AA Co to raise $86m for NT plant

Jon Condon, 12/05/2011

Strong seasonal conditions have encouraged the Australian Agricultural Company to issue more shares to raise capital for projects including a northern abattoir facility and retirement of debt following earlier cattle purchases.

The world’s biggest cattle business says it wants to become more vertically integrated and plans to use some of the $86 million it will raise to build a processing plant near Darwin.

AA Co chief executive David Farley told a teleconference he expected the share offer to be mostly taken up by retail and institutional investors, but pointed out that current investors Felda, a Malaysian company and IFFCO, a Dubai investor, would not be able to participate in the share offering. Currently Felda and IFFCO hold 19.9 percent share of AA Co.

Of the revenue raised, $26 million would be directed at the Northern Territory meatworks project, designed to better utilise the region’s cull cows and bulls. Further funds for the project would come from unnamed other investors.
Mr Farley said AA Co wanted to take advantage of the strong demand for red meat and by-products, which are in high demand in Asian countries. Offal items like tongue were worth $25 a kilo in some markets currently, he said.

The move would also see the company reduce its exposure to the live export market, where weight and access restrictions currently apply in the dominant market, Indonesia, as well as saving money on trucking cattle long distances back to meatworks in Queensland.

It could cost NT cattlemen $270 a beast to move cattle from properties in the Victoria River District to processing plants on Queensland’s east coast.

Other funds from the share issue will be used to retire debt accrued earlier in the year. In March, AA Co spent $31.4m buying 53,000 cattle and agistment from the Tipperary group of properties in the NT’s Top End.

Mr Farley says 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 finish more stock.

Within the company’s Wagyu production stream, he said the live export of AA Co’s surplus Waygu cattle to Japan to replace herds decimated by recent disasters was also bringing strong prices.

Mr Farley predicted a bullish run for cattle returns in the near future, saying that Australia was one of the lowest cost producers of beef per kilo in the world at the moment, with excellent seasonal conditions.  In the Channel Country, company cattle were putting on up to 700 grams/day at a cost of just 63c/kg to produce.

At yesterday’s Annual General Meeting, shareholders were told the company was likely to turn a net profit this year of $60-$65 million, most of which would be generated in the second half.

The board advised that shareholders could receive a dividend of up to 6.1c a share, on the back of greatly improved season conditions, and hence productivity. Many company properties now had excellent supplies of grass not only this year, but next as well.


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