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AUSTRALIAN RENEWABLE FUELS LIMITED ACN 096 782 188
P R O S P E C T U S
for
a non-renounceable Rights Issue of fully paid Ordinary Shares to existing Shareholders at a price of 1 cent per Share on the basis of 2 new Shares for every 3 Shares held, with a free
attaching Option for every Share issued.
THE OFFER CLOSES AT 5.00 pm PERTH TIME ON
3 NOVEMBER 2010
IMPORTANT NOTICE
This document is important and should be read in its entirety. If, after reading this Prospectus, you have any questions about the offer, then you should consult your stockbroker,
accountant or other financial adviser without delay.
The Ordinary Shares and Options offered by this Prospectus are a speculative investment.
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Australian Renewable Fuels Limited
Corporate Directory Table of Contents Directors: Corporate Directory 2
Robert Scott
(Chairman)
Timetable 3
Tom Engelsman (Managing Director)
Letter to Shareholders 4
Julien Playoust Company Update 6
Charles Gullotta Details of the Issue 8
Rights and Liabilities of Shares
and Options 12
Secretary: Capital Structure and Effect of the Issue 14
Alwyn Davey Risks of Investing 18
Underwriting 21
Registered and Principal Office: Directors’ Interests 24
Level 9, 175 Collins Street Consent to be Named 24
Melbourne, Vic, 3000 Legal proceedings 25
Tel: (03) 9663 8222 Continuous Disclosure & Documents
Fax: (03) 9650 0070 Available for Inspection 25
Consent to Lodgement 26
Share Register:
Computershare Investor Services Pty Limited
Level 2, 45 St Georges Terrace Perth WA 6000, Australia
Stock Exchange Listing:
Australian Securities Exchange (ASX)
Code: ARW
Lead Manager & Underwriter:
Bell Potter Securities Limited
Level 29, 101 Collins Street
MELBOURNE VIC 3000
For more information regarding this offer please contact:
Alwyn Davey, Company Secretary on (03) 9663 8222
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Important Information
This Prospectus is dated 5 October 2010. A copy of this Prospectus was lodged with the Australian Securities & Investments Commission (“ASIC”) on 5 October 2010. ASIC takes no responsibility for the content of this Prospectus.
No securities will be allotted or issued on the basis of this Prospectus later than 13 months after the date of this Prospectus.
Timetable
Lodgement date of Prospectus and Appendix 3B. 5 October 2010
Dispatch of notices to Shareholders containing information required by Appendix 3B 6 October 2010
Ex Date 7 October 2010
Record date for determining entitlements under rights issue. 13 October 2010
Prospectus and Entitlement and Acceptance Form sent to shareholders. 19 October 2010
Closing date for receipt of acceptances and payment. 3 November 2010
Shares and options quoted on ASX on deferred settlement basis 4 November 2010
Shortfall notification date 8 November 2010
Issue of shares and options 9 November 2010
Dispatch of Statements of Holdings Deferred settlement trading ends 11 November 2010
The Company reserves the right to extend the closing date, subject to the ASX Listing Rules, in which case subsequent dates will alter accordingly.
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1 LETTER TO SHAREHOLDERS
Dear Shareholder
The Directors of Australian Renewable Fuels (ARF or Company) are pleased to issue this Prospectus in respect of an underwritten non-renounceable rights issue to raise gross proceeds of $4.97 million (the Offer).
This Prospectus contains details of the Offer and the terms of the options to be issued under the Offer. You should read this document carefully.
In essence, the Offer is as follows: • a 2 for 3 non-renounceable rights issue, together with 1 free attaching option for each share
issued, to raise approximately A$4.97 million
• shareholders with a registered address in Australia, New Zealand, Switzerland or the UK may participate
• the Offer price is A$0.01 per new share in ARF – this is the same price at which 95 million shares were recently placed with professional and sophisticated investors.
• the exercise price of each option is A$0.01 for each share, and options are exercisable at any time prior to the expiry date of 18 December 2011
• the Offer is fully underwritten by Bell Potter Securities Limited with the result that the Offer will raise at least A$4.97 million
• the Company’s two largest shareholders, Wasabi Energy Limited and Australian Enterprise Holdings Pty Ltd have each agreed to sub-underwrite their entitlements under the Offer.
• the Offer record date is13 October 2010 and the Offer closes at 5:00pm (Perth time ) on 3 November 2010
Use of proceeds
As discussed above, the Offer will raise circa $4.9 million. The Company requires these additional funds to repay debt and to increase working capital, including the funding of feedstock, as well as to continue the expansion of sales of biodiesel into the defined markets.
Trading update
The business environment for the biodiesel industry has changed substantially for the better from that disclosed during the mid-2009 fund raising process.
During the past year, the Company has continued to manage with basic cash flow and working capital which is to some degree dictating the speed of the increase in production and sales. However, the quality of the product continues to be well accepted in the market. Wasabi Energy Limited has provided significant working capital funding in the first 6 months of 2010 in order for the Company to expand its operations.
The Directors believe that the announcement by the Federal Government of a delay in the introduction of its proposed emissions trading scheme (ETS) has dampened the market, although the elimination of labelling regulations for any B5 product (5% biodiesel) is a clear indicator that the market acceptance of the alternate fuel base is growing.
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On a state level, NSW has mandated 2% biofuels (rising to 5%) and a number of other states are nearing a similar mandate.
The directors and their related parties intend to take up their entitlements under the Offer. In addition, I will sub-underwrite the Offer to the extent of $100,000.
On behalf of all at ARF, I thank you for your continued support and I commend this investment opportunity for your consideration.
Yours faithfully
Robert Scott Chairman
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2 COMPANY UPDATE
There have been substantial positive changes with regard to the Biofuels sector in the recent years, and ARF is now well positioned to benefit from those changes.
Since the original building of the facilities in Picton (WA) and Largs Bay (SA), the Company has worked hard to build a base for the longer term. Given the major adverse events of 2006/7 within the industry, the Board approved the application of an impairment charge, thereby ensuring that the highly engineered and successfully operated units could be suitably positioned for the future. With replacement value many times in excess of the book value, and with positive activity in the sector and the market, the Board believes that the business is now well positioned to leverage the expanding focus with regard to renewable energy, and specifically Biofuels.
With regard to the overall environment at the moment, the Directors believe that the following events are of significance for the business
• The announcement that from 1 March 2009 no labelling is required for a Biodiesel content of up to 5%, thereby setting the basis for direct replacement of the product
• The announcement in September 2009 of the New South Wales mandate for Biofuels, and the specific application of a 2% (rising to 5%) mandated level of the product.
• The announcement in July 2010 of a final position by the Government with regard to the Excise Classification of the product, ensuring a fiscal benefit to the product with regard to mineral diesel, and also allowing for an extended period of time with regard to the excise revisions and the elimination of the Fuel Grant.
• Further support for the industry as a result of the recent Federal elections, with clear policy agreement not only with regard to Biofuels, but also further focus on the important rural sector which is the source of the company feed stock
• Greater support and positive action by the Biofuels Association of Australia (BAA located at biofuelsassociation.com.au) with regard to the overall promotion of the benefits of the industry to the Australian economy
All of the above items, coupled with the expanded support for the industry at the State level, have combined to create a greater level of stability within the industry, based on the expanded recognition that the product has environmental as well as commercial benefits.
The legislative and policy changes mentioned above have resulted in a further strengthening of the biodiesel sector, with some of the recent activity being;
• The announcement by Shell Oil Company of their conversion to the use of Biodiesel as part of their basic product offering.
• The decision by IMX in South Australia to use a Biodiesel (supplied by ARF) as a blend in all facets of their operation in South Australia, being the first mining company to have this overall policy
• The continued supply by the Company to Wesfarmers (WA) during the last year with a basic biodiesel blend for use in the coal mining sector
• Success in trials and initial supply with the major logistics and trucking companies, given the focus by many companies (such as the grocery majors) to have their produce carried using a sustainable fuel.
• Stability of the oil prices, and the recognition of pending oil demands from the developing countries, hence creating further interest with regard alternate fuels
• Substantial progress with regard to the development of alternate feed stock, based on oil seeds and other viable low cost sources. The Company has been active in testing many different feed
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stocks, and has built up solid experience in this area, thereby allowing for broader options (inclusive of imported non-food grade commodities).
With the overall progress in the sector, the Company has been active to ensure a larger market share with regard to the opportunities.
The Company is presently in discussions with an international group which, if signed, would provide the Company a guaranteed supplier of feedstock, and customer for a significant volume of processed biodiesel per annum. In addition to the feedstock and offtake arrangements, the international group is intending to provide approximately $3 million of funding to the Company. These funds would be used to modify the Company’s plant in order to better process the feedstock, as well as for working capital in purchasing the feedstock. The format of the funding is still a subject of discussion and may be in the form of equity, convertible debt or straight loan funds, or a combination of all of these.
While there has been a successful completion of initial discussions any outcome is still subject to completion of satisfactory due diligence as well as formal contract, and if necessary, shareholder approval. While the parties are proceeding to negotiate in good faith, there is no certainty that a formal contract will be entered into in the current expected format, or at all.
Discussions have also been held with respect of utilizing other available assets to serve specific local market areas. Although still in formative stages, these market opportunities will be pursued provided that they are accretive with regard to the Company and hence shareholders.
It should be noted that there are specific risks to the business, not the least being 1) overall feed stock costs 2) oil pricing and 3) the exchange rate which can have a dramatic impact on the overall pricing of the local market. These factors contributed to the issues in 2006/2007 and they are impacting the operations at present. As such, it is clear that these items need to be considered with regard to the forward strategic path of the Company.
The Board and Management are confident that the current market opportunities offer the Company a solid basis for growth, and hence are seeking the further investment capital to be able to achieve the same.
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3 DETAILS OF THE ISSUE
3.1 The Offer
By this Prospectus, the Company is inviting holders of ordinary shares to subscribe for new fully paid Ordinary Shares via a non-renounceable pro rata entitlement offer on the basis of two new Ordinary Shares at an issue price of 1 cent for every three fully paid ordinary shares held in the capital of the Company as at the 13 October 2010 (“Record Date”). Fractional entitlements will be rounded down.
For every new Share issued, the Company will grant, for no additional price, an Option to subscribe for a further Ordinary Share with an exercise price of 1 cent per share. The terms and conditions on which the Options will be issued are set out in Section 4.2.
The entitlements to subscribe for new Ordinary Shares and Options are non-renounceable, and there will be no trading in the entitlements on Australian Securities Exchange (“ASX”).
3.2 Offer period
Applications for new Ordinary Shares may be lodged at any time after the issue of this Prospectus. The Closing Date for applications is 5.00pm Perth time on 3 November 2010.
The Company reserves the right to extend the Closing Date.
3.3 Payment for Shares
The issue price of the Ordinary Shares of 1 cent per share, is payable in full on acceptance.
Payment will only be accepted in Australian currency as follows:
(a) cheque or money order drawn on and payable at any Australian bank,
(b) bank draft drawn on and payable at any Australian bank or
(c) by Bpay. If you pay by Bpay you do not need to lodge the Entitlement and Acceptance Form. Payment by Bpay should be made in accordance with the instructions set out in the Entitlement and Acceptance Form.
Your cheque, money order or bank draft must be made in Australian currency and drawn on an Australian branch of a financial institution. Such payment must be made payable to Australian Renewable Fuels Limited and crossed “Not Negotiable”. Applicants are asked not to forward cash. Receipts for payment will not be issued.
For Australian shareholders, an accompanying reply paid envelope is provided for your convenience.
3.4 Entitlement
The number of new Shares to which you are entitled (Entitlement), is shown on the enclosed Entitlement and Acceptance Form.
3.5 What you may do
You may:
• take up all of your Entitlement;
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• take up part of your Entitlement;
• allow your Entitlement to lapse.
3.6 Shares Not Taken Up by Shareholders
Any Ordinary Shares not applied for by shareholders in accordance with their Entitlements under the rights issue, will revert to the Underwriter.
3.7 Overseas Shareholders
This offer is being made only to Shareholders with a registered address in Australia, New Zealand, the United Kingdom and Switzerland.
In accordance with the requirements of the ASX Listing Rules, having regard to:
(a) the number of holders resident outside Australia and New Zealand;
(b) the number and value of ordinary shares that holders resident outside Australia and New Zealand would be offered; and
(c) the cost of complying with the legal requirements and the requirements of regulatory authorities in places other than Australia and New Zealand,
the Directors have decided that it is not reasonable to extend this offer to shareholders resident outside Australia or New Zealand, other than to those in the United Kingdom and Switzerland.
This Prospectus and the Entitlement and Acceptance Form do not constitute an offer of, or any invitation to subscribe for, any of the Ordinary Shares or Options in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation. Where this Prospectus has been despatched to Shareholders resident outside Australia and New Zealand, the United Kingdom or Switzerland and where the relevant jurisdiction’s laws prohibit or restrict in any way the making of the offer contemplated by this Prospectus, this Prospectus is provided for information purposes only.
Shareholders resident in Australia or New Zealand holding existing Ordinary Shares on behalf of persons who are resident overseas are responsible for ensuring that taking up their Entitlements does not breach the laws of the relevant overseas jurisdiction. The return of a duly completed Entitlement and Acceptance Form (or payment) will constitute a representation by the applicant that there has been no breach of any such laws.
3.8 Allotment
In accordance with the Corporations Act 2001 (Cth), all subscription monies, before the allotment and issue of Ordinary Shares and Options pursuant to this Prospectus, will be held by the Company in trust in a bank account established solely for the purpose of depositing application monies received. Any interest earned will be for the Company’s account.
3.9 Application for Listing
Application has been made to ASX by the Company for the Ordinary Shares and Options offered by this Prospectus to be quoted on ASX.
If permission for official quotation of the Ordinary Shares and Options is not granted by ASX within 3 months after the date of this Prospectus, the Company, in accordance with the Corporations Act 2001 (Cth), will either:
(a) repay all application monies; or
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(b) issue a supplementary prospectus advising that the Ordinary Shares and Options will not be listed on ASX and give applicants one month to withdraw their application and be repaid in full.
No interest will be paid on any monies repaid.
3.10 Dividend Policy on Increased Capital
The Ordinary Shares offered by this Prospectus will be entitled to any dividend declared on ordinary shares in respect of the financial year in which the shares are issued. The Directors do not anticipate declaring a dividend during the current financial year.
3.11 Use of Funds Raised
The funds raised will be used to repay approximately $2.6 million owing to Wasabi Energy Limited and the balance will be used as working capital including for funding of feedstock. In particular the increased working capital will assist the Company to increase its sales and the resultant increasing requirement for feed stock.
3.12 Underwriting
The issue is underwritten by Bell Potter Securities Limited. Details of the underwriting agreement are set out in section 7.
Wasabi Energy Limited has agreed to sub-underwrite its entitlement of 116,000,000 Shares. Wasabi will receive a sub-underwriting fee of 2% of the funds raised as a result of its sub-underwriting.
As the issue is fully underwritten, Wasabi’s voting power in the Company will not increase as a result of its sub-underwriting, and will remain at 23.3%.
If the Underwriter terminates the Underwriting Agreement in the circumstances set out in Section 7, the sub-underwriting arrangement with Wasabi will also terminate, and Wasabi will not acquire any additional Shares, and its voting power will not change.
3.13 Market Price of Shares
The highest and lowest closing sale price of the Company’s ordinary, fully paid shares on ASX during the 3 months up to the date of this Prospectus and the respective dates of the sales were:
Highest closing price: $0.013 on 27 September 2010
Lowest closing price: $0.009 on 7 June 2010
The last market sale price of the Company’s ordinary, fully paid shares on ASX on the day prior to the date of this Prospectus was $0.011 on 4 October 2010.
The Company has no options currently quoted on ASX.
3.14 Taxation The potential tax effects relating to the Offer will vary between each investor. Investors are advised to consider the possible tax consequences of participating in the Offer or to consult a professional tax adviser.
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3.15 Speculative Investment
There are risks associated with an investment in the Company and the Securities offered by this Prospectus must be regarded as a speculative investment. The Securities offered under this Prospectus carry no guarantee in respect to the return on capital invested, payment of dividends, or future value of the Securities. In making representations in this Prospectus, regard has been given to the fact that Company is a disclosing entity under the Corporations Act and certain matters may reasonably be expected to be known to investors and the professional advisers whom potential investors may consult.
3.16 Chess And Issuer Sponsorship
The Company participated in the Clearing House Electronic Subregister System (CHESS). CHESS is operated by ASX Settlement Pty Ltd (ASX Settlement), a wholly owned subsidiary of ASX, in accordance with the ASX Listing Rules and the ASX Settlement Operating Rules. Prior to the issue of the Securities under this Prospectus the Company proposes to reapply for participation in CHESS. The Company will not be issuing share certificates. The Company will apply to ASX to participate in CHESS, for those investors who have, or wish to have, a sponsoring stockbroker. Investors who do not wish to participate through CHESS will be issuer sponsored by the Company. Because the sub-registers are electronic, ownership of securities can be transferred without having to rely upon paper documentation. Electronic registers mean that the Company will not be issuing certificates to investors. Instead, investors will be provided with a statement (similar to a bank account statement) that sets out the number of Shares and Promoter Options allotted to them under this Prospectus. The notice will also advise holders of their Holder Identification Number or Security Holder Reference Number and explain, for future reference, the sale and purchase procedures under CHESS and issuer sponsorship. Further monthly statements will be provided to holders if there have been any changes in their security holding in the Company during the preceding month.
3.17 Privacy Act
If you complete an application for Securities, you will be providing personal information to the Company (directly or by the Company’s share registry). The Company collects, holds and will use that information to assess your application, service your needs as a Security holder, facilitate distribution payments and corporate communications to you as a Security holder and carry out administration. The information may also be used from time to time and disclosed to persons inspecting the register, bidders for your Securities in the context of takeovers, regulatory bodies, including the Australian Taxation Office, authorised securities brokers, print service providers, mail houses and the Company share registry. You can access, correct and update the personal information that we hold about you. Please contact the Company or its share registry if you wish to do so at the relevant contact numbers set out in this Prospectus. Collection, maintenance and disclosure of certain personal information is governed by legislation including the Privacy Act 1988 (Cth) (as amended), the Corporations Act and certain rules such as the ASX Settlement Operating Rules. You should note that if you do not provide the information required on the application for Securities, the Company may not be able to accept or process your application.
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4 RIGHTS & LIABILITIES ATTACHING TO SHARES AND OPTIONS
4.1 Rights Attaching to Ordinary Shares
The Shares issued under this Prospectus will rank equally in all respects with the Company’s fully paid ordinary shares already on issue.
Ordinary Shares carry the following rights:
(a) Meetings and Voting
Each shareholder is entitled to receive notice of, and attend and vote at, general meetings of the Company.
At a general meeting, every shareholder present in person or by proxy, representative or attorney has one vote on a show of hands and, on a poll, one vote for each share held.
(b) Notices
Each shareholder is entitled to receive all notices, accounts and other documents required to be furnished to shareholders under the Constitution of the Company, the ASX Listing Rules and the Corporations Act.
(c) Dividends
Subject to the rights of holders of shares issued with any special or preferential rights (at present, there are no such shares on issue), the profits of the Company which the Directors may from time to time determine to distribute by way of dividends will be distributed amongst shareholders according to the amounts paid (not credited) on the shares as a proportion of the total amount paid and payable (excluding amounts credited) on the shares.
(d) Winding Up
Subject to the rights of holders of shares with preferential rights on a winding up (at present there are no such shares on issue), on a winding up of the Company, shareholders will participate in any surplus assets of the Company in proportion, as nearly as may be to the capital paid up on the shares held by them respectively at the commencement of the winding up.
(e) Transfer
Subject to the Constitution of the Company, the Corporations Act and ASX Listing Rules, shares are freely transferable.
(f) Issue of Further Shares
The allotment and issue of any additional shares is under the control of the Directors of the Company, subject to any restrictions on the allotment of shares imposed by the Constitution of the Company, ASX Listing Rules and the Corporations Act.
(g) Variation of Rights
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The rights, privileges and restrictions attaching to ordinary shares can be altered with the approval of a resolution passed at a general meeting of the holders of ordinary shares by a three-quarters majority of those holders who, being entitled to do so, vote at the meeting. If a quorum is not present, or a resolution not passed by the necessary majority, the rights, privileges and restrictions may be varied with the written consent of the holders of at least three-quarters of the ordinary shares on issue within two months of the date of the meeting.
Full details of the rights attaching to the Company’s ordinary shares are set out in the Constitution of the Company, a copy of which can be inspected at the office of the Company, Level 9, 175 Collins Street, Melbourne, Victoria. To obtain a definitive assessment of the rights and liabilities which attach to ordinary shares in any specific circumstances, shareholders should seek legal advice.
4.2 Terms of Options
1. Each Option entitles the holder to subscribe for one ordinary fully paid share in the capital of the Company.
2. The Options are exercisable at 1 cent per share.
3. The Options will expire at 5 pm (EST) on 18 December 2011.
4. Subject to the Corporations Act, the Options may be exercised at any time.
5. The holder may exercise the Options in whole or in part, provided that any exercise of Options must be in multiples of 5,000, except where the holder exercises all their Options.
6. An Option may be exercised by the holder giving notice in writing to the Company, together with the exercise price paid by cheque or in such other manner as the Company determines to accept.
7. The date of exercise of an Option will be the date on which notice of exercise of the Option is received by the Company.
8. Shares issued on the exercise of Options will be issued on the same terms and conditions, and will rank equally with, the ordinary fully paid shares in the Company.
9. The Company will apply to ASX official quotation of shares issued on the exercise of Options within 3 business days of their issue.
10. In the event of any reorganisation of the Company’s capital, the rights of the Option holder will be changed to the extent necessary to comply with the Listing Rules of ASX applying to a reorganisation of capital at the time of the reorganisation.
11. Options will not entitle the holder to participate in any new issues by the Company without exercise of the Options.
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5. CAPITAL STRUCTURE & EFFECT OF THE ISSUE
5.1 Capital Structure
Issued Capital as at date of Prospectus
Number of Shares Class
745,595,086 Ordinary fully paid
Options (all unquoted)
188,111,973 exercisable at 1 cent before 13 July 2011
50,000,000 exercisable at 2 cents before 30 September 2014
50,000,000 exercisable at 1 cent before 18 December 2011.
2,135,000 employee options exercisable at various prices on various dates.
Securities offered by this prospectus
497,063,390 ordinary Shares at 1 cent per share.
497,063,390 Options exercisable at 1 cent per share on or before 18 December 2011.
Capital Structure Post New Issue
Number of Shares
1,242,658,476
Class
Ordinary fully paid
Options
Quoted on ASX
497,063,390 exercisable at 1 cent before 31 December 2011.
Subject to shareholder approval, the Company will issue 95,000,000 options to the parties which took up shares under the recent placement. Those options will be on the same terms as those to be issued under this Prospectus and application will be made to have them also quoted on ASX.
Unquoted
188,111,973 exercisable at 1 cent before 13 July 2011
50,000,000 exercisable at 2 cents before 30 September 2014
50,000,000 exercisable at 1 cent before 18 December 2011.
2,135,000 employees options exercisable at various prices on various dates.
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Effect of the Issue
The Issue will raise $4,970,633 less expenses of the issue, which are estimated to be $300,000. The funds raised will be used to repay the balance of the loan from Wasabi Energy Limited and to provide additional working capital.
The Issue will result in the issue of 497,063,390 Options. No additional funds will be raised by the issue of the Options.
If all the Options are subsequently exercised, ARF will issue a further 497,063,390 ordinary, fully paid shares and will receive additional capital of $4,970,633.
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The following reflects the audited consolidated balance sheet for the Company and its controlled entities as of 30 June 2010, adjusted to reflect the Issue comparison as at 31 August 2010:
AUSTRALIAN RENEWABLE FUELS LIMITED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT 31 August 2010
Consolidated Entity Parent Entity
(Pro-forma) August 2010 (Audited) June 2010
(Pro-forma) August 2010
(Audited) June 2010
$ $ $ $ CURRENT ASSETS Cash and cash equivalents 3,110,836 778,789 2,879,435 418,957 Trade and other receivables 552,995 490,978 1,320 49,827
Inventories 532,242 963,117 - - Other current assets 419,707 738,134 260,122 643,772 Land held for resale - - - - Total current assets 4,615,780 2,971,018 3,140,877 1,112,556 NON-CURRENT ASSETS Property plant and equipment 5,704,125 5,835,165 9,847 8,883 Intangible Assets 27,338 32,914 27,338 32,914 Other financial assets - - 8,054,674 7,812,158 Other Assets 797,639 804,758 - - Total Non Current Assets 6,529,103 6,672,837 8,091,859 7,853,955 Total Assets 11,144,883 9,643,855 11,232,736 8,966,511 CURRENT LIABILITIES Trade and other payables & Provisions 1,368,816 1,686,583 883,717 995,512 Borrowings 210,543 3,100,000 210,543 3,100,000 Total Current Liabilities 1,579,359 4,786,583 1,094,260 4,095,512 NON-CURRENT LIABILITIES Borrowings - 10,800 - - Total Non Current Liabilities - 10,800 - - Total Liabilities 1,579,359 4,797,383 1,094,260 4,095,512 NET ASSETS 9,565,524 4,846,472 10,138,476 4,870,999 EQUITY Contributed equity 110,612,120 104,561,260 110,612,120 104,561,260 Accumulated losses (102,270,654) (100,938,846) (102,168,709) (101,385,327) Reserves 1,224,058 1,224,058 1,695,065 1,695,066 TOTAL EQUITY 9,565,524 4,846,472 10,138,476 4,870,999
The effect of the issue is shown in the pro forma accounts set out above, which are based on audited accounts as at 30 June 2010
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In preparing the above Pro Forma Accounts, the audited accounts as at 30 June 2010 have been adjusted to reflect the following major items:
• Funds raised of $950,000 in placement announced on 24 August 2010
• Funds raised of $4,970,633 by the Offer
• Costs of $300,000
• Repayment of the outstanding loan to Wasabi Energy Limited
5.2 Impact of International Accounting Standards
Apart from the expensing of options granted to employees and directors for remuneration, the Company does not expect any material changes to its Balance Sheet as a consequence of adopting International Financial Reporting Standards (IFRS).
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6. RISKS OF INVESTING
An investment in shares in the Company is subject to investment and other known and unknown risks, including possible loss of income and principal invested. The Company has implemented strategies, actions, systems and safeguards for known risks, however, some risks are beyond its control. Consequently, the prevailing price or value of new shares issued under the Offer may be more or less than the Offer price.
In any event, the Company does not guarantee any particular rate of return, the performance of ARF, the payment of any dividends, the repayment of capital from the Company, any price for shares in the Company or any particular tax treatment.
Key risks
Potential investors should be aware that an investment in the Company under the Offer carries risks. Some of these risks are associated with share market investing generally and some risks relate to the specific financial and operating environment in which the Company operates.
Outlined below are some of the key risks that potential investors should be aware of, but this list does not represent all of the risks that the Company faces:
RISK COMMENTS
Market price The market price of Shares will fluctuate due to various factors including general movements in commodity prices, currencies, the Australian and international investment markets, economic conditions, global geopolitical events and hostilities, investor perceptions and other factors that may affect the Company’s financial performance and position. The market price of Shares on the ASX may from time to time be below the issue price under the Offer. It should be noted that the Shares have performed well below the market average over the recent past.
Economic uncertainties
General economic conditions affect markets in which the Company operates, including the consequences of a prolonged downturn in economic conditions and credit and financial markets. Although the Company cannot predict future economic activity, the combination of the recent economic downturn, with other economic factors in the global economy may mean it will be difficult for the Company to achieve its stated objectives.
Biofuels Capital Infrastructure Grant
The Group has received the full proceeds of the Federal Government Biofuels Capital Infrastructure Grant amounting to $7,146,720 in respect of the Group’s biodiesel plant at Largs Bay, South Australia. The grant contained post commissioning production obligations on the Group which, if not met, may lead the Commonwealth Government to require the Group to repay all or part of the grant funds received.
In September 2009, the Group entered into discussions with the Department of Resources Energy and Tourism to establish a variation to the Funding Deed and establish a way forward that is pragmatic and constructive for both parties. In order to achieve a resolution to the matter, further discussions were entered into and
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will continue and, until a formal resolution can be made, the terms of the current Funding Deed have been put on hold. The Commonwealth Government has not notified the Group of any requirement to repay all or part of the grant funds received.
Government Legislation Policy Changes
Government legislation and policies are subject to review and change from time to time. Such changes are likely to be beyond the control of the Company and may affect industry profitability.
The operation of the plants is subject to extensive environmental laws and regulations and the Company is required to obtain a licence to operate in a manner designed to promote safety and to prevent the release of hazardous substances from the plants. Violations of these requirements could result in liabilities that affect the Company’s financial condition.
Revenue and expenditure of the Company may be effected by change in international, federal, state or local government laws, regulations or policies, or in taxation legislation.
Banking facilities The Company currently has a working capital facility with its major shareholder, Wasabi Energy Limited, and the same will be paid down with the proceeds of the Offer.
On the basis of an on-going business model, the Company intends to enter into normal inventory and working capital arrangements with a major financial institution in future.
Insurance The Company may, where economically practicable and available, endeavour to mitigate some project and business risks by procuring relevant insurance cover. However, such insurance cover may not always be available or economically justifiable and the policy provisions and exclusions may render a particular claim by the Company outside the scope of the insurance cover.
While the Company will undertake all reasonable due diligence in assessing the creditworthiness of its insurance providers there will remain the risk that an insurer defaults in payment of a legitimate claim by the Company under an insurance policy.
Foreign exchange Foreign exchange risk is relatively low due to the Company’s core business being located in Australia with some risk arising from operations with exposure to the US dollar. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the Company’s functional currency and net investments in foreign operations.
Commodities The production of Biodiesel is based on the conversion of commodities into a fuel, with the main feed stock being tallow. The price of tallow has risen dramatically from the initial 2006 levels of $600 per ton to current levels of approximately $780 per ton. Other food chain commodities (e.g. palm oil) have also increased dramatically, hence potentially reducing the production margins to minimal levels under certain conditions. The Company may also be affected if there are any shortages of supply of the raw materials required to manufacture Biodiesel.
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Market competition and consumer demand
The projected market conditions with regard to the sale of biodiesel have been slower than expected, primarily due to overall pricing factors, as well as delays in the overall Federal Government regulations with regard to renewable fuels. The Government has allowed for 5% biodiesel to be exempt from labelling, but that is only a small support for the industry, since the delay in the ETS has a negative impact on the overall business.
Although there has been some level of success with regard to market development, the swings in the price of feed stock (and hence negative impacts on overall margin) has not allowed the Company to gain a solid position in any market.
A new biodiesel plant is being planned for the NSW market, to be located in Port Kembla. Although the unit is only in the early stages of planning, with many hurdles to be overcome, such a plant (if completed) would be able to service all of the NSW market, and hence would have a negative impact on the Company.
Continued importation to Australia of US biodiesel
The US Government has introduced a subsidy program to support the US biodiesel industry. This program allows subsidised US biodiesel to be exported to Australia.
The Australian Customs and Border Protection Service is currently investigating a potential anti-dumping action in relation to the importation of subsidised US biodiesel.
If the importation of subsidised biodiesel fuel to Australia continues, the Company will continue to face increased competition.
Management There have been changes of substance to the overall management of the company as well as to the construction of the Board, and although the benefits of the same are expected to be positive to the business, it is also possible that the same could impact on the business of the Company.
Technology Although the Company invested in a defined and proven technology, this does not reduce the risk that an alternate technology (or low cost non-useable feed stock) may come onto the market, and reduce the overall option for the Company to continue in its current business.
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7. UNDERWRITING
Bell Potter Securities Limited ABN 25 006 390 772 (Underwriter), under an Underwriting Agreement dated 5 October 2010, has agreed to underwrite the Offer for an underwriting commission of 4%. The Underwriter will also receive a management fee of 1% for managing the Offer and an origination fee of 0.5% for assisting the Company in conducting the Offer.
The Company has indemnified the Underwriter and its officers, employees and advisers (Indemnified Persons) against any claim, loss, liability, cost or expense on a full indemnity basis (including legal costs) that may be incurred or sustained by an Indemnified Person as a result of non-compliance with any legal or regulatory requirement in relation to the Offer or any breach of the Underwriting Agreement or any claim made under the Corporations Act, except where any liability results primarily from the indemnified Person’s gross negligence wilful misconduct or fraud.
The Underwriter may terminate the Underwriting Agreement immediately by notice in writing to the Company, without cost or liability to the Underwriter, if prior to completion of the Offer:
7.1 Offer Documents defective – the Underwriter becomes aware of any:
(a) information in the Offer documents which is untrue, incorrect, misleading or deceptive in a material way; or
(b) material omission from the Offer documents,
which in the reasonable opinion of the Underwriter has or is likely to have a material adverse effect on the outcome of the Offer or subsequent market for the Shares;
7.2 (disclosure in Prospectus) a statement contained in the Prospectus is misleading or deceptive, or a matter required by the Corporations Act is omitted from the Prospectus (having regard to sections 711, 713 and 716 of the Corporations Act);
7.3 (requirement to issue Supplementary Prospectus) the Company, being prohibited by section 728(1) of the Corporations Act from offering Shares under the Prospectus, lodges a Supplementary Prospectus in relation to the Offer;
7.4 (failure to lodge Supplementary Prospectus) the Company fails to lodge a Supplementary Prospectus in a form acceptable to the Underwriter in circumstances where the Underwriter reasonably believes that the Company is prohibited by section 728(1) of the Corporations Act from offering Shares under the Prospectus;
7.5 (disclosure in Due Diligence Report) any information supplied by or on behalf of the Company to the Underwriter in relation to the Company or the Offer as part of the due diligence process is misleading or deceptive;
7.6 default – the Company materially breaches the Underwriting Agreement and fails to remedy the breach to the reasonable satisfaction of the Underwriter or any warranty or representation by the Company under the Underwriting Agreement is or becomes materially false, misleading or deceptive;
7.7 material change – a change occurs after the date of the Underwriting Agreement affecting or relating to:
(a) the Company or a subsidiary; or
(b) the industry in which the Company or a subsidiary operates,
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which in the reasonable opinion of the Underwriter has or is likely to have a material adverse effect on the assets and liabilities, financial performance or operations of the Company or its subsidiaries taken as a whole;
7.8 contravention – the Company contravenes:
(a) any law, regulation, authorisation, ruling, consent, judgment, order or decree of any Governmental Agency;
(b) its constitution or another constituent document;
(c) the Listing Rules of ASX; or
(d) an encumbrance or document which is binding on:
(i) the Company or a subsidiary; or
(ii) an asset of the Company or a subsidiary,
which in the reasonable opinion of the Underwriter has or is likely to have a material adverse effect of the Company or the Offer;
7.9 ASX – ASX Approval has not been given by the closing date of the Offer or the date which is 3 months after the date of the Prospectus (whichever is earlier) or ASX refuses to grant, other than subject to customary conditions, or withdraws ASX Approval;
7.10 Insolvency Event – an insolvency event occurs in relation to the Company or a subsidiary;
7.11 Prescribed Event – a prescribed event occurs in relation to the Company or a subsidiary;
7.12 market movement – at any time after the date of the Underwriting Agreement:
(a) the S&P/ASX All Ordinaries Index is 10% or more below its level for two consecutive trading days as at the close of trading immediately preceding the date of this agreement;
(b) the S&P/ASX 200 Index is 10% or more below its level for two consecutive trading days as at the close of trading immediately preceding the date of this agreement; or
(c) the S&P/ASX Small Ordinaries Index is 10% or more below its level for two consecutive trading days as at the close of trading immediately preceding the date of this agreement;
7.13 war – an outbreak of new hostilities or a state of war, whether declared or not, or an act of terrorism occurs or arises after the date of this agreement, or an escalation of hostilities already in existence occurs, involving:
(a) Australia;
(b) Japan;
(c) any member country of the European Community;
(d) the United States of America;
(e) Russia;
(f) Indonesia;
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(g) Peoples’ Republic of China;
(h) New Zealand;
(i) Hong Kong;
(j) Taiwan;
(k) Singapore;
(l) Malaysia;
(m) India; or
(n) Pakistan,
which in the reasonable opinion of the Underwriter has or is likely to have a material adverse effect on the Company or the Offer;
7.14 change of law – any Australian government adopts or announces any change in law or policy which in the reasonable opinion of the Underwriter has or is likely to have a material adverse effect on the Company or the Offer;
7.15 officers and senior managers – after the date of the Agreement, an officer or senior manager of the Company or a subsidiary resigns or is removed from office, is charged with or convicted of a criminal offence or becomes a bankrupt, or steps are taken to achieve such an outcome;
7.16 ASIC hearing or investigation – ASIC gives notice of its intention to hold a hearing or examination, inspection, investigation, or it requires information to be disclosed, in connection with the Company, a subsidiary or the Offer;
7.17 certificates – the Company fails to deliver the opening or closing certificate as required by the Agreement;
7.18 subsequent condition failure – valid applications are not received by the Company or the Underwriter (as the case may be) from specified major shareholders and from sub-underwriters for the underwritten shares;
7.19 withdrawal – the Company withdraws or terminates the Prospectus or the Offer;
7.20 repayment – any circumstance arises after lodgement of the Prospectus that results in the Company either repaying the money received from applicants or offering applicants an opportunity to withdraw their applications for Offer Shares and be repaid their application money;
7.21 (new circumstance) – there occurs a new circumstance that has arisen since the Prospectus was lodged that would, in the reasonable opinion of the Underwriter, have been required to be included in the Prospectus if it had arisen before the Prospectus was lodged in relation to the Company or a subsidiary; or
7.22 (timetable) – the shortfall notification date is delayed for more than five business days other than as the direct result of actions taken by the Underwriter (unless those actions were requested by the Company) or the actions of the Company (where those actions were taken with the Underwriter’s prior written consent).
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8. DIRECTORS INTERESTS
8.1 Except as disclosed in this Prospectus, no Director:
• holds (or held at any time during the last 2 years) any interest in the formation or promotion of the Company, or in any property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the offer of Shares and Options under this Prospectus or in the offer of Shares and Options under this Prospectus; or
• has received, and no person has agreed to pay to any director, any amount or benefit to induce him to become, or to qualify him as, a director, or for services provided by the Director in connection with the formation or promotion of the Company or the offer of Shares and Options under this Prospectus.
The interests of the Directors, and their related parties as defined in Accounting Standard AASB 1017, in securities of the Company at the date of this Prospectus are as follows:
Directors
Beneficial Interest in Securities
R Scott
T Engelsman
J Playoust
C Gullotta
Ordinary Shares
Nil
Nil
120,127,486
3,400,000
Options
5,000,000
30,000,000
72,745,039
8,400,000
8.2 Each Director is entitled to director’s fees at the rate of A$40,000 for the Chairman and $30,000 for the other non-executive directors per annum in accordance with the Company’s Constitution.
8.3 No Director has otherwise received or become entitled to receive a benefit by reason of a contract made by the Company or a controlled entity with the Director, or with a firm of which he is a member, or with a company in which the Director has a substantial financial interest.
8.4 Mr R Scott will receive a fee of $2000 for sub-underwriting 10 million Shares. Australian Enterprise Holdings Pty Ltd, a company associated with Mr J Playoust, will receive a fee of $15,350 for sub-underwriting its entitlement of 76,751,657 Shares.
9. CONSENT TO BE NAMED
Computershare Investor Services Pty Limited has given and, as at the date hereof, has not withdrawn, its written consent to be named as Share Registrar in the form and context in which it is named.
Computershare Investor Services Pty Limited has had no involvement in the preparation of any part of the Prospectus other than being named as the Share Registrar for the Company. Computershare Investor Services Pty Limited has not authorised or caused the issue of, and expressly disclaims and takes no responsibility for, any part of the Prospectus.
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Bell Potter Securities Limited has given and, as at the date hereof, has not withdrawn, its written consent to be named as Underwriter in the form and context in which it is named.
Bell Potter Securities Limited has had no involvement in the preparation of any part of the Prospectus other than being named as the Underwriter for the Company. Bell Potter has not authorised or caused the issue of, and expressly disclaims and takes no responsibility for, any part of the Prospectus.
10. LEGAL PROCEEDINGS
There is no current or, to the Company’s knowledge, pending, litigation of a material nature that may significantly affect the business or financial position of the Company.
11. CONTINUOUS DISCLOSURE & DOCUMENTS AVAILABLE FOR INSPECTION
This Prospectus is issued pursuant to Section 713 of the Corporations Act 2001 (Cth), and has adopted the special prospectus content rules for continuously quoted securities.
The Company is a disclosing entity for the purposes of Section 111AC of the Corporations Act 2001 (Cth). As such, it is subject to regular reporting and disclosure obligations which require it to disclose to ASX any information of which it is, or becomes, aware concerning the Company and which a reasonable person would expect to have a material effect on the price or value of securities of the Company.
Copies of documents lodged with ASIC in relation to the Company may be obtained from, or inspected at, an ASIC office.
The Company will provide a copy of the following documents free of charge to any person who requests a copy during the period this Prospectus remains open:
1 The financial statements for the year ended 30 June 2010 lodged in relation to the Company;
2 Any other financial statements lodged by the Company after the 2010 financial statements and before the lodgement of this Prospectus with ASIC (“Relevant Period”); and
3 The following documents used to notify ASX of information relating to the Company during the Relevant Period under provisions of the ASX Listing Rules.
Date Lodged Report - Contents
30 September 2010 Appendix 4C - Monthly
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12. CONSENT TO LODGEMENT
This Prospectus is prepared on the basis that certain matters may be reasonably expected to be known to shareholders or to their professional advisers.
Each Director of the Company has consented to the lodgement of this Prospectus with ASIC, and has not withdrawn that consent prior to this Prospectus being lodged.
Signed on behalf of Australian Renewable Fuels Limited.
Tom Engelsman Managing Director
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