Shareholder Newsletter March 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 31 March 2013. The quarter included the successful completion of a $12.3 million capital raising to repay debt and provide working capital. It also saw the recommencement of export sales with a 10 million litre initial order which will significantly improve plant utilisation, efficiencies and operating revenues.

Highlights

  • A challenging start to the quarter was caused by a diesel shortage in southern states in late 2012 having flow on effects through the early part of the year. As a result, sales of biodiesel were slower than expected. These disruptions have now been cleared and supply to our major customers has returned to normal.
  • As advised to the ASX last week we have recommenced the export programme with the first order of biodiesel under contract. This order will be completed in two shipments to be loaded in May 2013 and July 2013. This will immediately increase production at both the Largs Bay and Picton plants and we expect both plants to be operating at approximately 45% of capacity by year end. We expect to continue to increase sales and production levels over the balance of the 2013 calendar year.
  • As reported in the Appendix 4C Cash Flow Report for the quarter ended 31 March 2013, ARfuels generated net operating cash inflows of $284k, notwithstanding the below expected sales.
  • ARfuels completed a capital raising of $12.3m with a placement of $4.27m fully subscribed and a fully underwritten rights issue for $8.01m. This successful raising completes the company’s recapitalisation program and is a strong endorsement of the ARfuels business. It has enabled the company’s senior debt facility to be repaid as well as providing working capital as the Picton and Largs Bay plants come back on line. Cash at the end of the quarter stood at $4.3 million.
  • We continue to press for the finalisation of the business interruption/loss of profits claim. A good faith payment of $1.5 million was made by the insurers during the quarter. The insurers have indicated that they expect to finalise their process by the end of May 2013.
  • Work continues on the development of a reliable supply chain for low grade feedstocks from Asia. To date over 900 tonnes of waste vegetable oils have been processed into high quality biodiesel.

Sales

Sales volumes during the quarter continued to be negatively impacted by the flow on effects of the 2012 diesel shortage. This effected the logistics and storage for the major diesel suppliers however the impact has now worked its way through the supply chain.

During the quarter activity on the Western Australian in-line storage and blending facility progressed with detailed engineering and costing information being prepared. Commercial negotiations continue and are expected to be concluded during the next quarter. This facility will be for the sole use of ARfuels and will provide the necessary infrastructure for the long term blending of biodiesel with the major diesel suppliers in WA.

The Largs Bay plant came back on line and is now supplying customers in South Australia and producing for the upcoming export program.

Biodiesel Sales Litres March 2013

Production

Production levels are predominately a function of sales. The Picton plant production is below capacity due to slow sales demand which has been inhibited by the lack of biodiesel infrastructure at the mainstream diesel terminals in WA. The investment in the new blending facility in WA combined with Picton’s contribution to the export program will lift its production.

During the quarter, the rebuilt Largs Bay plant became fully operational, including the commissioning of an improved loading gantry to facilitate in-line blending for our customers. As stated, Largs Bay will also come online to help fulfil the export sales program.

The Barnawartha plant’s production was negatively effected by the flow on effects of the diesel shortage and scheduled maintenance and repairs, both of which are now complete.

Production volumes are expected to increase over the balance of the 2013 calendar year to fulfil demand from export markets and as domestic customers come on stream.


Plant production march 2013

Feedstock

Delivered feedstock prices throughout the quarter increased slightly with strong activity in the feedstock markets by offshore buyers particularly via Singapore and China. ARfuels continue to develop alternative options for the sustainable supply of low grade and lower cost feedstocks including used and waste vegetable oils.

Financial Position

An update of the company’s cash position was provided in the Appendix 4C Cash Flow Report for the March quarter, which reported positive net operating cash flows of $284k and a final cash balance of $4.3 million.

The result for the quarter included material oneoff payments being the Deferred Consideration payment of $1 million for the acquisition of Biodiesel Producers Ltd and charges of over $400k relating to the lapsed take-over of Wentworth Holdings Ltd. In addition, building Inventory levels in anticipation of the export sales program drew further against ARfuels’ cash reserves.

These payments were partially offset by the receipt of the Business Interruption proceeds of $1.5 million.

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 [email protected] If you would like to receive the Quarterly Newsletter via email please forward your name and email address to [email protected]

Yours Sincerely,
andrew-white-sgn
ANDREW WHITE
Managing Director and Chief Executive Officer
30 April 2013

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