Infant formula group Wattle Health will inject $63 million into a joint venture entity with an organic dairy farmers co-operative in Victoria that will build and operate a large milk spray drying plant able to process up to 200,000 litres of fresh organic milk per day.
Wattle intends raising up to $65 million in capital from institutions and existing shareholders as part of the deal to produce organic dried milk powder, with its shares currently in a trading halt.
Wattle is a controversial stock because it has ambitious plans and its share price is now 10 times higher than when it listed in early 2017, even though it currently produces tiny revenues.
Wattle listed on the ASX with an issue price of 20 cents per share. The shares last traded at $2.26 before heading into a trading halt on Friday.
Details of the corporate deal with Organic Dairy Farmers of Australia, which already produces an organic milk brand known as True Organic, were announced by the company on Tuesday. But the proposed capital raising hasn’t been finalised.
The joint venture with the organic dairy farmers co-operative will be known as Corio Bay Dairy Group. Wattle Health will hold a 45 cent stake in the joint venture vehicle, with the co-operative owning 50 per cent. Another entity, Niche Dairy, will hold 5 per cent.
Elsewhere, Niche Dairy was a founding partner of one of the biggest dairy processing plants in Australia, Blend and Pack.
The new organic milk spray drying plant will be built at North Geelong in Victoria. It will be constructed on land adjacent to an existing processing operation built in 2016 by the Organic Dairy Farmers of Australia, which operates at a site close to the former Ford engine plant.
Wattle Health will provide aggregate funding of $63 million for the project, while Niche Dairy will provide $7 million. Construction and land acquisition costs will be $55 million, with the rest of the funds needed for working capital.
Organic Dairy Farmers of Australia chief executive Stewart price said on Tuesday the group had about 50 dairy farmers as suppliers, with a combined herd of about 10,000 cows.
The aim is to have the new plant up and running by late 2019.
“Our foal is for spring, 2019,” Mr Price said. The two plants would “work in tandem together”. The Organic Dairy Farmers of Australia was set up in 2001.
Wattle Health executive chairman Lazarus Karasavvidis said the joint venture was part of the company’s overall strategy of being vertically integrated, with control over all inputs in the value chain.
As seen in the Australian Financial Review on the 10th April 2018.