Feronia's Sood sees yields, new oil mill as drivers of growth

Africa-focused agriculture company Feronia (CVE:FRN) is targeting higher yields and a new palm oil mill as key drivers of future growth.

Feronia is focused on arable farming and oil palm operations in the Democratic Republic of Congo (DRC).

The Arable Farming division is modeled after Brazil's wildly successful large-scale, mechanized farming operations.

"Our practices would match anything you would see in South-East Asia - in terms of fertilising, seeds and harvesting - would be comparable to how plantations are operated throughout the world," Feronia chairman Ravi Sood told Proactive Investors.

The Oil Palm division consists of the historic Feronia PHC plantations which have been in operation since 1911 and Feronia Seeds, Africa's pre-eminent seed breeding and sales operation.

Feronia PHC’s three plantations span 107,892 hectares, an area larger than Manhattan, San Francisco, Brussels, Amsterdam, Zurich, Paris, Geneva, Lisbon, Dublin and Montevideo combined.

All crude palm oil and palm kernel oil produced by Feronia PHC is sold to domestic refiners, who produce cooking oils, soaps, and other consumer goods. Palm oil is one of the world’s most important vegetable oils, used in countless food and non-food products with demand estimated at $50 billion annually.

In recent full-year earnings, at its palm oil division, fresh fruit bunch average yield increased to 3.66 tonnes per hectare from 2.28 tonnes per hectare in 2010.

Management is focused on improving yields at the arable farming operation.

"We get year-on-year inceases in yields and the trend is promising," Sood said of his company's plantations.

For full-year 2011, Feronia achieved gross margin of 45 percent for the year, compared to 40 percent in 2010.

Revenues grew to $7.45 million from $3.91 million a year earlier. Crude palm oil (CPO) production was up 61 percent to 7,981 tonnes for the full year, up from 4,951 tonnes in 2010.

A total of 2,110 hectares of oil palms were replanted during the year.

In terms of replanting, Feronia's Sood said that every year the company significantly reduces the average age of its plantations. Oil palms start producing after three years and each tree has a 20-year producing life.

"You have huge long-term value once you've got the tree in the ground. We're creating a huge amount of latent value," Feronia's Sood added.

Feronia is in the process of building a new palm oil mill for its Yaligimba plantation, which represents approximately 40 percent of the company's palm oil production. The company's two other plantations - Boteka and Lokutu - both have palm oil mills.

"Once we have that palm oil mill we'll get a huge lift in production. It's a huge change for us."

Feronia plans to start processing oil at Yaligimba in September with full commissioning in the fourth quarter.

The DRC offers many benefits for Feronia. Oil palms originated in Equitorial Africa and the trees only grow within a few degrees of the equator.

Sood also said the "logistics are very good" in the Central African nation. All of Feronia's plantations are either located on or near the Congo River with barges taking fertilizer upstream and bringing palm oil products downstream.

For many years, the former European colony was a major agricultural country.

It was a net exporter of goods for many decades up to the 1980's. In recent years, levels of imports have been increasing.

Feronia's Sood said that there was a "huge opportunity" in a country that is twice the size of Western Europe. With huge amounts of rainfall, different temperature levels and elevations, the DRC was suitable for many different crops.