Agriterra Ld Regulatory News (AGTA)

18 Aug 2009 07:00



Agriterra Ltd / Ticker: AGTA / Index: AIM / Sector: Agriculture

18 August 2009

Agriterra Ltd ('Agriterra' or 'the Company')

Proposed Acquisition of West African Palm Oil Company

Agriterra Ltd, the AIM listed company focussed on the agricultural sector in central and southern Africa, announces that it has signed a Memorandum of Understanding to acquire, in principle, Equatorial Biofuels (Guernsey) Limited ('EBF'), the palm oil developer, from Equatorial Palm Oil Plc ('EPO'). The consideration for the acquisition, which is subject to due diligence and certain conditions, is expected to be approximately US$12 million, to be satisfied by a cash payment of US$2.5 million and the allotment of 110,000,000 Ordinary Shares in the Company. The potential acquisition of EBF is in line with Agriterra's strategy to acquire or invest in businesses operating in the agricultural sector in Africa, and will complement its existing activities of grain processing and cattle ranching in Mozambique.

EBF, which is wholly owned by EPO, is focussed on becoming a sustainable, low-cost producer of crude palm oil in Africa through the reactivation and development of its existing plantations and agricultural land bank, which total more than 169,000 hectares in Liberia, West Africa. Through its Liberian subsidiary companies, EBF has large areas of land suitable for brownfield redevelopment, in addition to cleared or secondary growth land available for expansion, all of which has limited impact on virgin forests. The Company sees that there is potential for early cash flow from EBF from the reactivation of up to 10,000 hectares of existing plantations. Importantly, EBF has established strong relationships with local and regional government, with a 50 year investment agreement signed and ratified by the Liberian Government.

In addition to EBF's large agricultural land bank, it also plans to establish an out-grower scheme in Liberia, which will work to train members of the local community and create long term employment and livelihoods. This is similar to the models being utilised at the Company's grain buying and processing operation in Mozambique, which provide a market for circa 500,000 small holder farmers. EBF has committed to a target of employing over 5,000 local workers by 2017 and has already embarked on evaluating community and infrastructural projects to improve the regional infrastructure including the local ports. This is in line with EBF's stated objective of becoming a leading producer of crude palm oil, primarily for human consumption, in western Africa and open up export markets for crude palm oil to other areas of Africa.

Agriterra CEO Andrew Groves said, "This proposed acquisition will advance our objective of building Agriterra into a pan-African agricultural business with a portfolio of activities which already includes substantial grain buying and processing operations and cattle ranching in Mozambique. EBF meets our criteria of investing in agriculture and food producers as over 75% of palm oil is consumed in food preparation, and there is strong regional and international demand for the product as one the world's major vegetable oils. The acquisition of EBF will provide Agriterra with an all-important operational and logistic hub in western Africa and access to the rapidly growing crude palm oil market within an established development area. Liberia is currently a net importer of crude palm oil, and West African nations as a whole import more than 400,000 tonnes per annum, so there is already a vast untapped demand for domestically produced palm oil. With increasing investment directed towards improving infrastructure in Liberia, we will also have the ability to export our produce via the local Atlantic coast ports utilising the Company's expertise in transport and logistics.

"By diversifying our product range to include food stuffs such as crude palm oil, which is used in a plethora of products such as margarine, chocolate and zero-trans fat cooking oil, we enable year round processing of a variety of products. By expanding our geographic reach to other countries and regions within Africa, we ultimately mitigate potential risks associated with individual commodity production and localised weather anomalies, creating an evermore attractive investment opportunity to existing and potential shareholders."

Further announcements regarding the acquisition of EBF will be made to shareholders in due course. 

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