Eco Investor Update
A Weekly News Update for Environmental Investors
June 2011 - No 36
The company responded with a trading update and news of operational and management changes.
TPI now anticipates a full year net profit of $41-48 million compared to $59 million in 2009- 10. The expected result includes significant items and mark-to-market adjustments and is after SPS trust distributions.
The net profit after tax but before the significant items and mark-to-market adjustments and SPS distributions is $5966 million compared to $69.4 million in 2009-10.
Expected operating earnings (EBITDA) of between $420 million and $430 million excluding the significant items and adjustments are comparable to last year's $424.4 million.
TPI expects to book two significant items - a $5.5 million non-cash write-down on the carrying value of its interest in CMA Corporation Ltd and a $1.8 million restructuring charge for its Manufacturing division.
The estimated non-cash mark-to-market adjustment for 2010-011 is a net credit of $2.8 million after tax (2010: net $5.2 million credit), and the aggregate net profit after tax impact of these items is a negative $2.3 million, it said.
Operationally, the Commercial Vehicles division will fall short of its 2009-10 results due to lower activity in the heavy vehicle market. This is despite performing better over the second half of the year.
"The Manufacturing division is being restructured to stabilize performance and position for future growth. This will involve a small number of redundancies and the discontinuation of steel bin manufacturing at four TPI locations in Australia at an estimated cash cost of $1.8 million before tax."
The Cleanaway and Industrials divisions continue to perform well and are achieving satisfactory revenue and earnings growth, while the New Zealand business has also traded satisfactorily despite the difficult economic climate and natural disasters. The currency appreciation has affected the Australian dollar equivalent result, it said.
An executive management restructure sees the managing director New Zealand and managing director Commercial Vehicles & Manufacturing both now report directly to chief executive officer, Kevin Campbell. The executive general manager New Zealand, Commercial Vehicles and Manufacturing, Harold Grundell, will leave the company.
TPI also said it is reviewing the carrying value of its noncurrent assets including intangibles, which may result in some non-cash impairment adjustments. (ASX: TPI)
Tox Free Solutions
Geographically it has no market share in SA and Tas, less than 0.5 per cent in the NSW/ ACT market, less than 1 per cent in Vic, less than 1.5 per cent in Qld, and less than 10 per cent in WA.
The company has identified five areas of waste: commercial waste and construction waste where it has no market share in either, municipal waste where its market share is less than 1 per cent, industrial waste with less than 5 per cent, and hazardous waste with between 5 and 10 per cent.
These five sectors have combined annual revenue of $10 billion and profits of $868 million.
It rates hazardous waste as being highly attractive as a sector, industrial waste as medium to high, commercial waste as medium, and construction and municipal waste as both low.
"If Tox Free can capture 20 per cent of target profits Tox Free can grow into an $80 million to $100 million net profit after tax business over the next 10 years," it said.
It also believes the carbon tax will promote reuse, recycling, treatment and landfill avoidance. (ASX: TOX)
Clean TeQ Holdings
Clean TeQ won the award for providing innovative and smart technology for treating elevated levels of nitrate groundwater used by remote aboriginal communities.
The technology used Microvi Biotech's MB-2N biocatalyst at the heart of the process to provide a simple and waste-free process for nitrate removal. In partnership with Parsons Brinkerhoff, the manager of the Remote Essential Services Program (RAESP), Clean TeQ and Microvi Biotech are providing turnkey plants for two remote communities in Western Australia.
Clean TeQ chief executive, Peter Voigt, said "In terms of market size, the technology has much wider applications in the control of nitrates and ammonia from wastewater treatment plants. In this application, the capital and operating costs associated with upgrading wastewater treatment plants will be reduced as they are regulated to limit their nutrient load to the environment. High nutrient loads can be very harmful to the environment especially when released into sensitive inland and coastal waterways."
With Clean TeQ's share price at an historic low, Aqua Guardian and related party the listed Wasabi Energy have become a substantial shareholder with 9 per cent of the company. (ASX: CLQ)
The recapitalization will significantly dilute existing shareholders as private equity firm KKR will be issued with $25 million of shares at 0.53 cents each, while CMA last traded at 8.7 cents. Another $5 million will be raised from a 1 for 1 entitlement offer to shareholders at 0.53 cents per share.
A proposed share consolidation will then see every 100 shares converted into one share.
The recapitalization will raise $30 million of equity, an additional $10 million working capital facility as part of the debt restructure, extend the term of CMA's facilities, enable some repayment of existing borrowings and KKR affiliated entities will provide debt forgiveness of $17 million. (ASX: CMV)
Micro Cap Companies
Alternative growing systems such as "Flow-Through" and "Closed System Aquaculture" may be appropriate or complementary than the licensed technology, it said.
"Historically, at the SEAS farm about one half of the production cycle of salmonids occurred in freshwater tanks and ponds in essentially a closed system, but after smoltification, (the physiological metamorphoses which allows fish survival in the marine environment), growout still took place in sea-cages," said AAQ.
The evaluation may decide that a different growing system be used at various stages, for example the licensed technology may be more useful in the early stages but less appropriate in the open ocean.
If commercial operation is scaled up, the company's licensed recirculation aquaculture system could replace the ponds and reduce consumables such as extra water needed to keep up with evaporation and losses from stock predators. It could also increase stocking density in the tanks due to its efficient water filtering and other benefits.
If the whole production cycle could be undertaken in a closed system then the licensed technology could be better utilized, it said.
The consultants undertaking the study will report in the next two to three months.
"The final decision on the adoption of a growing system will be made based not only on commercial considerations but also taking into account environmental and social responsibility factors," said AAQ. (ASX: AAQ)
Advanced Engine Components
The parties have formed a joint project working group to maximize communication, coordination and expediency throughout the period. The due diligence of ACE is expected to take one month, with commercial negotiations and formalization expected to take another two months.
The company's ASX suspension should be lifted following this period, it said.
The company is negotiating with its major shareholder and a major customer to assist with funding during the due diligence and negotiation period. Meanwhile, all non-funded research and development is suspended and only cash flow positive or neutral contracts continue.
Mr Vivekananthan Nathan has resigned as a non executive director and Tony Middleton is to retire from his executive role when a suitable replacement is found. The board is negotiating with a selected candidate to replace Mr Middleton as managing director. (ASX: ACE)
Australian Renewable Fuels
The product is described as a very high acid totally in-edible effluent recovered from waste water systems. Thus there are also benefits with the environmental impact on the local production sites.
The conversion of the oil is said to be simple given the company's technologies, and ensures the end biodiesel is of exactly the same quality as at present, and will continue to conform to Australian and international standards.
Australian Renewable Fuels has the rights to 150,000 tons per annum of the product. The initial 100 ton load will be followed by another 3,000 tons, which is stored and ready to be loaded, pending completion of some infrastructure work in Victoria and WA.
The product will fill Australian Renewable Fuel's "take or Pay" export contract for 30,000 tons with GlobalBiofuel Trading.
Process engineer Lycopodium will assist with overall engineering services and project coordination of the system, and is looking at optimization benefits Australian Renewable Fuel's conversion systems.
Managing director Tom Engelsman said "Although we are somewhat behind the original planned schedule for the introduction of the product, I am pleased with the progress made to date, and the fact that we will have the commercial benefit of the substantially lower cost feed stock.
"Commodities in Australia have been artificially elevated by Asian and export demand, and this has once again negatively impacted the local biodiesel industry. Coupling this feed stock security with the recent clarifications by the Federal Government with regard to both excise and dumping will mean that ARF has the ability to generate positive earnings for investors."
Australian consumption of biodiesel is currently very low - less than 3 per cent of the total 18 billion litres per year of mineral diesel consumption. Australia is a high per capita user of diesel, mainly due to long haul transport and the mining industries, said the company. (ASX: ARW)
The company's shares are currently close to their 12 month low. (ASX: EMM)
The appointment of Faithful+Gould in the US will support EnviroMission's executive project manager, Arup in Australia with local expertise and on the ground presence in Phoenix.
EnviroMission said Faithful+Gould is one of the world's leading total solutions providers for the built environment, with over 60 years as a provider of project management and cost management services on construction and engineering projects.
EnviroMission has a Power Purchase Agreement to sell 200 MW of solar powered electricity from the first of two Solar Tower developments in Arizona to the Southern California Public Power Authority (SCPPA). (ASX: EVM)
Oakey is a dual fuel - gas and distillate - peaking power station 150 kilometres west of Brisbane in a growth region and close to fuel supplies and gas and electricity transmission infrastructure. ERM Power led the development of Oakey, which was commissioned in December 1999.
ERM Power will fund the deal from existing cash and a $15.6 million corporate debt facility it has put in place.
ERM Power said it expects the transaction to be accretive to underlying earnings per share (EPS), adding 0.6 cents to the prospectus 2011-12 underlying EPS forecast of 15.7 cents, and contributing an additional $6.2 million to the 2011-12 net profit after tax excluding one off transaction costs.
Managing director and chief executive, Philip St Baker said "The acquisition provides immediate value for ERM Power shareholders. The purchase price is less than 50 per cent of the estimated replacement cost and the asset is in near new condition due to the fact that it is a peaking power station that has operated less than 5 per cent of the time over its 11 years of operation.
"ERM Power has the skills, experience and complementary businesses to exploit substantial upside from this asset over the short, medium and long term." (ASX: EPW)
The rights issue is underwritten by Taylor Collison with 50 per cent of the issue sub-underwritten by Adelaide Equity Partners and interests associated with two of the company's directors, David Lindh and Neville Martin.
The funds raised will be used for working capital and to progress identified business development opportunities.
Island Sky said it is progressing discussions with potential joint venture partners regarding its US subsidiary and intends to provide an update to market shortly.
The record date for determining shareholders entitlements is 4 July, and the expected closing date is 22 July. (ASX: ISK)
Kimberley Rare Earths
The deal was pulled when the ASX said the proposed sale in its current form was not in compliance with ASX Listing Rule 10.7.
Under the agreement KRE would have immediately acquired the additional 30 per cent for $6.5 million, rather than after earning it by funding $10 million of exploration over four years, as outlined in the prospectus.
Independent director Peter Rowe said "The company will continue to explore options to increase its equity position in the Project either by accelerated exploration and development expenditure or by acquisition. KRE's aim is to maximize shareholders' leverage to future exploration and project feasibility outcomes." (ASX: KRE)
Under the terms of the contract, announced on 2 May, Mission will continue to produce and deliver through to the end of the second quarter of 2012, subject to an initial three-month trial period.
"We look forward to continuing to successfully execute under the contract," said Group chief executive, Nathan Mahalingam.
On 14 March Mission partnered with Felda Global Group, one of the world's largest palm oil producers, to provide Asia's first fully integrated certified palm biodiesel supply and production chain product under the International Sustainability & Carbon Certification system (ISCC). Mission and Felda say they are working to extend the certification program, which will expand Mission's supply of ISCC certified product and is expected to lead to further sales opportunities. (ASX: MBT)
Drilling operations are expected to commence when the findings of the testing have been analyzed, and a detailed conceptual reservoir model is finalized to confirm preferred sites of appraisal wells.
Panax will develop the Sokoria Project in a joint venture with PT Bakrie Power. Panax has a 45 per cent interest and is the operator. The project is on Flores Island.
A power purchase agreement of US$125 per megawatt hour for the first 30 megawatts of geothermal production is in place.
Total costs of generation would be about US$57 per megawatt, including capital and operating and finance costs, and based on average estimated production rates of 5 megawatts per production well. (ASX: PAX)
The new vehicle, Papyrus Egypt, will own and operate a factory to produce veneers and finished product for sale. Papyrus Egypt will have four directors, two from each party, and the chairman will always be a Papyrus representative with a casting vote. Papyrus Australia said EBFC's principals have expertise in banana growing, timber trading, and manufacturing and packaging.
EBFC will raise the capital for the project, and Papyrus Australia will issue Papyrus Egypt with an exclusive licence for Egypt.
Papyrus Egypt will purchase $2 million of plant and equipment from Papyrus Australia's subsidiary The Australian Advanced Manufacturing Centre. This will be delivered by 31 December this year. Papyrus Australia will support the setup of the equipment, train staff and provide ongoing maintenance, recipes and production knowledge. It will also be responsible for quality control.
If the project is eligible under the United Nations backed Clean Development Mechanism (CDM), any financial benefit from the Greenhouse Gas Emission Reduction Certificates (CERs) goes to Papyrus Australia. Initial studies by independent experts show it can generate up to 107,601 tonnes of CO2 per annum equivalent CERs.
Chairman, Ted Byrt said the development is an important step forward for Papyrus Australia. However, investors should note that significant work still needs to be done to complete satisfactory commercial arrangements for the mutual benefit of the parties.
Papyrus Australia said that its Memorandum of Understanding with Tawazon For Solid Management SAE (Tawazon) in Egypt remains active, although negotiations slowed during the recent political difficulties there.
Managing director Ramy Azer reported from his recent visit that Tawazon's prime interest is in developing a banana fibre panel factory in Egypt and with the establishment of Papyrus Egypt comes the opportunity to supply Tawazon with the banana fibre raw material for the proposed factory. The deal with Tawazon is not expected to be finalized before September this year.
Papyrus Australia will also scale back the Walkamin Demonstration Factory's operation to one week in every four but with increased production in the week of full scale operation. Development activities including panels and equipment maintenance are now concentrated in the non production weeks.
The decision significantly reduces the cost of operation and preserves working capital while only moderately impacting the supply of veneer to EBFC, said the company. (ASX: PPY)
RedFlow said the Manufacturing Services Contract with Jabil is an acceleration of its expansion plans outlined in its November 2010 prospectus, which scheduled outsourced manufacturing to be operational in 2013. Jabil will commence producing ZBM components in the third quarter of 2011 and progressively expand.
Jabil is a multi-national Electronic Manufacturing Service (EMS) provider with annual revenue of $16 billion. It has 55 factories in 22 countries. Jabil will initially manufacture the ZBM components at its plastics plant in Taichung, Taiwan.
The early expansion is expected to accelerate RedFlow's entry into international markets by progressively reducing production and unit costs. RedFlow expects to achieve savings through manufacturing expertise, high labour productivity, the buying power of an international supply chain, consistently high quality components and assembly, and reduced exposure to additional capital costs for plant expansion.
The anticipated cost savings are well in excess of what RedFlow could achieve on its own.
RedFlow's existing workforce and Brisbane production facilities will progressively switch to large-scale prototype production of enhanced next-generation ZBMs before handover for outsourced manufacturing.
Chief Executive Officer, Phillip Hutchings, said "It is pleasing that we have been able to appoint an outsourced manufacturer earlier than planned and accelerate our transition into higher volume, lower cost production.
"Jabil brings to RedFlow low-cost, high-quality manufacturing, a well-developed supply chain and a demonstrated ability to ramp up production to meet customer needs."
"Jabil is separately negotiating with RedFlow to integrate ZBMs for products in the telecommunications market. Jabil has agreed to purchase 60 ZBMs for trials and delivery of these has been rescheduled to the second half of 2011."
RedFlow is further developing its product and market entry plans for the off-grid telco sector and these arrangements are a component of the broader plan.
RedFlow selected Jabil as its manufacturer in part because of Jabil's commitment to the cleantech sector. Such large scale outsourcing is common in the electronics sector and is becoming increasingly used by cleantech companies, said Mr Hutchings.
"In recent years, cleantech companies have outsourced manufacturing to take advantage of cost, quality and supply chain benefits. As an example, Jabil itself has become one of the world's leading manufacturers of solar photovoltaic (PV) panels for clients in this sector," he said.
The outsourced EMS model has been enormously successful in the electronics industry over the past two decades and has been a key driver in the proliferation and in the low cost of consumer electronics. This model is now spreading to other sectors with similar characteristics, he said. (ASX: RFX)
Southern Crown Resources
Finalization of the acquisition includes the appointment of Dr Robin Harmer as managing director and David Reeves as a non-executive director of Southern Crown.
The next phase of exploration on the company's newly acquired Nkombwa Project in north-east Zambia has also begun. Geoquest, a geological consultancy in Lusaka, has been commissioned to provide technical support under Southern Crown's supervision.
The exploration will include mapping and detailed sampling of rare earth element (REE) mineralized areas that were identified in the November 2010 rock-chip sampling exercise. This encountered high grade REE mineralization.
The results of the exploration should delineate areas for further exploration drilling in the third quarter of 2011.
A program of soil drilling at the Xiluvo Project in Mozambique should commence in the next two weeks. Elevated REE concentrations with a relatively high heavy REE contribution were identified in a patch of eluvial soils during reconnaissance exploration. Dump and Dune, a long-established South African drilling company, will do the drilling. (ASX: SWR)
The next day the company issued a market update, saying it expects to report positive earnings (EBITDA) for the June quarter. It also reported positive EBITDA for the second and third quarters.
However, its reported revenue has been affected by the strong Australian dollar as its sales are primarily in US dollars but it reports in Australian dollars. "This currency translation impact will result in lower reported revenue for Q4 FY11 versus Q4 FY10. However, the impact on EBITDA profitability will be minimal given the natural hedge with the manufacturing cost base in Chinese RMB," it said.
Working capital will increase significantly in the June quarter as "the company has increased its investment in warehouse inventory at various sites around the world to improve service levels to customers against competitors."
The company has also repaid all its foreign borrowings, but to expedite future expansion in the US it may decide to pursue some trade finance facilities.
Growth initiatives include market expansion of its new strand woven wood innovations launched under the Restyle brand in North America and Australia. The European launch is planned for coming months.
"To date, market feedback has been very promising. The company expects Restyle to become a major second pillar of Style's sales performance in the next 12 months, alongside the strand woven bamboo range," it said.
The company's patents for the strand woven wood products have moved into the national phase in Europe, USA, China and Australia, meaning they have passed the patent review process and are in the final process of registration in each country.
Further manufacturing improvements have enabled the filing of two additional Eucalyptus patents.
US trade sanctions could create a new opportunity, it said. "On May 20th, the US Department of Commerce announced their Preliminary Findings concerning unfair dumping of engineered wood from China. The US intent is to penalize the import of Chinese engineered wood by imposing a Preliminary dumping rate of up to 82.65 per cent as well as a Countervailing duty rate of up to 27.01 per cent.
"The import of Chinese engineered wood represents a significant part of the US market; with 7 million square metres imported in 2009 with a value of US$120 million."
Importantly for Style, bamboo has been excluded from the investigation. This represents a good opportunity for its recently launched Style strand woven bamboo engineered products, it said.
"Style has started an application for a similar exclusion for the Restyle Eucalyptus engineered products, and we hope that this exclusion will be granted over the next couple of months. This will provide Style products with an additional price advantage versus imported Chinese engineered wood in the US market." (ASX: SYP)
It also receives from QGC around 240 kilometres of seismic data relating to the joint operating area from the regional seismic program that QGC is solely funding.
The Central Area within ATP 769P, where WestSide has decided not to participate in further exploration, will become 100 per cent owned by QGC, leaving the balance of the tenement within the existing joint operating agreement. QGC retain its 50 per cent interest in ATP 688P and a 50 per cent interest in the joint operating area of ATP 769P.
WestSide said the restructure increases the potential for Mitsui E&P Australia to acquire 49 per cent of WestSide's 50 per cent interests in the two tenements.
WestSide's chief executive officer, Dr Julie Beeby, said "WestSide is also developing key technical expertise at Meridian SeamGas that will be utilized in certifying additional reserves and developing future production from these Bowen Basin exploration tenements." (ASX: WCL)
Southern Cross Venture Partners
The Australian-US-China early stage fund will focus on the IT, telecommunications, clean technology and materials sectors.
Southern Cross has experienced people in Silicon Valley, Sydney and Brisbane, and the fund will have strong international linkages into the key markets of Silicon Valley and China.
"Southern Cross has a strong commitment to work with domestic investees, both getting them investor ready and then through the expansion stage optimizing exit value. The fund's US presence and China relationships are a critical success factor for executing this strategy," said the government.Eco Investor Update
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