SeaDragon signs new agreements for shark liver oil; costs jump in Nelson refinery

SeaDragon [NZX: SEA], which manufactures fish oil for health supplements, has terminated a contract with a charter vessel that supplied deep-sea shark liver oil and signed two new supply agreements, highlighting the challenge of ensuring it can source enough raw material.

The Nelson-based company today said sales for the year ending March 31 will be about $6.5 million, up from $3.1 million a year earlier. Costs related to the start-up of its new refinery for producing its second product stream, Omega 3 rich fish oils used in supplements, mean it will post an operating loss in the period, it said.

A full-year loss would include an unprofitable first-half, which SeaDragon attributed last November to difficulties in securing raw material for its squalene operations. Squalene is an oily, liquid hydrocarbon which is extracted primarily from shark liver oil and used in moisturisers.

At the time of its first-half results, the company said it had struck a supply agreement, which analytics firm Edison International said was a new charter vessel, which would specifically target sharks for its supply of deep sea shark liver oil. That contract has since been terminated and SeaDragon has entered two new supply agreements with operators of vessels to supply frozen shark liver and the oil, it said today.

"Our squalene operations have demonstrated their potential, when not constrained by the supply of raw materials," said chief executive Ross Keeley. "The considerable effort we have made to overcome prior supply difficulties has been rewarded with a strong trading performance for the 2015 financial year, and the new supply agreements we have announced today."

The new supply agreements have the potential to keep the company's squalene operations running through to late 2016, the company said.

SeaDragon faces a challenge ensuring enough shark liver oil because of a "significant contraction in sharks being recovered," Keeley told BusinessDesk. Amid growing concern about fishing practices such as finning, where shark fins were sold in Asia as a delicacy but the carcasses typically throwing overboard, shark has fallen in value to less than half what it was a year ago. In turn that has "significantly" driven up the price of squalene, used by the cosmetics industry.

"By-catch shark fin has crashed and the price consumers are prepared to pay for flesh has dropped significantly," he said. SeaDragon does not condone finning, he said. The new supply agreements were with vessels targeting deep-water species in international waters.

The new Nelson refinery being built to produce Omega 3 rich fish oils is now estimated to cost $9.2 million, up from an original forecast of $6 million, SeaDragon said. It blamed the cost escalation on changes to building regulations following the 2013 Seddon earthquake, extra equipment and changes to the layout of the plant.

As a result, "SeaDragon is considering a number of funding alternatives including using existing cash flows, debt and equipment leasing and new equity," it said. In January 2014, the company raised $4.1 million in a sale of shares to existing investors, and a further $4.5 million from the sale of its stake in Snakk Media and a placement. As at Sept. 30, the company has about $2.3 million in cash and equivalents, according to its interim report.

SeaDragon shares rose 4.6 percent to 2.3 cents, valuing the company at about $43 million.

(BusinessDesk)