from what is expressed in this presentation. In any forward looking statement in which Seafarms expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurances that the statement or expectation or belief will result or be achieved or accomplished. Seafarms is not under any duty to update forward looking statements unless required by law.
This presentation is not a prospectus and does not constitute or form part of an offer, invitation or recommendation in respect of securities, or an invitation to buy or apply for securities, nor may it, or any part of it, form the basis of, or be relied on in connection with any contract or commitment whatsoever. The Company is under no obligation to update or keep current the information contained in this presentation or to correct any inaccuracy or omission which may become apparent, or to furnish any person with any further information. Any opinions expressed in the presentation are subject to change without notice. This presentation may contain information (including information derived from publicly available sources) that has not been independently verified by the Company.
An investment in Seafarms shares is subject to investment and other known and unknown risks, including those summarised under "Key Risks" in this presentation. Seafarms does not guarantee any particular rate of return or the performance of Seafarms, nor does it guarantee the repayment of capital from Seafarms or any particular tax treatment. Persons should have regard to the risks outlined in this presentation.
This presentation does not, and does not purport to, contain all the information prospective investors in Seafarms would desire or require in reaching an investment decision. It should be read in conjunction with Seafarms' other continuous disclosure announcements lodged with the ASX which are available at www.asx.com.au. The information in this presentation does not take into account the objectives, financial situation or particular needs of any person. Nothing contained in this presentation constitutes investment, legal, tax or other advice. Before making an investment decision you should consider whether it is suitable for you in light of your own investment profile, objectives, financial circumstances and the merits and risks involved and seek appropriate professional advice.
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seafarms
International Offer Restrictions
This document does not constitute an offer of new ordinary shares or options (New Securities) of the Company in any jurisdiction in which it would be unlawful. No action has been taken to register the New Securities, or otherwise permit the offer or issue of New Securities, in any jurisdiction outside of Australia. The distribution of this document may be restricted by law and this document is not to be distributed to any person, and the New Securities may not be offered or sold, in any country outside Australia except to the extent permitted below.
United States
This document does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States. Any securities described in this document have not been, and will not be, registered under the US Securities Act of 1933 and may not be offered or sold in the United States except in transactions exempt from, or not subject to, the registration requirements of the US Securities Act and applicable US state securities laws.
Hong Kong
WARNING: This document has not been, and will not be, registered as a prospectus under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong, nor has it been authorised by the Securities and Futures Commission in Hong Kong pursuant to the Securities and Futures Ordinance (Cap. 571) of the Laws of Hong Kong (SFO). No action has been taken in Hong Kong to authorise or register this document or to permit the distribution of this document or any documents issued in connection with it. Accordingly, the New Shares have not been and will not be offered or sold in Hong Kong other than to "professional investors" (as defined in the SFO).
No advertisement, invitation or document relating to the New Shares has been or will be issued, or has been or will be in the possession of any person for the purpose of issue, in Hong Kong or elsewhere that is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to New Securities that are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors (as defined in the SFO and any rules made under that ordinance). No person allotted New Securities may sell, or offer to sell, such securities in circumstances that amount to an offer to the public in Hong Kong within six months following the date of issue of such securities.
The contents of this document have not been reviewed by any Hong Kong regulatory authority. You are advised to exercise caution in relation to the offer. If you are in doubt about any contents of this document, you should obtain independent professional advice.
New Zealand
This document has not been registered, filed with or approved by any New Zealand regulatory authority under the Financial Markets Conduct Act 2013 (FMC Act).
The New Securities are not being offered to the public within New Zealand other than to existing shareholders of the Company with registered addresses in New Zealand to whom the offer of these securities is being made in reliance on the transitional provisions of the FMC Act and the Securities Act (Overseas Companies) Exemption Notice 2013.
The New Securities may only be offered or sold in New Zealand (or allotted with a view to being offered for sale in New Zealand) to a person who:
- is an investment business within the meaning of clause 37 of Schedule 1 of the FMC Act;
- meets the investment activity criteria specified in clause 38 of Schedule 1 of the FMC Act;
- is large within the meaning of clause 39 of Schedule 1 of the FMC Act;
- is a government agency within the meaning of clause 40 of Schedule 1 of the FMC Act; or
- is an eligible investor within the meaning of clause 41 of Schedule 1 of the FMC Act.
Persons who come into possession of information in this document who are not in Australia or New Zealand should seek independent advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.
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Contents
- Overview of Seafarms Group
- Capital Raising and Debt Conversion
- Brief Overview of Seafarms
- Current Queensland Operations
- Overview of Project Sea Dragon
- Risks
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seafarms
Overview of Seafarms Group Operations
Seafarms Group Limited (SFG) is currently Australia’s largest producer of farmed prawns, underlining its operational aquaculture expertise
- SFG is an ASX listed Australian agri-food company, with a current market capitalisation of c. A$77 million.
- Seafarms is rapidly advancing its world class Project Sea Dragon (PSD) project:
- A large scale, integrated, land-based shrimp/prawn aquaculture project in Northern Australia
- At full production, PSD will become the only producer from a developed country offering a significant volume of superior shrimp product
- SFG is Australia’s largest producer of farmed prawns under the well known Crystal Bay brand (producing Banana and Black Tiger Prawns). It produces 1,700 tonnes p.a. in Queensland (Cardwell), equal to 37% of the Australian prawn aquaculture market
- The Queensland operations have provided the company with a platform to develop and test best practices for its planned industrial scale PSD operation.
- CO2 Australia carbon and environmental services company continues to provide cashflow to SFG.
seafarms
Overview of Seafarms Group Team
Highly experienced management team across project development and management, aquaculture operations, finance and business development.
Key SFG Management Team Members
Ian Trahar
Executive Chairman
- Extensive experience in the resource and financial services across multiple industries and organisations
- Previous roles include joint CEO of Avatar Industries, Chairman of Ranger Minerals along with executive roles at Shell Australia and Citibank
Dr. Chris Mitchell
Managing Director - PSD
- 20+ years experience in Australian and international climate change research holding both senior and executive roles
- Foundation Director of the Centre for Australian Weather and Climate Research
Ian Leijer
Commercial Director
- Chartered Accountant with 20+ years experience in corporate finance, strategy and business management
- Previously CFO of former ASX listed Company Avatar Industries Ltd and interim CEO of ASX listed Kresta
Dallas Donovan
Chief Operating Officer
- 20+ years aquaculture experience including technical and production management, harvesting, processing and marketing
- 6 years managing the National Prawn Company in Saudi Arabia - one of the world's largest fully integrated aquaculture operations
Jairo Llanos
Technical / Production Manager
- 35+ years of experience in Saudi Arabia and South America
- Direct experience managing commercial shrimps operations, including extensive experience in large scale prawn/shrimp aquaculture including hatchery, breeding programs and grow out.
Owen Stacy
Director PSD Project Delivery
- 40 years experience in engineering and project management with major infrastructure, mining, ports, power generations and industrial projects
- Company governance, strategic planning, risk management and feasibility study processes
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seafarms
A$10m Capital Raising and A$2.5m Debt Conversion
The capital raising and debt conversion will enable SFG to finalise Indigenous Land Use Agreement (ILUA) and Project Agreement and strengthen its negotiations to secure funding for the Stage 1 of Project Sea Dragon.
The Capital Raising comprises:
- a Share placement to institutional and sophisticated investors to raise A$8M at an issue price of $0.06 per Share (Placement)
- a share purchase plan to eligible shareholders to raise A$2M (SPP) at an issue price of $0.06 per Share (with the capacity to accept a further A$2m of over subscriptions)
- Subscribers under the Placement and SPP will receive an entitlement to receive a bonus option for each 2 new shares subscribed for. The options will have an exercise price of $0.10 and will expire in July 2021 (Options). The Options will be issued under a prospectus in mid-July 2017
- The Placement will be settlement underwritten and SPP (up to A$2M) will be fully underwritten by Bell Potter Securities Limited on usual terms and conditions
Subject to shareholder approval, Avatar Finance Pty Ltd (Avatar Finance), a company controlled by the Executive Chairman of SFG, Mr Ian Trahar, will subscribe for A$2.5M of Shares at an issue price of $0.06 per Share. These funds will be used to repay debt owed to Avatar Finance (Debt Conversion). Avatar Finance will receive an entitlement to receive a bonus option for each 2 new Shares issued under the Debt Conversion.
| Placement (A$8M) | |
|---|---|
| No. of shares | 133,333,333 Shares |
| Issue price | A$0.06 per Share |
| Entitlement to participate in | Yes, 66,666,666 Options |
| Option issue on a 1 for 2 basis | |
| Underwriter | Bell Potter Securities Limited |
| Investors | Institutional and sophisticated investors |
| SPP (A$2M with further A$2M oversubscription capacity) | |
| No. of shares | Up to 33,333,333 Shares (for A$2M) |
| Over- subscription capacity | Yes, up to 33,333,333 Shares (for a further A$2M) |
| Issue price | A$0.06 per Share |
| Underwriter | Bell Potter Securities Limited |
| Entitlement to participate in | Yes, up to 16,666,666 Options and up to a further |
| Option issue on a 1 for 2 basis | 16,666,666 Options for over subscriptions |
| Investors | SFG Shareholders as at 1 June 2017 |
| Debt Conversion (subject to shareholder approval) | |
| No. of shares | 41,666,666 Shares |
| Issue price | A$0.06 per Share |
| Entitlement to participate in | Yes, 20,833,333 Options |
| Option issue on a 1 for 2 basis | |
| Investor | Avatar Finance or its associates |
seafarms
A$10m Capital Raising and A$2.5m Debt Conversion
Key Dates
| ACTION | INDICATIVE DATE |
|---|---|
| Announcement of Capital Raising and Option Offers | Friday, 2 June |
| Placement | |
| Trading halt | Wednesday, 31 May |
| (Prior to commencement of trading) | |
| Announcement of results of Placement and trading halt lifted | Friday, 2 June |
| Issue of new Shares under the Placement | Friday, 9 June |
| New Shares issued under Placement commence trading on normal basis | Tuesday, 13 June |
| SPP | |
| SPP Offer Opens | Monday, 5 June |
| SPP Offer Closes | 5.00pm (Perth time), Tuesday, 20 June |
| Issue of new Shares under the SPP | Friday, 30 June |
| New Shares issued under SPP commence trading on normal basis | Monday, 3 July |
| Debt Conversion | |
| EGM for approval of Share issue under Debt Conversion | Tuesday, 4 July |
| Issue of new Shares under the Debt Conversion (subject to shareholder approval) | Wednesday, 5 July |
| Option Issue | |
| Options prospectus lodged with ASIC and ASX and despatched to eligible shareholders | Wednesday, 5 July |
| Option Offer opens | Thursday, 6 July |
| Option Offer closes | Tuesday, 11 July |
| Options issued under Option Offer | Monday, 17 July |
| Options commence trading on normal basis | Tuesday, 18 July |
A shareholders meeting to approve the debt conversion and refresh the Company's new issue capacity will be held in early July 2017.
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seafarms
A$10m Capital Raising and A$2.5m Debt Conversion
Use of funds
- Proceeds will fast track the development of PSD and fund the project through to FID and assist in securing project finance for Stage I.
- Proceeds from the capital raising will principally be applied to:
- Securing outstanding agreements, approvals, permits, licenses including the Indigenous Land Use Agreement, Project Agreement, non-pastoral land use permit and other government approvals
- Facilitating project funding including adviser costs, negotiations with equity and debt funding participants
- Engineering and detailed design and procurement packages i.e. construction ready
- Further technical due diligence on and acquisition of secondary sites associated with breeding program facilities
- Costs of the capital raising and general working capital requirements
- Funds raised from the subscription by Avatar Finance will be used to repay debt owed to Avatar Finance.
Director participation and intentions
All Directors (and their associated entities) propose to participate to the maximum extent permissible under the SPP.
Directors (and their associated entities) are not permitted to participate in the Placement or to take up any shortfall under the Placement or SPP.
Mr Trahar controls Avatar Finance, which has agreed to subscribe for $2.5m of Shares to repay debt under the Debt Conversion.
seafarms
Overview of Seafarms Group Corporate Snapshot
| FINANCIAL | Unaudited 31 March 2017 $m | Capital Raising and Debt Conversion 1 $m | Pro forma 31 March 2017 $m |
|---|---|---|---|
| Cash | 0.8 | 10.0 | 10.8 |
| Net Assets | 23.3 | 12.0 | 35.3 |
| Debt² | 6.4 | (2.5) | 3.9 |
¹ assumes A$10.0m raised under Capital Raising (before fees and expenses)
² Avatar Facility is currently drawn to $8 million. The Debt Conversion reduces the outstanding principal under the Avatar Facility to $5.5 million.
CAPITAL STATUS (as at 30 May 2017)
| Share Price | $0.067 |
|---|---|
| Market capitalisation | A$77 million |
| Shares on issue | 1,151,349,528 |
| Preference shares on issue | 30.5 million |
COMPANY INFORMATION
| ASX | www.asx.com.au (code SFG) |
|---|---|
| Company Website | www.seafarms.com.au |
| Share registry | Computershare Investor Services Pty Ltd |
DIRECTORS (as at 30 May 2017)
| DIRECTORS (as at 30 May 2017) | Shareholding | |
|---|---|---|
| Ian Trahar | Executive Chairman | 35.61% |
| Paul Favretto | Director | 3.26% |
| Harley Whitcombe | Director and Company Secretary | 1.06% |
| Chris Mitchell | Director | 0.21% |
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Project Sea Dragon
Project Update
Significant progress has been achieved over the last 7 months; momentum continues.
Key Project Workstream Status
| Workstream | Status | |
|---|---|---|
| 1 Project Design | Earthwork studies | ✓ |
| Feasibility study | ✓ | |
| Trial Ponds constructed | ✓ | |
| 2 Site access and agreements | Legune Station | ✓ |
| Staff accommodation lease | ✓ | |
| Exmouth Quarantine and Founder Stock Centre operational | ✓ | |
| Processing plant Lease Agreement with WA Gov | Advanced stages of negotiations | |
| 3 Approvals and permits | Environmental Approvals – NT Government | |
| Legune Station | ✓ | |
| Bynoe Harbour Breeding Facilities | ✓ | |
| Environmental Approvals – Commonwealth Government | ✓ | |
| NT Government Project Agreement | Finalisation of documentation | |
| 4 Traditional land owner engagement | Indigenous Land Use Agreement (ILUA) with relevant traditional owners | Advanced stages of commercial negotiations |
| 5 Financial | Team engaged - Lazard, Pareto Securities and Andrew Robb | ✓ |
| Financing due diligence information and expert reviews commenced | ✓ | |
| Engagement with investors and financiers continuing | ✓ | |
| Growing level of interest both domestically and internationally | ✓ |
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seafarms
Project Sea Dragon
Project Update
SFG has secured all major environmental approvals and is currently finalising the ILUA and Project Agreements. The start of significant construction is expected to commence in the dry season of 2018.
- To date, SFG has invested over A$50m on the initial detailed feasibility study, the required EIS approvals and the Queensland operations
- Construction is limited to the dry season for PSD
- In Northern Australia, the dry season generally runs from April to October each year
- Once operational, PSD will operate all year round
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Current Operations - QLD
Further operational improvements are budgeted for the 2017 calendar year.
QLD Operations
- Queensland operations at Cardwell have been operational since 1988.
- The Cardwell operations were redesigned in 2014 (where practical) to reflect the operational design, procedures and methodologies to be adopted at PSD. Black Tiger prawn production commenced in 2014.
- Ongoing operational improvements have seen efficiencies in production and processing and the company's significant commitment to its breeding and domestication program is also delivering significant operational benefits.
- Production growth from SFG's Queensland Operations have increased by 180% since 2013.
- Key improvements in all key operating metrics since 2014.
Industry Issues
- Farms on the Logan River in Queensland (some 1,200km south of Seafarms operational sites) have been affected by white spot syndrome disease (WSSD) and are subject to biosecurity orders and controls by Biosecurity Queensland. There is also a ban on the import of uncooked prawns into Australia.
- Seafarms is NOT affected by WSS virus and NO animals, at any Seafarms site have tested positive for WSS virus.
- Seafarms is actively working with industry and Government, including providing access to our staff who have extensive international experience.
- Seafarms maintains a high level of operational biosecurity including surveillance, monitoring and control.
- The outbreak reinforces the design and choice of site for Project Sea Dragon, where geographic isolation, high level of inbuilt biosecurity, use of domesticated (and SPF) stock and recirculation are core criteria to maintain a biosecure and disease free operating environment.
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seafarms
Overview of Project Sea Dragon
Key Investment Highlights
PSD offers the opportunity to develop one of the world's largest Black Tiger Prawn industrial aquaculture facility, capturing the benefits of proximity to the world's largest end market for a premium product, a growing forecast supply-demand gap, and operational leverage on a scalable production facility
| Component | Comment |
|---|---|
| 1 Significant known product demand | Seafood will play a key role in meeting the accelerated demand in protein from a growing global middle class |
| ▶ Global middle class population forecast to increase from 1.8 billion in 2009 to 4.9 billion by 2030 | |
| ▶ Forecast supply is insufficient to meet demand – seafood supply gap is estimated to be >50Mt by 2030 | |
| Trial export shipments from existing Queensland operations has demonstrated strong demand for SFG product | |
| 2 Proximity to key end markets | The growth in the global middle class will largely be driven by Asia |
| ▶ Regional preferences for seafood to drive a near doubling in global seafood demand to 261Mt by 2030 | |
| ▶ China is expected to account for 38% of global seafood demand by 2030 | |
| Northern Australia ideally located to tap into this important market | |
| 3 Supportive trade framework | China-Australia Free Trade Agreement enacted by both governments in June 2015 |
| Elimination of Chinese tariffs on Australian prawns within 4 years to further improve PSD’s relative cost position | |
| ▶ Since the China-NZ FTA was introduced, exports of NZ seafood to China have quadrupled | |
| 4 Premium product | Black Tiger Prawns attract a premium to the price of the globally traded White Prawn market price index |
| PSD is targeting larger prawn sizes which attracts an additional pricing premium | |
| 5 Differentiated operations and barriers to entry | PSD will be one of the world’s largest producer of Black Tiger Prawns |
| Most competitors produce White Prawns due to more successful domestication and biological performance | |
| Black Tiger Prawn aquaculture requires more advanced breeding and domestication techniques, representing significant barriers to entry and enhancing their relative scarcity as a higher quality product | |
| ▶ SFG possesses the technology and experience to farm Black Tiger Prawns successfully |
seafarms
Key Investment Highlights (cont'd)
| Component | Comment |
|---|---|
| 6 Outstanding levels of biosecurity | ☑ Prawn disease is a key risk in prawn aquaculture |
| ▶ White spot disease currently identified in the Logan River in South Queensland | |
| ☑ SFG has developed stringent biosecurity protocols and standards at its North Queensland operations, with key best practice learnings able to be applied to PSD | |
| ☑ Location and operational structure of PSD provides a significant biosecurity advantage | |
| ▶ Separate locations for breeding, grow out and processing activities mitigates risk of disease | |
| ▶ Geographic remoteness of grow out areas at Legune Station assists in effective quarantine | |
| ▶ PSD’s full vertical integration allows control of prawn specific pathogen free status | |
| 7 Opportunity to further improve yield | ☑ SFG has demonstrated a 37% yield improvement for Black Tiger Prawns over CY2016 at its Queensland operations using in-house operational best practice and breeding techniques |
| ☑ End to end control from founder stock to harvest will allow PSD to capture all yield improvement opportunities | |
| 8 Scalable operating costs | ☑ Low fixed operating cost base, with majority of operating costs scalable to production volumes |
| ☑ Queensland operations require 1 FTE for every 13 tonnes of prawns harvested, whilst SFG will target 1 FTE for every 100 tonnes at full production | |
| 9 Fully vertically integrated project | ☑ Control of prawn aquaculture from eggs to prawn harvest and processing allows PSD to |
| ▶ Maximise biosecurity | |
| ▶ Drive and capture all biological and operational improvements at each stage of the process | |
| ▶ Deliver a consistent high quality product to customers | |
| 10 Material upside from additional stages | ☑ Stage 1 will include headwork infrastructure for all subsequent stages |
| ☑ Limited incremental capital expenditure required for each subsequent stage | |
| ☑ Benefit of operational leverage for each subsequent stage |
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Growing Global Protein Demand
Seafarms seeks to tap into the accelerated demand for protein from a growing Asian middle class. A significant proportion of this new demand is expected to be met by seafood aquaculture
Key macro-economic trends
- Global population expected to grow to 8.5 billion by 2030
- Levels of urbanisation forecast to increase from 54% in 2015 to 60% by 2030
- Global ‘middle class’ forecast to increase from 1.8 billion in 2009 to 4.9 billion by 2030
- Key source of growth is Asia, where seafood is culturally preferred over red meat
Impact
- Annual consumption of protein per capita to increase by 10%, from 41kg to 45kg by 2030
- Global seafood demand will increase by c. 86% from c. 140Mt in 2007 to c. 261Mt in 2030
- Major part of daily Asian diet
- Forecast aquaculture supply growth is not sufficient to meet forecast demand growth
- Current baseline supply growth projections to 2030 leave a shortfall of 50Mt
Source: UN, FAO, OECD Observer
Growing Global Population and Middle Class
The Role of Seafood in Meeting Protein Demand
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The Role of Aquaculture in Global Protein Supply
The increasing role of aquaculture in meeting global protein demand offers up a number of commercial opportunities
Increasing Industrialisation Reduces Risk
Source: Marine Harvest, Kontali, Pareto Securities
Note: bubble sizes are indicative of relative size of harvest volumes
- Currently there are only a limited number of fully integrated industrial scale prawn aquaculture facilities globally
- The industrialisation of salmon aquaculture has reduced associated operational risks such as biosecurity, quality control and cost management
- Applying the same learnings to prawns is expected to have a similar impact on associated operational risk and profitability
- Seafarms is currently gaining meaningful expertise at its Cardwell operations, which will be leveraged at a greater scale at Project Sea Dragon (PSD)
Prawn imports by value in EU, US and Japan
Source: Globefish
- Prawns are one of the world's most traded seafood products, with strong recent growth in demand
- White Prawns from Vietnam and South America are currently the most widely farmed and traded species globally
- Black Tiger Prawn variety produced in locations such as Australia are a premium product and attract a price premium to the White Prawn species
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seafarms
Project Sea Dragon – Overview
PSD will be a large scale fully integrated land-based prawn aquaculture project in northern Australia
- At full operation, PSD will produce 100,000+ tonnes of Black Tiger Prawns p.a. over 10,000 Ha of land based pond aquaculture
- Full operation to be achieved over several incremental stages
- Stage 1 will involve the development of:
- Headwork infrastructure for Stage 1 and all subsequent stages
- 1,120 Ha of ponds, producing 12-14Kt p.a.
- SFG holds an Access and Option Agreement over the Legune cattle station in the Northern Territory for the development of PSD
- Legune Station is a 180,000 Ha site, ideal for industrial scale prawn aquaculture
- Topography (flat landscape) and soil type necessary for low cost pond infrastructure earthworks
- Access to large salt and fresh water resources
- Access to local workforce and export terminals
- The remote location of Legune is optimal for mitigating biosecurity risk for PSD production
- Local support is strong given low environmental impact and a significant future employer
- Few sites in the world able to produce on this scale from a biosecurity and logistics perspective
PSD Facilities Locations
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PSD – A Fully Vertically Integrated Project
Complete end to end control of operations will allow SFG to ensure absolute biosecurity and process control
Key Process Steps in PSD Prawn Aquaculture
- Eggs, Genetics & Broodstock
- Hatching / juveniles
- Farming
- Processing
- Sales, marketing and logistics
- Founder Stock Centre has been established at Exmouth
- PSD has its own proprietary selective breading programme
- Wild stocks domesticated for minimum two years to ensure specific pathogen free prawns
- Programme already commenced
- Continuous advanced genetic marker selection to enable productivity improvements and disease resistance
- Close cooperation with CSIRO and James Cook University
- SFG will own and control its own broodstock
- Hatchery to be set up near Darwin
- Discrete bio-secure location
- Will supply PSD with Post Larvae ("PL") ready for release into ponds
- Stage 1 of the hatchery will produce over 16 million PLs/week
- PLs will be trucked to the Grow-Out farms at Legune in special tanks
- To be built at Legune Station
- Separate "farms" of c. 360 to 400 Ha each, consisting of 36-40 ponds of 10 Ha each
- Stage 1 permitting for 1,120 Ha of ponds
- Full project to comprise 9 stages to complete 10,000 Ha of ponds
- Good quality seawater with recirculation
- Sufficient fresh water to manage salinity in ponds
- Processing plant to be constructed near Kununurra ~100km on all weather road to be built by state governments from Legune station
- Expansion along with project stages
- Processing primarily frozen Head on Shell on shrimps
- Modern processing equipment
- PSD is targeting export markets
- Leverage off the recognised Crystal Bay Prawn brand in both existing and new markets
- Product will be packed into reefer containers and trucked to the best available port and shipping line (Darwin, Fremantle or Adelaide)
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PSD – Key Project Components
Stage 1 of PSD will involve the construction of 1,120 Ha of ponds as well as all supporting infrastructure for Stage 1 and subsequent stages
- Stage 1 of PSD will comprise of:
- Breeding facilities
- Grow-out facility of 3 ‘farms’
- Supporting infrastructure for full scale project
- Each farm will consist of up to 40 individual ponds of approximately 10 Ha in size that can operate as an independent production unit
- The construction works have been broken down into defined work packages with preliminary cost forecasts based upon market testing
- Several components of project construction risk mitigated by use of third-party contractors
- Construction for earthworks, the technically simple aspects of project, to be self-performed
- SFG has completed a detailed full scale test pond construction program at Legune
| Project Delivery | |
|---|---|
| Project Component | Construction Party |
| Earthworks | PSD self perform |
| Facilities, plants and roads | Third-party contractor, largely fixed price basis |
| Power station | Third party BOO |
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Government Support for PSD
| Component | Benefit for PSD | Description |
|---|---|---|
| 1 Major Project Status | Priority and streamlined access to individual governments via relevant ministers to facilitate approvals process | PSD was awarded Major Project Status |
| Northern Territory Government July 2015 | ||
| Federal Government July 2015 | ||
| Western Australia September 2015 | ||
| 2 Northern Australia Infrastructure Facility (NAIF) | Seafarms has initiated a dialogue for PSD to access concessional project loans | The Australian Federal Government has made A$5 billion available in concessional loans for infrastructure through the NAIF |
| 3 China-Australia Free Trade Agreement (ChAFTA) | Elimination of Chinese tariffs on Australian prawns within 4 years will improve cost competitive position of PSD’s product further | ChAFTA enacted by both governments in June 2015 |
| China is expected to account for 38% of global seafood demand by 2030^{1} | Since the China-New Zealand FTA was introduced, exports of New Zealand seafood to China have quadrupled | |
| 4 Approvals and Agreements | Government(s) support package, including commitment to upgrade access roads to all weather surfaces and accommodation facility | A Project Development Agreement with the Northern Territory Government is in the process of being finalized |
| Commonwealth A$40m commitment to road, WA Gov A$16.7m | ||
| 5 Other | More efficient licence and permit approval processes for PSD, including Legune Station use as aquaculture | Introduction of reforms to reduce red tape and amend pastoral leases |
- Source: World Bank
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Seafarms – Key Risks
Company Risks
| Ability to raise sufficient capital to fund growth and development | ✓ The continued growth and development of the Company’s carbon and aquaculture businesses will be dependent upon the ability to access funds to finance required capital for growth through expansion of existing operations and new acquisitions and to continue to develop Project Sea Dragon. There is a risk that access to capital on acceptable terms will not be available. Even if finance is available it may be on terms that materially dilute your equity position. |
|---|---|
| Aquaculture operation risks | ✓ Given the remote location of the Company’s current and proposed aquaculture operations, the Company may be unable to attract and retain suitable staff, poor labour efficiency/productivity may result, equipment used may not meet expectations and difficulties may arise with respect to logistics and marketing. In addition, labour costs in Australia are high compared with many competitors. |
| Carbon operation risks | ✓ Seafarms is still engaged in its existing carbon business. National and state laws and changes in regulation affect many facets of carbon markets. Changes in regulation can impact on market conditions and thus business confidence. Carbon sinks are exposed to agricultural risk associated with weather, fire event and seasonal climatic conditions which may influence the growth of plantations. |
| Insurance | ✓ the Company has taken out insurance to cover its current business operations. However, the Company’s insurance policies, in some circumstances may not provide adequate insurance cover. The occurrence of an event that is not covered or fully covered by insurance could have a material adverse effect on the business, financial condition and results of the Company. |
| Government regulations | ✓ National and local laws and regulations affect nearly all existing and planned aquaculture operations. These laws and regulations set various standards governing certain aspects of Project Sea Dragon’s proposed operations, including for example health and environmental quality and provide for penalties and other liabilities for the violation of such standards. The Company has environmental monitoring protocols in place, but changes in regulations or unforeseen events may create liability for the Company. |
| Dependence on key personnel | ✓ The Company is reliant upon its key management personnel. The loss of the services of certain personnel could have an adverse effect on the Company, as it may not be able to recruit replacements for the key personnel within a short time frame. |
| Research and Development | ✓ The Company’s business activities and operations involve research and development, which has inherent risk. |
seafarms
Seafarms – Key Risks
Project Sea Dragon Risks
| PSD is a near term development opportunity | Although the Company is progressing with final investment decision on Project Sea Dragon there can be no assurance that a final investment decision will be made or will result in committed financing and a project being developed. |
|---|---|
| Project Approvals and Agreements | the development of Project Sea Dragon is subject to the Company receiving the required state and local government approvals and finalisation of stakeholder agreements. |
| Project Execution | Project Sea Dragon is also subject usual project development risks, including those associated with funding, engineering, unforeseen project construction delays or site specific challenges. |
| Shrimp Market | the financial performance of Project Sea Dragon will be influenced by certain economic factors, including: the price and availability of key inputs such as feed, any material disruption to distribution channels; and fluctuations in consumer demand which may negatively impact the international price for shrimp. |
Aquaculture Industry Risks
| General Aquaculture risks | Aquaculture is a form of primary production and has the normal and usual risks associated with primary production. These risks include but are not limited to, weather and climate risk, risk of natural catastrophe such as storm surge or wind damage, risks from pest and disease, sudden changes in environmental conditions that impact growth performance, or even death arising from failures in systems, plant and equipment (including adverse changes in water temperature, oxygen concentrations or salinity levels). |
|---|---|
| Disease/Biosecurity | Disease is a major risk in any animal husbandry or aquaculture project. Disease may enter the production system through the broodstock and hatchery system, from the environment via water or through wildlife or human vectors. The Company has minimised these risks by implementing tight operational biosecurity measures and minimising the use of externally sourced post-larvae, and through rigorous pond preparation. The Company undertakes careful monitoring of prawn health which, combined with modern husbandry techniques that reduce the prevalence of pathogens, also mitigate the effects of any disease. The remote locations of the Company's current and proposed aquaculture operations, geographic separation and the lack of water and air pollution also reduces the risk of disease and contamination. |
| Environmental Impacts | Aquaculture operations have the risk of impacting on the environment, internally and externally. Externally, tail water from an aquaculture farm may fail to meet required specifications. Strategies to minimise the impact and risks to the environment, including surrounding vegetation, terrestrial and marine species are in place for the Company's existing operations. |
| Water supply | Aquaculture operations require sufficient access to quality water sources year round. The Company currently has access to adequate sources of water for its current operations in northern Queensland. |
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Seafarms – Key Risks
Capital Raising Risks
There are certain risks associated with participating or not participating in the Capital Raising, including:
| Underwriting risk | ✓ The Company has entered into an Underwriting Agreement with Bell Potter Securities Limited (the Underwriter) under which the Underwriter has agreed to underwrite the Capital Raising, subject to the terms and conditions of the Underwriting Agreement. The Underwriters’ obligations to underwrite the Placement and SPP are conditional on certain customary matters, including (but not limited to) the Company delivering certain confirmation certificates, due diligence documentation and shortfall certificates. |
|---|---|
| Future capital requirements | Further, if certain events occur, the Underwriter may terminate the Underwriting Agreement. Termination of the Underwriting Agreement may have an adverse impact on the Company’s ability to fund the Company’s carbon and aquaculture businesses. If the Underwriting Agreement is terminated, it will have to consider alternative funding options, which may or may not be available on acceptable terms or may result in dilution to shareholders. Termination of the Underwriting Agreement could materially and adversely affect the Company’s business, cashflow, financial performance, financial condition and share price. |
| The Company is likely to require additional capital in the future. The Company’s ability to do this at an appropriate price will be significantly impacted by commodity prices, market conditions and the capital raising environment at that time. Future capital raising by the Company may result in your shareholding being diluted. |
General Risks
The business activities of the Company are subject to various general economic and investment risks that may impact on the future performance of the Company. These risk factors include, but are not limited to those summarised below:
| Taxation and government regulations | ✓ Changes in taxation and government legislation in a range of areas (for example, the Corporations Act, accounting standards and taxation law) can have a significant influence on the outlook for companies and the returns to investors. |
|---|---|
| Investment in capital markets | ✓ As with all stock market investments, there are risks associated with an investment in the Company. Securities listed on the stock market, can experience price and volume fluctuations that may be unrelated to the operating performances of such companies. These factors may materially affect the market price of shares regardless of the Company’s performance. The price of shares might trade below or above the issue price for the new shares issued in connection with the Capital Raising |
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Seafarms – Key Risks
General Risks cont.
| Accounting standards | Australian accounting standards are set by the Australian Accounting Standards Board (AASB). Changes to accounting standards issued by AASB could materially adversely affect the financial performance and position reported in the Company’s financial statements. |
|---|---|
| General economic risks | The operating and financial performance of the Company is influenced by a variety of general economic and business conditions, including levels of consumer spending, oil prices, inflation, interest rates and exchange rates, supply and demand, industrial disruption, access to debt and capital markets and government fiscal, monetary and regulatory policies. Changes in general economic conditions may result from many factors including government policy, international economic conditions, significant acts of terrorism, hostilities or war or natural disasters. |
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seafarms
Contact Us
Seafarms Group Limited
Level 11, 225 St Georges Terrace
Perth WA 6000
PO Box 7312
Cloisters Square WA 6850
T. +61 8 9321 4111
F. +61 8 9321 4411
E. [email protected]