Australia's Longreach Oil inks deal to buy fledgling NZ dairy company to resume ASX trading
By Tina Morrison
April 11 (BusinessDesk) - Australia's Longreach Oil has agreed to a buy a New Zealand company which plans to develop a dairy factory in Otorohanga, as it seeks to bolster its investment portfolio and resume trading on the ASX.
Longreach was suspended from the ASX in May last year after the stock exchange operator deemed it had insufficient operations to warrant quotation. The firm, which owns a share of some Australian oil and gas exploration leases and a stake in a US telecommunications company, said in a statement to the ASX yesterday that it has agreed to buy Happy Valley Milk Ltd., a New Zealand company that has land use consents from the Otorohanga District Council to establish and operate a fully integrated milk processing, blending and packaging plant on a site near Hamilton. The transaction is conditional on obtaining Waikato Regional Council water use and water discharge consents, which it said were well advanced.
The transaction would see Longreach issuing shares to Happy Valley Milk shareholders, who would then own 77.8 percent of Longreach whose current shareholders would retain a 22.2 percent ownership. As part of the agreement, Happy Valley Milk would raise A$2.5 million through convertible notes to fund its development, while Longreach would raise at least A$3 million through a prospectus. The companies expect the conditions of sale could be satisfied and completed within six months.
For Longreach, the purchase of Happy Valley Milk is effectively a reverse takeover, resulting in a change of focus for the company and a likely name change, with a new chief executive nominated by Happy Valley Milk and three of the milk company directors joining the board. Meanwhile, for the fledgling Kiwi company, the reverse listing would give it a lower cost path to listing in Australia where it can access a deeper pool of investors to fund its growth.
Happy Valley Milk has consent for a plant containing two dryers, although construction would be staged with a second dryer added when capacity is utilised. The cost of the facility with one dryer is estimated at $230 million, half of which is expected to be funded by debt. Longreach said construction is expected to start March 2019 and take 12 months, plus three months for commissioning. Its consented design includes an integrated high-speed blending and canning plant, and Longreach expects the facility to produce premium milk powder for sale into China and elsewhere, where it says demand continues to soar.
"HVM's site is situated in one of New Zealand's largest A2, organic, pasture-fed catchment areas which includes Waikato and King Country," the company said in an overview of the project.
Once constructed, the plant will specialise in processing A2 milk and organic milk into infant milk formula and other nutritional milk powder products, as well as anhydrous milk fat, it said.
Happy Valley Milk is in talks with several global infant formula product companies but no contracts have been inked, and it has also developed its own branded infant formula products, Longreach said.