28/09/2012 (Proactive Investor) - Equatorial Palm Oil (LON:PAL) chairman Michael Frayne says the company is poised for an exciting twelve months as it continues to advance its strategy to build a significant African agriculture business.

The Liberia-focused palm oil company in this morning’s interim results told investors it had completed another ‘solid’ period.

Indeed, it achieved a number of important milestones including the full commissioning of its Palm Bay mill and its first international sale of crude palm oil (CPO).

Though these are notable achievements Equatorial’s main focus has been on the expansion of its palm oil plantations and this year is its busiest to date. It is on track to plant 1,700 hectares of palms by the year’s end.

“Our planting programme is starting to accelerate to the level that we want it,” Frayne told Proactive Investors.

“We will really start to see that coming through in the next six to twelve months. We got a team together that’s now well established, and they’re now beginning to hit their straps.

“It is a progressive thing. Every six months as we look back we see the company’s achieved a lot and has already come a long way.”

For the six months to June 30, Equatorial generated revenues of $210,000 and it reported a loss of $1.5 million. And it ended the period with around $1.7 million in cash and cash equivalents.

But these figures do not reflect the scale of the business Equatorial is currently building.

At the moment Equatorial is producing CPO from around 3,500 hectares of ‘very mature’ palms, which have much lower yields than Frayne is expecting from the newly planted crops.

The first planting programme of new palms began last year and first revenues from those crops will come in 2014.

Each young palm is taken from the nurseries and planted when it is about one year old and they are expected to take a further three years before the crops begin to contribute revenues.

So the firm’s first properly meaningful revenues are still a number of years away. That said, the company’s incremental planting programme is adding a significant amount of value as the company literally sows the seeds for its future.

“We are at the moment our focused on planting. That is where we can add the real value to the company. The key is to get on that planting cycle.

“We are hoping to plant 6,000 hectares next year. That is an enormous area and we’ll look to repeat that level of planting from then on, if not increase it.

“We’re establishing our nurseries, and we’re putting in place the structure so that we can show we’re able to plant 6,000 hectares each year.”

“We’ve got big plans and we’ve got to keep demonstrating what we’re doing. It takes a while (to establish) but once it’s in place we’ll really start building up the business quickly.

“We are getting very close, within a couple of years, of our first incremental cash flows.

“And as we are continuing to plant at an increasing rate every year, the cashflow will continue to expand year on year from then on.”

While the main thrust is on planting, the work to establish production from the older plants has also boosted the group’s position and helped de-risk the future ramp-up to a larger scale operation.

Frayne says the company has a better understanding of the CPO market now, and that is reflected by the group’s first international CPO sales earlier this year.

“We’ve been able to open things up from that point of view.”

Frayne also explains that while larger facilities will ultimately be required - as the CPO production scales up as the planted crops mature – the commissioning of the current mill earlier this year was an important milestone.

As well as providing some revenues Frayne says the facility is helping reduce the project’s implementation risk because the workforce is becoming better trained and more familiar with the process.

With these achievements and the solid progress with its planting campaign Equatorial Palm Oil is increasingly well positioned, and according to Frayne this is not lost on investors.

“We get enquires from investors from all over the world.

“The interest in agriculture, particularly palm oil and particularly in Africa really is enormous.

“Investors want to know who we are and what we’re doing. We seem to be on a watchlist for a lot of people because I think we’re positioned in an incredibly exciting sector.

“The world view on vegetable oil and palm oil is just enormous and the African palm oil story – as part of a bigger African agriculture story – is where a lot of investors appear to see a lot of potential.

“And we seem to be right in the thick of it.”