Feronia Inc.
TSX VENTURE : FRN

Feronia Inc.

November 27, 2013 08:00 ET

Feronia Inc. Reports Q3 2013 Results

TORONTO, ONTARIO--(Marketwired - Nov. 27, 2013) - Feronia Inc. ("Feronia" or the "Company") (TSX VENTURE:FRN) today released its unaudited financial results for the three and nine months ended September 30, 2013. All amounts in this release are expressed in US dollars unless otherwise indicated.

Q3 2013 Highlights and Developments

  • Produced 1,694 tonnes of crude palm oil ("CPO") (Q3 2012: 1,296) from 9,280 tonnes of fresh fruit bunches ("FFB") (Q3 2012: 7,161 tonnes)
  • Increase in FFB yield to 1.56 tonnes per hectare ("ha") (Q3 2012: 1.13 tonnes per ha)
  • Increase in oil extraction rate to 18.25% (Q3 2012: 18.10%)
  • Replanted 1,996 ha of oil palm (Q3 2012: 991 ha)
  • Total revenue of $2.2 million (Q3 2012: $2.1 million) made up of:
    • Oil palm plantation revenue of $2.1 million (Q3 2012: $2.1 million) is primarily from the sale of 2,560 tonnes of CPO at an average net price of $771 per tonne (Q3 2012: 2,046 tonnes at $935 per tonne)
    • Revenue from arable farming operations of $0.1 million from sale of rice into local market
  • Gross loss of $(1.0 million) and operating loss of $(3.4 million), compared to gross loss of $(0.4 million) and operating loss of $(2.8 million) for Q3 2012
  • Net loss attributable to Feronia of $(3.0 million) or $(0.01) per share, compared to net loss of $(1.8 million) or $(0.01) per share in Q3 2012

Subsequent Events

  • Production of palm oil commenced at new Yaligimba mill on October 17, 2013
  • 5,000 ha oil palm replanting target for 2013 surpassed on October 23, 2013
  • Completed $25 million over subscribed non-brokered private placement led by CDC Group plc., the UK Government's Development Finance Institution and supported by existing shareholders
  • Entered into $3.6 million loan facility with CDC Group plc. to advance Environmental and Social Action Plan

Bill Dry, CEO of Feronia commented: "We continue to make considerable progress in our oil palm operation with FFB and CPO production levels in the quarter dramatically improved over Q3 2012. The new Yaligimba mill coming into operation in October and recent surpassing of our 2013 replanting target of 5,000 hectare are both fantastic achievements which were only possible because of our skilled and dedicated workforce in the DRC. Feronia now has over 21,000 hectares of oil palm in the ground and a working CPO mill at each of its plantations. These represent great strides in the rehabilitation of our business.

"We have also made progress in developing our arable business and are encouraged by the growing number of high quality local customers and the considerable amount of interest being shown in our produce."

About Feronia Inc.

  • Feronia operates large-scale commercial oil palm plantations and has commenced an arable farming operation in the Democratic Republic of the Congo (the "DRC").

  • The Company, through its subsidiaries, holds concessions on land which is owned by the DRC government and on which its oil palm plantation and farming operations take place.

  • The Company uses modern agricultural practices to operate and develop its oil palm plantations and arable farming. Feronia believes in the immense agricultural potential of the DRC for high-quality edible oils, oil derivatives and foodstuffs given the suitability of its climate and soil and the availability of a skilled workforce.

  • The Company's management team is comprised of experienced business administrators and senior agriculturalists with extensive experience in managing both plantations and large-scale mechanized farming operations in emerging markets.

  • Feronia is committed to sustainable agriculture, environmental protection and providing jobs and economic growth for local communities.

  • For more information please see www.feronia.com

Operational Summary and Key Metrics by Division

Palm Oil Operations

The following table shows key data relating to operations at Plantations et Huileries du Congo S.c.A.R.L ("PHC") as at and for the nine months ending September 30, 2013:


Nine months ended September 30, 2013 Total
(as at and for the nine months
ended September 30)
Lokutu Yaligimba(1) Boteka 2013(1) 2012(1) 2011
Production
Fruit Production (tonnes) 28,485 - 5,889 34,374 30,079 36,362
Oil Produced (tonnes) 5,255 - 1,116 6,371 5,444 6,212
Oil Extraction Rate (%) 18.44 - 18.95 18.53 18.10 17.08
PKO Produced (tonnes)(2) 272 - - 272 335 -
FFB yield/hectare (tonnes) 6.44 - 3.84 5.78 4.76 2.85
FFB yield/hectare (tonnes)(like-for-like)(3) 6.44 - 3.84 5.78 4.76 3.79
CPO yield/hectare (tonnes) 1.19 - 0.73 1.07 0.86 0.48
CPO yield/hectare (tonnes)(like-for-like)(4) 1.19 - 0.73 1.07 0.86 0.68
Notes:
1. Yaligimba did not contribute to Fresh Fruit Bunches ("FFB") or Crude Palm Oil ("CPO") production in either the nine months ended September 30, 2013 or the nine months ended September 30, 2012.
2. "PKO" means Palm Kernel Oil.
3. FFB Yield/Ha like-for-like basis excludes Yaligimba production for 2011.
4. CPO Yield/Ha like-for-like basis excludes Yaligimba production for 2011.

The following tables show key data relating to PHC's assets and infrastructure as at September 30, 2013.

As at September 30, 2013 Total as at September 30
Lokutu Yaligimba(1) Boteka 2013(1) 2012(1) 2011
Plantations (Hectares)
Immature
Year 0 1,934 1,873 641 4,448 2,786 1,768
Year 1 1,707 1,447 770 3,924 2,110 1,027
Year 2 1,065 545 500 2,110 1,027 713
Year 3 402 320 305 1,027 713 1,443
5,108 4,185 2,216 11,509 6,636 4,951
Producing
4 - 7 Years 1,136 1,275 738 3,149 2,469 1,026
8 - 18 Years 376 561 578 1,515 2,273 3,552
19 - 25 Years 2,908 1,921 216 5,045 5,471 5,008
Over 25 Years - - - - - 3,167
4,420 3,757 1,532 9,709(2) 10,213(2) 12,753(2)
Total Planted 9,528 7,942 3,748 21,218 16,849 17,704
Notes:
1. Yaligimba did not contribute to FFB or CPO production in either the nine months ended September 30, 2013 or the nine months ended September 30, 2012.
2. During the years ended December 31, 2010 and 2011, the Company classified palms aged 4 to 30 years as mature and producing. Going forward, management has elected to classify palms aged 4 to 25 years as mature and producing, resulting in a reduction in the number of producing hectares. In the normal course, management expects to replant palms at age 25 and believes this new classification criteria facilitates comparisons to other plantation operations.
As at September 30, 2013 Total as at September 30
Lokutu Yaligimba(1) Boteka 2013(1) 2012(1) 2011
Palm Nurseries
Total Hectares 21 20 6 47 37 26
Seedlings 348,830 559,003 98,564 1,006,397 1,139,772 579,073
Hectares plantable from seedlings 1,938 3,106 553 5,577 6,306 3,201
Palm Oil Mills
No. of Palm Oil Mills / Oil Produced 1 / CPO & PKO Under Construction(1) 1 / CPO 2 2 2
Palm Oil Mill Capacity (tonnes/hour) 15 Under Construction(1) 10 25 25 25
Note:
1. Commenced production of CPO at new Yaligimba palm oil mill on October 17, 2013.
As at September 30, 2013 Total as at September 30
Lokutu Yaligimba(1) Boteka 2013(1) 2012(1) 2011
Infrastructure
Operational Roads (Km) 731 688 363 1,782 1,476 1,292
Employees - - - 3,489 3,524 3,639
Houses 1,988 1,095 698 3,781 3,725 3,854
Schools 60 21 13 94 89 83
Hospitals 2 1 1 4 4 4
Dispensaries 7 3 3 13 13 13
Health Centres 2 1 1 4 4 4

Key Developments

  • Total fruit production for Q3 2013 was 9,280 tonnes, 30% higher than Q3 2012.
  • CPO production for Q3 2013 was 1,694 tonnes, 31% higher than Q3 2012
  • Replanting of oil palms for Q3 2013 was 1,996 ha, 101% higher than Q3 2012.
  • Yaligimba palm oil mill commenced CPO production on October 17, 2013
  • 2013 replanting programme of 5,000 hectares surpassed on October 23, 2013

Arable Farming Operations

Key Metrics:

Arable As at and for the nine months ended September 30
2013 2012
Land Available (ha) 10,000 10,000
Land Cleared (ha) 2,000 2,000
Land Prepared (ha) 1,700 1,700
Land Planted (ha) 0 0

Key Developments

  • Commenced selling rice to additional counterparties involved in the domestic food market including more food wholesalers during Q3 2013.
  • Rice sales for Q3 2013 totaled 189 tonnes of which 173 tonnes were sold to Bralima and 16 tonnes to other counterparties with total revenue for the quarter of $136,000. Total rice sales for the nine months ended September 30, 2013 were 567 tonnes of rice of which 523 tonnes were sold to Bralima and 44 tonnes to other counterparties for total revenue for the period of $415,000.
  • Land prepared during Q3 2013 for planting of 200 hectare trail planting in October 2013, which is due to be harvested in February 2014.
  • Since commencing the sale of its rice, the Company has experienced considerable interest in its produce and has received order enquiries far in excess of the production levels it can achieve under its current trial planting program.
  • Management believes that the market for domestically produced rice in and around the Bas Congo region of the DRC is considerable.
  • Engaged with a number of parties looking to develop strategies to advance arable farming in the region including smallholder programmes.

OUTLOOK

The Company's strategy for its oil palm plantations business continues to be to maximize returns from existing plantings whilst investing in new plantings and the required processing capacity. Having met and surpassed its annual 5,000 hectare replanting target for 2013 in October 2013, the Company is confident that it can continue to meet its replanting objectives. The new Yaligimba palm oil mill commenced production of CPO in October 2013 and now provides the Company with access to an additional 3,757 hectares of mature oil palms for the production of CPO, an increase of 62.1% on the area previously available for commercial production. The Yaligimba mill allows the Company to maximise production from legacy plantings and provides substantial excess processing capacity and expansion potential to accommodate anticipated production from its current aggressive replanting programme.

The Company has also made progress in establishing commercially viable rice yields at its arable operation, has established a pricing formula, is making sales to a growing number of high quality local counterparties and is experiencing considerable interest in its produce. The Company continues to evaluate how to prudently expand its arable farming operations and is also engaged with a number of parties who are developing strategies to advance arable farming in the region including smallholder engagement programmes.

In summary, the key objectives of the Company for the remainder of 2013 are as follows:

  1. refine FFB harvest and evacuation procedures at Yaligimba to enable FFB production and mill utilisation to be maximised following the resumption of harvesting 3,757 ha of producing palms;

  2. continue land preparations for 5,000 hectare oil palm replanting programme in 2014; and

  3. prudently advance arable farming operation.

As previously disclosed by the Company, on December 24, 2011, the government of the DRC promulgated a new law, "Loi Portant Principes Fondamentaux Relatifs a L'Agriculture" (the "Agriculture Law"), for the stated purposes of developing and modernizing the country's agricultural sector. Feronia continues to seek clarification on the implications of this legislation from local counsel and government in the DRC. If the Agriculture Law is interpreted by the DRC government to apply to the existing concession rights held by the Company and the Agriculture Law is not amended, it could have a material and substantial adverse effect on the value of its business and its share price. In such case, Feronia may be required to sell or otherwise dispose of a sufficient interest in its operating subsidiaries so as to ensure that it meets local ownership requirements. There is no assurance that such a sale or disposition would be completed at fair market value or otherwise on acceptable terms to Feronia. Please refer to the Company's Management Discussion and Analysis for the three months ended September 30, 2013 available on www.sedar.com for a full discussion on the Agriculture Law.

Financial Discussion - Three and nine months ended September 30, 2013

Revenue and Gross Margin

(Expressed in thousands of US dollars) Three months ended September 30 Nine months ended September 30
2013 2012 % Change 2013 2012 % Change
Revenues
Oil Palm Plantations 2,146 2,143 0 % 5,261 6,101 (14 %)
Arable Farming 136 - n/a 415 - n/a
2,282 2,143 7 % 5,676 6,101 (7 %)
Cost of sales
Oil Palm Plantations 2,519 1,956 29 % 4,921 4,886 1 %
Arable Farming 801 556 44 % 1,872 2,187 (14 %)
3,320 2,512 32 % 6,793 7,073 (4 %)
Gross Profit (Loss)
Oil Palm Plantations (374 ) 187 (300 %) 340 1,215 (72 %)
Arable Farming (665 ) (556 ) (20 %) (1,458 ) (2,187 ) 33 %
(1,039 ) (369 ) (282 %) (1,118 ) (972 ) (15 %)
Gross Margin(1)
Oil Palm Plantations (17 %) 9 % 6 % 20 %
Note:
1. Gross margin is a non-GAAP financial measure. See "Non-GAAP Financial Measures" below.

Total revenues for Q3 2013 were $2,282,000, a 7% increase on Q3 2012 revenues of $2,143,000 and arose because of:

  • Arable farming revenue commencing in Q2 2013 with arable farming revenue for Q3 2013 being $136,000 (Q3 2012: $Nil). Arable farming revenue for the nine months to September 30, 2013 totalled $415,000 (nine months to September 30, 2012: $Nil); and

  • Oil palm plantation revenue in Q3 2013 was broadly level with Q3 2012 at $2,146,000 (Q3 2012: $2,143,000). Although the volume of CPO sold in Q3 2013 was up 25% on Q3 2012 at 2,560 tonnes (Q3 2012: 2,046 tonnes), this was offset by a fall in the net CPO price achieved in the quarter from $935 per tonne in Q3 2012 to $771 per tonne in Q3 2013 which was driven by a fall in global CPO prices during the period.

Total revenue for the nine months ended September 30, 2013 was $5,676,000 a 7% reduction from the same period in 2012 (nine months to September 30, 2012: $6,101,000) and arose because of:

  • Oil palm revenues for the nine months ended September 30, 2013 were 14% lower than the same period in 2012 at $5,261,000 (nine months to September 30, 2012: $6,101,000). This reduction is a result of the average net sale price of CPO of $773 per tonne during the nine months to September 30, 2013 being 17% lower than for the same period in 2012 (nine months to September 30, 2012: $932). The effect of this was partially offset by the volume of CPO sold in the nine months to September 30, 2013 of 6,313 tonnes being a 10% increase on the 5,732 tonnes sold in the corresponding period in 2012. In addition, PKO revenues fell from $402,000 in 2012 to $228,000 in 2013 due to the fall in global prices of 40% year on year.
  • Arable farming revenue from the sale of rice commencing during the period.

The following table provides a summary of palm fruit production and CPO:

Three months ended September 30, Nine months ended September 30,
2013 2012 % Change 2013 2012 % Change
Fruit production (tonnes) 9,280 7,161 30 % 34,374 30,079 14 %
Oil produced (tonnes) 1,694 1,296 31 % 6,371 5,444 17 %
Oil extraction rate 18.25 % 18.10 % - 18.53 % 18.10 % -
Producing Hectares(1) 5,952 6,310 (6 %) 5,592 6,310 (6 %)
FFB yield/hectare (tonnes)(2) 1.56 1.13 - 6.15 4.77 -
CPO yield/hectare (tonnes) (2) 0.28 0.21 - 1.14 0.86 -
Notes:
1. Excludes producing hectares at Yaligimba.
2. FFB yield/hectare and CPO yield/hectare basis excludes Yaligimba producing hectares

Selling, General and Administrative Costs

(Expressed in thousands of US dollars) Three months ended September 30, Nine months ended September 30,
2013 2012 % Change 2013 2012 % Change
Selling, general and admin 2,388 2,561 (7 %) 7,433 7,264 2 %
Other losses (77 ) 95 (100 %) (95 ) 62 253 %

Selling, general and administrative costs for Q3 2013 of $2,388,000 were $173,000 lower than in Q3 2012 (Q3 2012: $2,561,000), a decrease of 7%. The decrease was predominantly a result of professional fees in Q3 2013 being $173,000 lower than in Q3 2012.

Selling, general and administrative costs for the nine months ended September 30, 2013 of $7,433,000 were $169,000 higher than in the same period in 2012, a 2% increase (nine months to September 30, 2012: $7,264,000). The increase was predominantly a result of an increase of salary and other general and operating expenses of $920,000, offset by a reduction in consultancy, professional fees and share based payment of $751,000.

CASHFLOWS AND LIQUIDITY

The cash balance at September 30, 2013 was $463,000 compared to $1,260,000 as at December 31, 2012. The reduction in the cash balance of $797,000 was a result of a net cash loss from operations of $8,163,000, capital expenditure of $5,933,000 and an increase in working capital of $1,008,000 offset by the issue of shares for cash of $14,393,000.

The cash outflow attributable to the increase in working capital during the nine months to September 30, 2013 of $1,008,000 (nine months to September 30, 2012: Cash inflow of $2,491,000) comprised of an increase in accounts receivable of $727,000, a decrease in inventory of $677,000, a decrease in accounts payable of $1,399,000 and a decrease in prepayments of $442,000.

Cash inflows from financing activities during Q3 2013 were $Nil (Q3 2012: $6,846,000). Financing activities for the nine months to September 30, 2013 totaled $14,393,000 (nine months to September 30, 2012: $6,886,000).

Investing activities resulted in cash outflows of $5,933,000 for the nine months ended September 30, 2013 (nine months to September 30, 2012: $9,216,000).

Cash Used in Operating Activities

(Expressed in thousands of US $) Nine months ended September 30
2013 2012 % change
Cash used in Operating Activities 9,170 4,820 90%

LIQUIDITY AND CAPITAL RESOURCES

As at September 30, 2013, the Company had cash totalling $463,000.

The Company recorded net cash outflows in operations and investing activities for the 2012 calendar year and it is probable that this will continue for an additional few years as the Company continues to make significant investments in equipment and infrastructure activities necessary to commercialize its products. Feronia's actual funding requirements will vary based on the factors noted above and its relationships with lead customers and strategic partners.

On November 8, 2013 and November 15, 2013, the Company completed the first and second tranches, respectively, of a private placement financing of Common Shares for aggregate gross proceeds of $25 million. Pursuant to the financing, the Company issued an aggregate of 261,195,050 Common Shares at a price of CDN$0.10 per share.

On November 8, 2013, the Company also entered into a convertible loan facility with CDC Group plc ("CDC"), pursuant to which CDC will make available an unsecured non-revolving term loan (the "ESG Facility") in the maximum amount of $3.6 million at an annual interest rate of 12% for a term of five years. The funds available under the ESG Facility are required to be used by the Company to support the implementation of an Environmental and Social Action Plan developed jointly with CDC. The principal under the ESG Facility will be convertible into Common Shares on the maturity date and in certain other circumstances at a rate of CDN$0.24 per common share (subject to customary adjustment provisions). Subject to the approval of the TSX Venture Exchange (the "TSXV"), the interest payable under the ESG Facility will be convertible into Common Shares at a rate equal to the greater of CDN$0.24 and the Discounted Market Price (as defined in TSXV policy) at the time of conversion.

The proceeds are being used by the Company for working capital and capital expenditure purposes.

Continuing operations of Feronia are dependent upon its ability to continue to raise adequate financing and to commence profitable operations in the future. There can be no assurance that the Company will be able to continue raising adequate financing or commence profitable operations in the future. See "Risks and Uncertainties" below.

Major outstanding anticipated capital expenditure cash requirements (other than expenditures for oil palm rehabilitation and planting and the implementation of the Company's ESAP) as at the date of this press release relate to work completed on the new oil palm mill at Yaligimba (estimated to be $450,000) but not yet paid.

NON-GAAP FINANCIAL MEASURES

Gross margin is not a financial measure recognized by IFRS and does not have a standardized meaning prescribed by IFRS. The Company's method of calculating gross margin may differ from other methods used. Gross margin is presented in this press release as additional information regarding the Company's financial performance. Gross margin has been calculated by deducting cost of sales from revenue.

RISKS AND UNCERTAINTIES

The Company is subject to various business, financial and operational risks that could materially adversely affect the Company's future business, operations and financial condition and could cause such future business, operations and financial condition to differ materially from the forward-looking statements and information contained in this press release. For a more comprehensive discussion of the risks faced by the Company, please refer to the Company's annual management's discussion and analysis for the year ended December 31, 2012, available at www.sedar.com.

Cautionary Notes

Except for statements of historical fact contained herein, the information in this press release constitutes "forward-looking information" within the meaning of Canadian securities law. Such forward-looking information may be identified by words such as "anticipates", "plans", "proposes", "estimates", "intends", "expects", "believes", "may" and "will". There can be no assurance that such statements will prove to be accurate; actual results and future events could differ materially from such statements. Factors that could cause actual results to differ materially include, among others: risks related to foreign operations (including various political, economic and other risks and uncertainties), the interpretation and implementation of the Agriculture Law, termination or non-renewal of concession rights or expropriation of property rights, political instability and bureaucracy, limited operating history, lack of profitability, lack of infrastructure in the DRC, high inflation rates, limited availability of debt financing in the DRC, fluctuations in currency exchange rates, competition from other businesses, reliance on various factors (including local labour, importation of machinery and other key items and business relationships), the Company's reliance on one major customer, lower productivity at the Company's plantations and arable farming operations, risks related to the agricultural industry (including adverse weather conditions, shifting weather patterns, and crop failure due to infestations), a shift in commodity trends and demands, vulnerability to fluctuations in the world market, the lack of availability of qualified management personnel and stock market volatility. Most of these factors are outside the control of the Company. Investors are cautioned not to put undue reliance on forward-looking information. Except as otherwise required by applicable securities statutes or regulation, the Company expressly disclaims any intent or obligation to update publicly forward-looking information, whether as a result of new information, future events or otherwise.

Neither the TSX Venture Exchange nor its regulation services provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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