ARFuels secures term sheet for the supply of biodiesel

18/04/2008 - 11:24

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West Perth-based biodiesel company Australian Renewable Fuels Ltd has concluded a purchase term sheet for the supply of biodiesel to a Western Australian resource company.

ARFuels secures term sheet for the supply of biodiesel

West Perth-based biodiesel company Australian Renewable Fuels Ltd has concluded a purchase term sheet for the supply of biodiesel to a Western Australian resource company.

The Term Sheet outlines the supply of a minimum quantity of 5 million litres of biodiesel p.a. with a target volume of 7.5 million litres p.a. and is for a continuous period of 5 years, unless terminated earlier by either party by 90 days written notice.

Fundamental to the proposed contract is the pricing of the product on a "cost plus" basis with incentives to benefit both parties under prescribed circumstances.

The parties have also agreed to construct blending infrastructure to be situated at the customer's mine site for storage of ARF supplied biodiesel.

These obligations are subject to ARF procuring funding for the blending infrastructure for an amount of up to $1.5m (with capacity to draw down any further amounts required for the purposes of construction), or if ARF is unable to obtain funding on satisfactory terms by 30 June 2008, on the customer procuring such funding by the end of August 2008.

If ARF procures the funding for the blending project, it will be entitled to recoup all its outlays for the tank infrastructure from the customer during the term of the contract.

Either party may terminate the term sheet if funding is not obtained on satisfactory terms.

The biodiesel will be produced at ARF's Picton facility.

Construction of the blending infrastructure, including a biodiesel storage tank, is expected to take approximately 4 months from the procurement of finance for the facility.

The production of biodiesel under the contract will commence during the blending infrastructure construction period.

The pricing mechanism contained in the term sheet is in line with recent announcements by ARF to move towards the production of biodiesel on a "cost plus" basis.

ARF is currently in negotiation with other parties for the production and supply of biodiesel on similar terms.

The term sheet provides for the benefits of any future carbon trading arising from the contract to be passed on to the customer.

The recent increase in off-take price arising from higher world crude oil prices has enabled ARF to recommence limited production at its Picton site.

The company is proactively seeking to expand its biodiesel production and sales using the "cost plus" methodology for marketing its production.

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