News

AA Co quietly probes Livingstone Beef plant sale

Jon Condon 21/10/2024

THE Australian Agricultural Co has engaged Melbourne-based advisory firm Kidder Williams to undertake a low-key attempt to find a buyer for its mothballed Darwin beef processing plant near Livingstone.

The discrete ‘off-market’ approach has engaged with ‘20 or so’ potential domestic and international buyers, Beef Central was told. A number of large processing, beef and cattle entities, both Australian and offshore – have confirmed that they have been approached over the past couple of weeks.

An agribusiness source said it had become an ‘open secret’ in the past fortnight that AA Co was more actively trying to find a buyer for Livingstone, which has remained idle since being shut suddenly in 2018, due to unsustainable operating losses.

Speculation suggests an asking price of somewhere between $50m and $75m, but other say that is wide of the mark.

“It’s only worth what someone will pay for it – a loss-making processing plant’s value has little to do with replacement or construction cost,” one source said.

Beef Central asked whether a joint-venture (involving AA Co) might be one of the options under the sale process, but the contact insisted the focus was on outright sale.

Since 2018 AA Co has consistently stressed that the mothballed Livingstone facility has been kept well maintained and serviced, with a view to a potential re-start at some future time.

Potential buyer inspections of the Livingstone site are planned over the next few weeks, Beef Central understands, but one contact warned not to misinterpret an ‘inspection’ as necessarily a serious intent to buy.

AA Co chair Donald McGauchie

AA Co chose not to respond to Beef Central’s inquiries about the plant’s future, instead directing us to comments made by chairman Donald McGauchie during this year’s annual general meeting in July.

Mr McGauchie said the company was undertaking a strategic review of all assets. Along with its other properties, the review would consider the best way to utilise the Livingstone processing facility, he told shareholders at the time.

“We have said for a number of years that we believe the asset has strategic value,” Mr McGauchie told the AGM.

“We have continued to maintain the facility with the knowledge of those potential future prospects. We are open-minded about the opportunities that will achieve the best value for shareholders, and look forward to sharing more details of the strategy and opportunities that we are pursuing in the near future,” he told the AGM.

Some observers have found it unusual that AA Co has not already notified the ASX of its Livingstone intentions, given the value of the asset.

Beef price cycle

Part of the explanation behind the current attempt to seek a buyer may be the change in the beef price cycle. At the time the plant was put into mothballs in 2018, lean Australian beef trimmings into the US market were worth about 580c/kg, in Aussie dollar terms. By mid October this year, the same box of trimmings was worth A939c/kg – close to the all-time record high, and a rise of 360c/kg.

While the big change in US domestic beef supply has taken far longer than what many anticipated, most see strong opportunities for manufacturing type meat prices over the next two years, as the US herd rebuild commences. That aligns nicely with Livingstone’s primary raw material source of cull cows and bulls.

If ever there was a time for Livingstone to re-active the chain, this could be it – but the challenge, as always, is what happens in the next down-cycle that follows. Regardless of its current potential to make money, any re-opening would need to ride-out both the peaks and the troughs.

Three-year operational history

The Australian Agricultural Co built the Livingstone plant under much fanfare in 2014-15 at cost of around $110 million. It closed in mid 2018, barely three years after being commissioned, after AA Co racked-up a statutory net loss after tax of $102.6 million for its full 2017-18 financial year, including a one-off write-down of $74.9m.

In an investor and analysts briefing in October 2015, the company said Livingstone was ‘now adding positively to the company’s bottom line.’ The original intention was to eventually double-shift the plant, killing up to 220,000 head of northern cattle each year.

During the official opening of the plant in February 2015, AA Co chairman Donald McGauchie described the facility as ‘transformational’. The Prime Minister of the day, Tony Abbott, said the project was the biggest private sector investment in agriculture in northern Australia ‘for many a long year.’

Speculation has immediately turned to Brazil’s Minerva as a potential buyer, given the company’s recent and rapid emergence as an Australian sheepmeat processor. Many have assumed Minerva would eventual extend into Australian beef.

Chief executive Iain Mars is presently overseas, and did not respond to Beef Central’s inquiry. However parent company Minerva has recently invested heavily in South America, buying 16 beef processing facilities from major rival Marfrig for US$1.37 billion. The Brazilian Government approved the takeover, from a competition perspective, in August.

Some feel that move may have reduced Minerva’s appetite for acquiring beef assets in Australia – for the timebeing, at least.

 

 

 

 

 

 

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Comments

  1. Michael Vail, 24/10/2024

    Fascinating ! There’d be few strategic reasons for AA Co to sell this asset … because this abattoir and meat processing facility, adjacent to that port-facility, gives options and choices domestically and internationally.

    If it is therefore, a tactical decision, the only one which makes any sense to my tiny little mind is, a small matter of CASH-Flow, liquidity, and debt reduction … as the cost-of-money increases, and therefore interest-payments on debt: and combined with the banks/financiers losing their appetite for risk-taking … and are asking creditors to get their house-in-order, and by a due date … but I’d be only guessing.

    If it was a true surplus asset, they’d be talking it up and getting others excited about paying a premium!

    This way it’s being touted, it’s like they already know there’s a huge discount coming on the $75-Million book-value.

    So, who is the most likely buyer … JBS or a Chinese player ?

  2. Neil Barrie, 22/10/2024

    This plant can make money at the $50m+ purchase price with a local fresh supply of Beef to northern retail and trade customers and export boxed Beef and Buffalo to the 300 million across the strait to the north.
    Avocadoes and stone fruit of significantly less value are grown and shipped from the Darwin hinterland, perishables of far less value and a more perilous supply chain.
    Debt funded and a host of northern Australian financial incentives would see Livingstone positioned where it should have been six years ago- slimmer,
    smarter, focused, and market flexible.

  3. Greg Campbell, 21/10/2024

    A meatworks can’t afford to shut down and turn staff away while supply roads are closed for a 3-4 month wet season. Several of AACos northern properties have bitumen access and could assist in supplying wet season cattle. An asset mix of large scale Top End properties, along with Livingston, could better suit investors. Such assets don’t fit the present Wagyu strategy and could be disposed to pay down debt or give shareholders a capital return. There’s a thought.

  4. Peter Vincent, 21/10/2024

    Another AACO train wreck for shareholders championed by the Chairman

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