GrainCorp says it will cost the company more than $500 million to build a new large-scale oilseed crushing plant as it jostles with Cargill and giant West Australian farming co-operative CBH to become a big player in biofuels.
The company’s chief executive Robert Spurway revealed the price tag on Wednesday, saying he was concerned that market speculation around the cost was too low.
“We wanted to make sure that the market understood the scale of the opportunity that we envisage in this space in terms of capital that we could deploy,” he said.
“And then it follows that the returns associated with that [investment] are probably higher than the market was expecting as well.”
GrainCorp said it was still eyeing sites in WA for the plant despite Cargill moving first to secure prime land for a crushing operation next to a rail line and the CBH Kwinana grain terminal south of Perth.
Mr Spurway said a final decision would be based on supply of canola and other factors, with sites in the eastern states also in contention.
The company’s existing processing assets, including a small plant in WA, crushed a record 282,000 tonnes of canola seed in the six months to March 31.
GrainCorp reported first-half underlying earnings before interest, tax, depreciation and amortisation of $164 million, down from $383 million for the same time last year, and underlying profit of $57 million. The results were in line with downgraded guidance issued by the company 10 days ago and reflect a steep fall in farm production following some of the bigger grain harvests in Australia’s history.
GrainCorp declared an interim dividend of 24¢ fully franked and said it would push ahead with a $50 million share buyback in the next few weeks.
Mr Spurway said farmers in Queensland, NSW and Victoria were on track to produce well above average crops this winter in a potential boost for GrainCorp, but cautioned that would depend on rainfall over the next few months.
“The soil moisture profile across the east coast of Australia is very full and that provides the potential for a full planning area and the opportunity for well above average crops,” he said. “We are seeing an expectation therefore that the east coast crop in northern regions will rebound from the drought conditions we saw in 2023-24.”
Mr Spurway noted that Australia was now on La Niña watch, a weather pattern that in the past has favoured east coast grain production.
HMC Capital, which has taken several activist positions in ASX-listed companies in the last year, emerged as a significant shareholder on the GrainCorp register last month, saying there may be ways to get better value from the company’s seven port terminals through increased utilisation or ultimately a structural separation.
Mr Spurway said GrainCorp had met with HMC and would talk to them and other shareholders again following the mid-year results. “HMC have been very clear. They see future value in GrainCorp based on the value of our strategic assets, the strength of our balance sheet and the exposure that we’ve got to the biofuel feedstock space,” he said.
GrainCorp intends to build a new crushing plant with a capacity of 750,000 to one million tonnes a year and is buoyed by support for the biofuels sector announced in the budget on Tuesday.
BP, which has flagged converting a former oil import terminal at Kwinana into a biofuel production hub, also welcomed budget support which includes adding biofuels to the Future Made in Australia package.
ASX-listed Nufarm, which has an offtake and market development deal with BP around oilseeds, said the budget move was a win for farmers.
Mr Spurway would not comment on whether Cargill’s tie-up with CBH, Australia’s biggest co-operative and dominant west coast grain exporter, had put GrainCorp on the back foot in WA. “It is not at all surprising to see broad interest in this space. I think it highlights the scale of the opportunity we’re seeing and the likely capacity that will be required over time in Australia,” he said.
WA farmers typically produce most of Australia’s canola for oilseed crushing, but there are doubts about the size of the next crop after a bone-dry start to the year.
Extracted in full from: https://www.afr.com/companies/agriculture/biofuels-battle-graincorp-puts-500m-plus-price-tag-on-oilseed-plant-20240516-p5je16
