Shareholder Newsletter June 2012 Quarter

Dear Shareholder,

We are pleased to provide you with an update on the business activities and progress of Australian Renewable Fuels Limited (ARfuels) for the quarter ending 30 June 2012. In the June quarter we have continued the positive progress from the March quarter with sales running consistently across the quarter, a cash positive result for the second consecutive quarter and a major infrastructure upgrade by The Shell Company of Australia to distribute our biodiesel.

Highlights

  • For the June 2012 quarter, as reported in the Appendix 4C cashflow report, ARfuels generated net operating cash flows of A$2m. This is attributable to the underlying trading and operations of the business and continues on from the prior quarter;
  • We continue to work on supply options for Recycled Mill Oil (RMO) and are close to finalising the first shipment of 1400 tonnes of higher quality RMO. Importantly, we have also confirmed with a number of the oil majors that subject to sustainability standards, RMO will be an acceptable feedstock for biodiesel. Our RMO and other like feedstocks will comply with those sustainability standards;
  • We have commenced building inventory for the next shipment of biodiesel for export to the USA. That shipment will be another 4000 tonnes;
  • With the introduction of the Carbon Tax from 1 July, biodiesel enjoys a 6 cent per litre advantage over diesel when used in mining sites. This has already led to an increase in enquiry and we expect this to translate into sales over the next six months for the Largs Bay and Picton plants;
  • The rebuild program of the Largs Bay plant is well underway and tracking on time for a November completion. The insurance policy is expected to fully cover this rebuild amount. The business interruption/loss of profits claim continues in progress and is expected to be finalised over the next few months.

Sales

Sales are becoming more consistent with the export program and oil majors providing a base line level of sales for the business.

The chart below shows the increase in sales volumes to the oil majors with the opening of the new Shell Victorian biodiesel facility a highlight. Shell is selling both B5 and B20 products from this terminal – the B20 product is a world first for Shell and represents a real step forward for the industry and ARfuels.
Biodiesel Sales Litres June 2012

We continue to work on a range of domestic sales opportunities for the Picton and Largs Bay plants. Biodiesel generates some favourable outcomes to industry faced with a carbon cost and ARfuels has recognised a number of opportunities to work with mining and transport companies to lessen their carbon footprint and any resulting carbon tax.

As stated, we expect to see the Largs Bay plant come back on line in November 2012 therefore our sales capacity will be constrained until then. The financial consequences of this will be claimed under our insurance policy which is currently in progress.

Production

The plants are currently running below their name plate capacities and this is an ongoing focus to increase sales orders from both export and domestic customers, we expect this to translate into production volumes over the next six months.
Plant production June 2012

Feedstock

Feedstock prices for tallow and used cooking oils were firmer during the June quarter with average prices between A$750 to A$850 per tonne. We expect these levels to soften during the next quarter by around $100 per tonne and we continue to investigate all feedstock options for used and waste vegetable oils and low grade tallows.

We are currently working on procuring a higher quality RMO which can be processed at the existing plant at Barnawartha. This is progressing and we will provide a further update when a supply contract is firm.

Financial Position

An update of the company’s cash position was provided in the Appendix 4C cashflow report for the June quarter, which reported a second consecutive quarter of positive net operating cashflow of $2m for the quarter. This was driven by strong sales resulting from increased volume and a favourable price position. This produced a positive Net Operating, Investing and Financing Cash Flow result of $1m. As in the March quarter, this was driven by improved and consistent business trading results for the quarter.

The 30 June 2012 Financial Statements are currently being audited and they will be released around 30 August 2012.


If there are any queries in relation to the business of the company or the matters outlined above, please do not hesitate to contact Andrew White on 03 9981 0010 or .

Yours Sincerely,
andrew-white-sgn
ANDREW WHITE
Managing Director and Chief Executive Officer
31 July 2012

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