Tuesday, June 15, 2010

Noble invests in palm oil

Noble invests in palm oil origination in Indonesia

14 June 2010, Hong Kong

Noble Group (SGX: N21), a global supplier of agricultural, energy, metals and mineral products, has acquired a 51% stake in PT. Henrison Inti Persada ("Company"). The Company intends to develop approximately 32,500 ha of land for palm oil production in Sorong Regency, West Papua Province, Indonesia.

The transaction is Noble’s first project in the oil palm sector and establishes a strong platform for the Group to expand and increase its investments in this area in the future. The investment enables Noble to expand its edible oil supply chain and secure a continuous flow of crude palm oil.

The Company is to be registered as a member of the Roundtable on Sustainable Palm Oil (“RSPO”). The RSPO are an organisation whose membership is made up of, amongst others, palm growers, palm oil producers, retailers, investors in the sector and environmental/conservation NGOs. The RSPO promotes the production of palm oil in a sustainable manner based on economic, social and environmental criteria.

“We focus our investments on areas that are synergistic with our businesses both in terms of product and geography,” said Noble Group Executive Chairman Richard Elman. “This move into palm oil plantations will complement our global agriculture and energy businesses. Our operating experience in Indonesia should prove to be an asset in helping us manage this and future projects.” He added, “With increasing convergence between agriculture and energy, this investment is a clean fit for the Group’s diversified portfolio.”

This transaction is not material for the purpose of the Singapore Exchange Listing Rules.

Noble Group today announced its investment in palm oil, further diversifiying its agriculture and energy business by acquiring a 51% stake in PT. Henrison Inti Persada (HIP). HIP is one of four palm oil plantation companies which are under the Kayu Lapis Indonesia Group. While the 32,500 ha plantation to be developed may be small in comparison to listed peer's Golden Agri's 427,253 ha (more than 13 times the size!), it will still provide decent revenue potential.
A hectare of oil palm can yield between 3.5 to 5 tonnes of crude palm oil a year, so going by this assumption, HIP's site has the potential to produce between 113,750 and 162,500 tonnes of CPO a year, generating revenue of US$84 to US$120 million each year, based on current CPO spot prices of about US$741 a tonne. As a gauge of the value of this investment, a simplified analysis of First Resource's balance sheet yields biological assets carried at US$1,065,800,000; based on 113,000 ha of plantations, this works out to about US$5,000 per hectare, which indicates that PT. Henrison Inti Persada's plantation could be worth about US$162 million. Granted, since the plantation will require further investment for development (it is not yet plantable, and further investments in processing plants will have to be made), Noble's initial investment is likely only a fraction of its estimated US$80 million share.


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