The Seafarms Group (ASX: SFG) board brought in Mick McMahon to lead their ambitious aquaculture plan Project Sea Dragon, but instead he commissioned a feasibility study that poured cold water on the development.
There seems to be a clear winner of the boardroom battle at Seafarms Group with the announcement Mick McMahon will step down as CEO and executive chairman with immediate effect.
Two weeks after the largest shareholder, long-time investor and fellow board member Ian Trahar called for a change in leadership at the prawn company, he has wrested back control of the business and will replace McMahon as non-executive chairman.
McMahon, an experienced executive who was previously managing director of Inghams (ASX: ING), was only appointed CEO of Seafarms in November 2021 alongside a new CFO, Ian Brennan.
Upon taking control of one of the largest aquaculture operators in Australia, McMahon suspended work on Seafarms’ flagship $1.87 billion ‘Project Sea Dragon’ development - a plan to develop 10,000 hectares of ponds near Kununurra, WA to grow 180,000 metric tonnes of black tiger shrimp.
McMahon instigated a review of the entire project as he didn’t think the finalised debt and equity funding arrangements were feasible.
After five years of funding, Seafarms had raised $110 million for the project by mid-2020, with the Northern Territory Government committing to spend an additional $56 million on roads.
Seafarms raised a further $92.5 million for the project before construction began in June 2021, $20 million of which came from Trahar, but fell significantly short of raising enough to cover the costs of the first phase of construction.
When the review was published on 31 March 2022, it recognised the failure of Seafarms to raise the sufficient capital needed for the next phase of ‘Project Sea Dragon’ development, concluding the project would "not generate acceptable financial returns".
The report found that the business model involved "unacceptable risk" such as biosecurity, environmental conditions, remoteness, and grow-out ponds that were “unproven in Australia”.
Identifying several opportunities to de-risk the project, the key finding was the need to pilot and subsequently prove the ability to successfully farm prawns at the site in Legune.
"It's fair to say we were shocked at what we found when we came into the business," said McMahon after the publication of the review, which led to the Seafarms share price plummeting by 42 per cent during the next day’s trading.
"I feel significant responsibility to shareholders who have invested their money into this company and especially those who have done so since I came into the business.
"To them, I apologise for what we've had to present today."
The 20 June Extraordinary General Meeting (EGM) to discuss whether to remove McMahon has been cancelled after Perth businessman Trahar, who has been on the board of Seafarms since November 2001, achieved his goal.
The appointment of a new CEO will be made in due course. Approached for comment, neither Mick McMahon nor Seafarms prepared to make any further statements regarding the announcement.
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