Multiplex boss tackles ethanol

IF John Roberts, or any of his crew down at Multiplex start talking to you about multigrain don’t be fooled. They’re not preaching the benefits of a healthy diet. They are most probably rabbiting on about one of their more obscure adventures, a business known as Australian Biofuels that they have successfully bedded down inside a listed vehicle called Indcor.

Multigrain to Indcor means the ability to take a variety of grains, preferably corn, and turn it into ethanol, the stuff the Federal Government wants to be added to petrol so we can stretch out shrinking oil reserves.

Briefcase will not bore anyone with a description of how ethanol works, how to make ethanol, or the politics of ethanol. Just accept that it is pretty simple stuff, made from just about any grain, can be used in fuel or booze – and that the politics are a damned site more difficult than its chemical formula.

Skipping lightly through the difficult bits we get to a stage where John and the Multiplex gang joined the rush a few years ago to become ethanol kings, though how they thought they would find time from dominating the construction industry is another question.

Building, being a far simpler business, won the battle and Australian Biofuels, after eating its way through the best part of $20 million, largely on a sugar cane and molasses version of the ethanol game in Queensland found itself with a sticky future.

Enter Indcor, as a convenient corporate shell, and Peter Anderton, an engineer who takes pleasure in tackling complex problems, some he wins, and others he doesn’t. Back in the 1980s Pete put carbon-in-leach gold processing on the map. He also helped sell the Ravensthorpe nickel project to BHP Billiton. Making silicon in New South Wales proved much harder, as did Indcor’s previous attempt to enter the metal industry as a producer of magnesium in Tasmania. The plan is a make (or break) charge into the ethanol business. Timing, given recent changes to encourage a 10 per cent ethanol fuel blend is excellent. Australia currently produces 70 million litres of ethanol and but to achieve the 10 per cent target will need 1.8 billion litres, a gap which will prove hard to fill – which is why the Australian Government is offering financial incentives such as capital grants and excise (tax) breaks.

Pete’s approach is very much back-to-basics. Indcor has been restructured, a bit of fresh cash raised, mol-asses dumped and a new plan based on producing ethanol from corn grown in the Murray and Murrum-bidgee irrigation areas floated to shareholders who expect to see their company re-listed soon.

Stage one, starting next year, calls for a $26.4 million plant located at Swan Hill in Victoria producing 45 million litres of ethanol, followed in 2006 by a doubling of capacity for another $15 million in capital. If that goes well a mirror image project is earmarked for Coleambally in NSW.

Key to the plan is a secure grain contract (off irrigated land), proximity to markets, strong local support and an ability to produce ethanol at around 30 cents a litre. There will also be a stiff injection of Pete’s "keep it simple, stupid" approach to building the plant – don’t expect any gold-plated taps in the executive loo.

The gap between the vision and delivery is still wide. Investors have hardly stampeded the offer document circulated with the blessing of State One, a small Perth broking house. Not even a residual 35 per cent (or so) equity to be held by Multiplex and the Roberts family has prised open too many wallets.

That may change if Indcor starts to deliver on its promise, sods are turned at Swan Hill, the Australian Government (and the Opposition) stop playing games with ethanol and the financial promise of a 50 per cent margin on the project looks like being achieved. According to what Briefcase has seen the Swan Hill plant will return – after government grants and excise help (on average over 10 years) – annual earnings before interest, tax, depreciation and amortisation of $14 million a year. It’s a long shot, but it will be fun to watch.

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THE view from Switzerland is that WA’s $120 million Windimurra vanadium project is a dead duck – but don’t expect everyone in Australia to take that view as gospel because the majority shareholder might have more to gain from closure than re-opening.

Xstrata, the company which inherited control of Windimurra after the collapse of the project’s principal promoter, Precious Metals Australia, is an expert in obscure metals such as vanadium. As well as the WA project, Xstrata owns the Vantech and Rhovan projects in South Africa.

Like most minor metals, vanadium is subject to extreme "mood" swings. Demand and prices up one minute can come crashing down the next. Right now, vanadium (and the other minor metals) are booming. As PMA (which kept a 15 per cent net profit interest in Windimurra) pointed out on March 8, the price in Australian dollar terms is up 240 per cent over the past 12 months.

Despite this, Xstrata says permanent closure is getting "very serious consideration", a gas pipeline operator has written off a $20 million investment in a pipe that carries gas to the project and WA taxpayers are in the gun for a $30 million loss via pipeline and power station investments.

What Briefcase finds so very inter-esting is why Windimurra, why not Vantech or Rhovan as plants to close? A few years ago, when the last close look was made of vanadium it appeared that the South African projects had long-term sales agreements with Xstrata’s ultimate parent, the Glencore commodities trading house at prices designed to eliminate the highs and lows of the spot market. Windimurra has no such deal. It will be interesting to see if the State (or Australian) Government is prepared to step in and suggest that rather than closure, a step which might never see the project re-opened, a sale to a third party might be in order, if only because there is taxpayers money involved and Windimurra might do very well in other hands.