Australian investment firm Integrated Food and Energy Developments (IFED) is currently aiming to raise A$1 billion ($930 million; €700 million) in a second round of funding for its Etheridge Integrated Agriculture Project (EIAP), a sugar, guar gum and livestock operation in Northern Queensland.
It has already raised A$15 million to start a feasibility study for the project, whose geographical location and ability to produce fully traceable and sustainable produce, via a vertically integrated model, will appeal to Asian markets concerned with food safety and also enable the premium pricing of its products, according to Stewart Peters, IFED’s general manager.
“The integrated model will mitigate risks and produce high standard products with full traceability that is increasingly important to Asian consumers,” he told Agri Investor. “The speed to market will also enable us to charge what is known as the Far East premium on our products due to Queensland’s proximity to various Asian markets.”
The initial A$15 million came from six Australian investors and gave them preference shares representing a 40 percent stake in the project. IFED now aims to raise $1 billion of equity from three to five institutional investors investing at least A$200 million each. It will also raise some $850 million in debt; agri-bonds would be a good form of debt to use, according to Peters.
The preference shares from the first round can be redeemed at completion of the second round of capital raising for twice their initial price, or will be converted to ordinary equity and diluted, but at a higher value than the second round shares.
IFED is talking to US family offices, global private equity funds, US insurers, Australian supers and US and Canadian pension funds alongside local and Asia trade players and foreign banks about the capital raise.
The vertically integrated agribusiness is a coordinated project with the Queensland Government, which is helping to promote the project and will also provide an Environmental Impact Statement, necessary to start operations, once the feasibility study has been completed.
The feasibility study is expected to complete by April 2015. Until then, IFED is working to get contracts negotiated and in place to start construction of the project as soon as the study has been completed and approved.
IFED has already secured long-term options to buy key properties in Queensland between the Einasleigh and Gilbert Rivers representing 326,000 hectares overall.
It will invest A$500 million into acquiring 241,000 hectares of grazing land and 65,000 hectares of cropping farmland – 40,000 will be dedicated to growing sugar and 25,000 to guar gum. It will also build its own infrastructure on 2,000 hectares including a sugar mill, a guar gum plant, a feed mill, a cogeneration plant and a meat processing plant costing in total around A$1 billion.
From the bagasse, a bi-product of sugar, the cogeneration plant will produce steam which will be converted to electricity; half of this will be will connected and sold to the national grid.
The molasses, cane tops and bagasse from the sugar will also be components of cattle feed that will be produced by IFED’s own feed mill. By-products of the guar gum processing, hull and germ, will also contribute to the feed.
The company aims to buy around 200,000 cattle from external producers. And IFED will build a basic meat processing plant that is “one step down from an abattoir”, according to Stewart.
Guar gum will be sold as a fracking agent to mining operations and Peters expects prices will increase as the demand for oil strengthens.
All products will be sold into Asia except the guar gum which will be sold into a variety of markets, according to Peters. All products will be certifiably clean and traceable in an effort to pick up on the demands of many Asian countries concerned about food safety.
IFED will invest the remaining A$500 million into building a sustainable water and irrigation system over 18,000 hectares of land. John Grabbe, director, IFED, who previously created a system for Cubbie Station, Australia’s largest grain farm, has designed a system that will involve 550,000 megalitres of water a year.
“Farmers and other water-users usually build a dam to ensure their water supply but this is wrong as it interferes with the ecology of the river. Instead we will divert a certain amount of water from the river flow without interfering with it.”
This partial flow diversion, accounting to 8 percent of the natural flow, will be stored in tropical lakes. This will be very deep avoiding too much evaporation; a common issue with water storage, according to Grabbe. These tropical lakes will become natural habitats in their own right after a while.
The method of irrigation will be “sub-surface trickle” which is a very efficient way of watering crops and can include fertilisers to ensure they are applied as efficiently as possible with minimal impact on the surrounding area.
A trade sale to strategic players is the most likely exit, according to Peters.
“There has been a lot of activity in the sugar industry recently in terms of M&A, particularly from Asian businesses, so I think that a trade sale will be the most likely outcome, however we are also open to an IPO.
IFED will employ a relatively flat management structure by employing local contractors to work the land. Each contractor will be a mini business that will have to win the business and under this structure IFED aims to avoid “myriads of management”, according to Grabbe.