May 11, 2011

 

AAco raises funds to introduce capital projects

 

 

AAco said outstanding seasonal situations have caused the company to give more shares to raise money for capital projects which will enable it to become more vertically integrated, as well as establish an abattoir in Darwin.

 

The CEO of AAco, David Farley, said it hoped to raise AUD86 million (US$93 million).

 

Farley expected the share offer to be taken up mostly by retail and institutional investors. He did note that current investors IFFCO, a Dubai investor, and also Felda, a Malaysian company, would not be able to be part of the share offering. They currently together hold 19.9% share of AAco.

 

Of the revenue raised, AUD26 million (US$28.2 million) will be spent on building a meatworks in the Top End, along with money from other investors whom Farley was not willing to disclose.

 

Farley said AAco wants to take advantage of the strong demand for red meat and red meat products such as offal and hides, which are highly demanded by Asian countries. He says tongue prices are AUD25/kg (US$27) at the moment.

 

The move would also see the company reducing its reliance on the live export market, which in the past few years has seen restrictions imposed by the main market Indonesia, and it would save the company money in trucking costs.

 

Farley said its costs them about AUD270 (US$293) a beast to move cattle from some of the north western properties in the Northern Territory to processing plants on the east coast of Queensland at the moment.

 

The money raised from the share issue will also be used to retire debt that has been accrued earlier in the year.

 

In March, the company spent AUD31.4 million (US$34.1 million) purchasing 53,000 cattle and agistment from the Tipperary group of properties in the Northern Territory.

 

Farley said any extra revenue raised from the share offer would be kept to take further advantage of the cattle trade market, where properties would be agisted or leased rather than purchased, to enable the company to fatten more stock.

 

He said the company's beef trading initiative has proved very lucrative with a shortage of replacement cattle across the nation.

 

In other business areas of the company, Farley said the live export of AAco's surplus Waygu cattle to Japan to replace herds decimated by foot and mouth disease is also fetching excellent prices.

 

Farley also predicted a bullish run for cattle returns in the near future, commenting that Australia is one of the lowest cost producers of beef per kilo in the world at the moment, with excellent seasonal conditions.

 

He said, in the Channel Country, cattle are putting on 500-700 grammes per day and it is costing the company about AUD0.63 (US$0.68) a kilogramme to produce.

 

The company will hold its Annual General Meeting tomorrow, where a net profit before tax of between AUD60 million (US$65.2 million) and AUD65 million (US$70.6 million) is expected.

 

AAco shares are in a trading halt at the moment, but were last trading at AUD1.55 (US$1.68).