With its shares down 81 per cent this year as it grapples with a flagship $1.45 billion project deemed as unviable, Darwin-based Seafarms Group (ASX: SFG) now faces further turmoil as its largest investor seeks to remove CEO Mick McMahon from the board after just five months in the role.
Seafarms is one of the largest aquaculture operators in Australia, selling products under the Crystal Bay Prawns brand and is currently working on a substantial prawn farm development project in northwestern Australia.
Appointed last November, McMahon’s time at the helm of the company has coincided with a drop in the share price from $0.04 per share to $0.017, with the move to oust him coming less than a month after a report confirming the group’s proposed $1.45 billion development in Legune Station, Western Australia is considered unviable.
Together with CFO Ian Brannan, McMahon initiated a review of the so-called ‘Project Sea Dragon’ last November, which was Seafarm’s plan to develop 10,000 hectares of ponds near Kununurra to grow 180,000 metric tonnes of black tiger shrimp.
Construction on the first phase of the project got underway in 2021 at an expected price of roughly $380 million, but upon his appointment, McMahon paused the project’s development until 2022 as he did not consider it feasible to finalise debt and equity funding arrangements.
Released to the public on 31 March 2022, the review recognised the failure of Seafarms to raise the sufficient money needed for the next phase of the Sea Dragon project. The report found that the business model was unproven in Australia, and the current farming operations have “fundamentally underperformed”.
SeaFarms had successfully raised $92.5 million for the first phase of the project in June 2021, which was underpinned by the largest shareholder and Seafarms chairman, Ian Trahar, who subscribed for $20 million under the placement. He agreed to convert all loans owed to his company Avatar as of 30 June 2021, worth $14.8 million, to equity on the same terms as the placement.
Trahar, a board member of Seafarms since 13 November 2001, is a director and significant shareholder of Avatar Industries. This unlisted Perth-based private company arose from the collapsed Barrack House group and was previously listed on the ASX. Trahar has a resource and finance background and has been involved in several businesses in the resources industry.
McMahon is the former managing director of Inghams (ASX: ING) and led the company through its Initial Public Offering (IPO) process. He is also the current chair of Ridley Corporation (ASX: RIC), an Australian owned commercial provider of high-performance animal nutrition solutions.
McMahon has over 35 years of management and director experience, having served as managing director and CEO of Skilled Group (ASX: SKE) for five years, COO of Coles Supermarkets and managing director of Coles Express during five years at Coles (ASX: COL), and spent nineteen years with Royal Dutch Shell both in Australia and overseas.
The project received initial interest from overseas, with Japanese-based conglomerate Nippon Suisan Kaisha (Nissui) investing $25 million in 2018 for a 15 per cent share of Seafarms.
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