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Ocean Grown Abalone Dives Into ASX IPO

The head of WA nickel producer Panoramic Resources, Peter Harold is now watching more commodity prices than just the metals index.

That’s because Harold has bobbed up as chairman of Ocean Grown Abalone, the latest IPO candidate in an ocean of seafood listings.

“Nickel and abalone are valuable commodities and the Chinese seem to want a lot of both,” says the mining veteran. “But unlike with mining it (farmed abalone) is not a diminishing asset.”

Given we already have listed salmon, oyster, prawn and tuna exposures, it was inevitable we would get one for abalone. Formally, abalone may be known unappetisingly as reef-dwelling marine snails, but they’re one of the highest value piscatorial commodities.

One reason is they take at least three years to grow to a decent size.

Ocean Grown acquires juvenile green lip abalone from a land-based hatchery and grows them out in custom built artificial ranches called abitats.

These abitats (as in abalone ‘abitats) are 900 kg reef structures made from concrete and poly fibre. The abalone feed from algae captured from the ocean, nurtured by a team of divers.

“The farming area had the advantage of plenty of food, but without the reef system to support the abalone,” Harold says. The company established its first 5000-abitat colony in Flinders Bay at Augusta in WA. It is constructing a second facility and also has consent for a second project at Wylie Bay at Esperance. The company also has a development venture at Port Lincoln in SA.

The funds will be used for these expansions, as well as a processing plant at Flinders Bay. Established in 2011, Ocean Grown is seeking to raise $10m by issuing 40 million shares at 25c apiece, for a total market valuation of $42.7m

Broker Morgans underwrites the offer, which opened on Oct 6.

Under first stage, Ocean Grown has 1.5m abalone in place – or 121,000kg in all. Most will be harvested when they reach 80-100 millimetres (the legal limit of 140mm does not apply to farmed product).

In 2016-17, the company harvested 17,238kg – 1.5 million of the creatures -- at an average price of $147-160 per kilogram. Ocean Grown is tapping a theme of ever-increasing Asian demand at a time when natural supply is constrained. Globally, the wild abalone catch has diminished from 20,000 metric tonnes in the1970s to 6500 m.t. in 2015.

In comparison, farmed abalone (mainly land-based sea cages) accounted for 129,000 m.t. in 2015, with China producing 115,000 m.t.

Australia produces about 3500 kg of farmed produce (the green lip and black lip varieties combined). Ocean Grown claims the land-based farmed produce is smaller and lacks taste. Its model also has green credentials because no power or inputs (such as extra nutrients) are involved.

Ocean Grown recorded revenue of $744,713 in 2016-17 and lost $1.54m.

In 2015-16 the company turned over $292,000 for a deficit of $1.32m.

Founder and CEO Brad Adams is a third generation abalone diver who previously founded Tasmanian Tiger Abalone (now Cold Gold Abalone).

Executive director Ian Ricciardi has been involved in the WA fishing industry since 1975, including ten years as chairman of the Shark Bay Prawn Association.

Now that’s got to count for something.

Otherwise, well ‘sea’ about this one: some piscatorial listings (such as Clean Seas Tuna and a number of barramundi plays) have been stinkers. Others such as Tassal Group and Huon Aquaculture (salmon) and Marratem (prawns, crabs and scallops) and Seafarms Group (farmed prawns) are swimming along OK.

Panoromic’s Harold is not the only Perth bizoid to succumb to the lure of the mollusc: a previous private raising by Ocean Grown attracted the support of former Wesfarmers CEO and now AFL supremo Richard Goyder.

View More Articles By Tim Boreham

The New Criterion is authored by Tim Boreham.

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades' experience of business reporting across three major publications.

Tim Boreham has now joined Independent Investment Research and is proud to present The New Criterion, which will honour the style and purpose of the old column. These were based on covering largely ignored small to mid cap stocks in an accessible and entertaining manner for both retail and professional investors.

Disclaimer: The author nor Independent Investment Research have received a fee or any kind of inducement for this article. The New Criterion is not intended as specific investment advice and readers should contact a licensed financial adviser.



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