Seafarms fishing for second review of $1.9 billion prawn farm project

Seafarms fishing for second review of $1.9 billion prawn farm project

Only one month after appointing its new CEO, Darwin-based Seafarms Group (ASX: SFG) has announced it will reassess the key challenges of its $1.87 billion prawn aquaculture development known as Project Sea Dragon (PSD).

The project, which has been in the works since 2014, contemplates the development 10,000 hectares of ponds in Legune Station, NT to produce 180,000 metric tonnes of black tiger shrimp, supported by facilities in various various parts of northern Australia including a hatchery, breeding centre and grow-out ponds.

SFG appointed former Inghams (ASX: ING) managing director Mick McMahon to oversee the company’s vision in November 2021, but the unfavourable results of a feasibility study he commissioned led to his ousting in May following a campaign spearheaded by long-time investor and fellow board member Ian Trahar.

The boardroom shake-up also saw the departure of Seafarms CFO and director Ian Brannan, another former Inghams executive who had joined at the same time as McMahon.

Released three months ago, the report into PSD determined the project could not progress due to a lack of funding, noting current farming operations had “fundamentally underperformed” and that SFG’s financial performance had not met expectations over the past seven years.

“PSD viability is almost entirely dependent on farming out-performance at Legune against existing operations and competitors, as almost all other economic factors mitigate against viability,” the report said.

However, the project will now undergo a second “more detailed assessment” which will include the commission of independent consultants, engagement with key stakeholders and the rebasing of cost structures and financial management for the project.

It will also include an overseas study trip to large-scale prawn farms, hatcheries and packing plants in Central America, where the use of 10-hectare ponds or larger is common.

Seafarms CEO Rod Dyer notes PSD is a significant Australian infrastructure project that has received support from the NT, WA and federal governments, and the Northern Land Council.

“While the final decision is dependent on the outcome of our current assessment process, we believe the project has a future," Dyer said. 

“As the new board and executive, we are looking to manage the risks from the project, maximise the interests of shareholders and work closely with our key stakeholders” Dyer said.

SFG said Dyer has reviewed operations and met with Seafarms employees in Darwin, Exmouth, Cardwell, Flying Fish Point, and Brisbane, in addition to external stakeholders in the NT and finance partners. So far, the company claims all discussions have been positive.

Major construction activity proceeded at Legune until the end of December 2021, but the project was put to a halt by ex-CEO McMahon, who did not consider it feasible to finalise debt and equity funding arrangements.

In 2015, PSD received major project status from both the NT and federal governments, with the former committing to spend approximately $50 million on infrastructure to help the project come to fruition.

The project also received interest from overseas, with Japan-based conglomerate Nippon Suisan Kaisha (Nissui) investing $25 million in 2018 for a 15 per cent share of Seafarms.

By June 2021, SFG had successfully raised $92.5 million for the first phase of the project, which was underpinned by 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, who has been a board member of Seafarms since 13 November 2001, is a director and significant shareholder of Perth-based Avatar Industries. The private company arose from the collapsed Barrack House Group and was previously listed on the ASX.

SFG’s share price has fallen by 80 per cent over the past year and was trading at a 52-week low of 11c each earlier this month.

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