"Blackmores called us and said 'we want to invest significantly in your company, we want to be part of this process, but there's one condition", said Seadragon chairman Colin Groves said.
SeaDragon [NZX: SEA], the fish oil refiner aiming to raise up to $9 million from shareholders to fund the escalating cost of an Omega-3 factory, says it turned down an investment offer from Australian health supplement company Blackmores because it came with uneconomic conditions.
Colin Groves, chairman of the Nelson-based refiner, made the comments during a roadshow for the renounceable rights issue, which would help cover costs for building the new factory that have blown out to $12.2 million from the original $4 million estimate.
"Blackmores called us and said 'we want to invest significantly in your company, we want to be part of this process, but there's one condition – we want you to produce 2500 tonnes of anchovy oil for us each year'," Groves said at a briefing in Wellington.
"Thank you, but no thank you was my answer" because Chilean and Peruvian producers already dominate that market and anchovy oil only works out at $1 a kilogram, versus $10/kg from tuna, he said. "We're not doing the right thing by shareholders if we say, yeah, we're going to delegate half our factory to anchovy," he said.
Blackmores, which is listed on the ASX, reported an 83% increase in annual profit to $A46.6 million in the year ended June 30, on the back of 36% sales growth to $A472 million. SeaDragon posted an annual loss of $2.8 million for the year ended March 31, compared to a profit of $431,000 in 2014, while sales more than doubled to $6.3 million.
SeaDragon attracted interest from other potential investors in Australia and China that were rebuffed, Mr Groves said.
Offers included a Chinese company wanting oil extracted from China-sourced soft-shelled sea turtles. The approach was turned down because of the likely difficulties gaining clearance for the proposal from the Chinese and New Zealand governments, he said.
The company aims to shift production to Omega-3, building capacity for 5,000 tonnes a year. It currently produces 250 tonnes annually of Omega-2, the oily liquid hydrocarbon also known as squalene.
Groves told the briefing that the costs of the factory had jumped because earlier plans didn't include the fractionation plant, which helps stop the crystallisation of the oils. The company will also use the cash to upgrade its existing Omega-2 plant, pay the costs of the rights offer, and meet working capital requirements during the transition to commercial production of Omega-3 fish oils.
SeaDragon has struggled with securing supply of squalene, which is made from deep sea shark liver. Groves said trying to secure products from Senegalese and Indonesian fishers, while needing to pay for the catch in advance, was a difficult and slow process.
The company is now focusing on harvesting Omega-3 from a variety of fish, including anchovy, hoki, tuna and New Zealand king salmon to become the sole Omega-3 producer in Australasia. The company will use its old Omega-2 factory to process the New Zealand king salmon for Omega-3, an option which had previously been avoided because of a "fallout" with the salmon company, and will ultimately exit the Omega-2 business altogether over the next 12 months.
Mr Groves was installed as chairman three months ago, and described his heading of the board so far as "eventful."
The company has gone on a purge of senior executives and its governance.
The sudden growth of the company had been a challenge for the previous management and the earlier board had no business plan or strategy for the new factory, Mr Groves said.
New capital from the rights issue would be in addition to a $2.5 million convertible loan from cornerstone shareholder BioScience Managers, which isn't participating in the rights issue. The extra capital is needed for the Nelson Omega-3 fish oil refinery, due to be commissioned later this year, which has gone $3.2 million over its $9.2 million budget and is stretching SeaDragon's balance sheet.
The company forecasts revenue of $10.1 million in the year ending March 31, 2016, up from $6.3 million a year earlier, and expects earnings before interest, tax, depreciation, and amortisation of $144,000, compared to an ebitda-loss of $2.2 million in 2015.
The shares last traded on the New Zealand Alternative Index at one eighth of a cent, and have declined 61% over the past 12 months.
(BusinessDesk)
