Biodiesel producer Australian Renewable Fuels comes back to life

The country’s biggest biodiesel producer has become the latest renewable energy stock to come back to life, and just in time.
Australian Renewable Fuels (ARF) shares listed strongly at A$1 (US$0.92) apiece in May 2005, but things got messy after the government scrapped an excise concession in 2007.
Having spent A$100 million (US$92 million) on two modern facilities at Largs Bay in Adelaide and Picton near Bunbury, ARF found it did not have the distribution support from the oil giants and decent sales never emerged.
In the words of broker Wilson HTM, “ARF has spent much of its life in a perilous financial state.”
Enter private Biodiesel Producers (BPL), which back-door listed through ARF in November 2011. The transaction delivered BPL’s Barnawartha plant near Albury and, critically, a supply contract with Shell for 40-50 million liters a year.
The new ARF benefited from the NSW government’s move to mandate a minimum biodiesel content of 2%, which will rise to 5%.
The Victorians also did their bit, extending a grant for Shell to build a blending facility down south. A U.S. export contract for 10 million liters was the other key to ARF’s turnaround.
At face value, it is puzzling why Shell would want to ship biodiesel from Australia to Texas when the U.S. has an established biodiesel industry based on corn or soybean feedstock.
Surprisingly, says White, it is cheaper than transporting the fuel by rail across the Rockies, even when factoring in the exchange rate.
Based on Wilson HTM estimates, ARF’s product, sourced from tallow or used cooking oil, sells for about A$1.15 (US$1.06) a liter, which makes it competitive with standard diesel fuel. The obvious danger is a falling oil price, but White maintains the tallow price historically has closely tracked that of oil so it would fall in unison.
In February, ARF chalked up its first profit of A$1.5 million (US$1.38 million) for the first half, on revenues of A$29 million (US$26.7 million).
The third quarter ending in March showed a less impressive A$284,000 (US$261,538) cash surplus.
Wilson HTM forecasts a full-year profit of A$2.3 million (US$2.1 million) for the current year on 50 million liters of output.
(May 10, 2013)