Palm oil player: Stockopedia speaks to Michael Frayne, the executive chairman of Equatorial Palm Oil plc

In February this year, Michael Frayne launched an initial public offering of Equatorial Palm Oil (LON:PAL) on the Alternative Investment Market – one of the few IPOs that got any traction in what were hugely uncertain conditions early in 2010. With £6.5m netted from the share placing and a further £5m from investors in India, the company’s executive chairman is now eyeing plans to kick off palm oil production by the end of this year. With a bold play in the West African state of Liberia, he is hoping to take a first-mover advantage from the company’s substantial land package, strong relationship with the government and responsible attitude to the environmental and social issues that have tripped up other palm oil players.

Equatorial Palm Oil currently has a land holding covering around 169,000 hectares in conditions ideal for growing oil palms. Over the next ten years it wants to develop at least 50,000 hectares in order to produce around 250,000 tonnes of crude palm oil every year. To start with, Frayne and his team are focusing on re-establishing a 3,000 hectare area at Palm Bay, where a plant and processing facility is due to be set up shortly. They are aiming to capitalise on huge African and international demand for the oil, which eventually finds its way into the likes of bread, chocolate and chewing gum, with 43 of the top 100 food brands in UK containing palm oil. In London, the company’s peers include New Britain Palm Oil (LON:NBPO), Anglo-Eastern Plantations (LON:AEP), M.P.evans Group (LON:MPE) and Asian Plantations (LON:PALM). Michael Frayne spoke to Stockopedia News about his plans for the development of Equatorial Palm Oil and the opportunities he sees in the market.

Michael, how did you get involved in Equatorial Palm Oil and how did you secure this land holding in Liberia?

We actually started life as an investment company looking for resource development assets. We were looking at mining, oil & gas and agricultural and we liked the palm oil sector because it is the biggest vegetable oil in the world. It is a good market - you only have to look at the huge number of food products and other things that have got palm oil in them. The second thing was that, a few years ago, you could see a lot of problems coming to Malaysia and Indonesia, which are the biggest palm oil producers in the world. You could see these issues that were looming in terms of environmental and socially responsible development. For a lot of people, palm oil is a byword for mass deforestation.

We were aware of those things, we liked the sector and we were invited out to Liberia to look at a few potential opportunities, including palm oil, through a network of contacts that we have. There were actually some mining and other resource opportunities there as well but we liked the fact that the government wanted to develop its palm oil sector. A lot of the land wasn’t primary forest; it was degraded land or subsistence farming. And while you’ve got to assume the right rainfall and locations – palm oil needs certain conditions to grow – those things meant you could actually develop the palm oil sustainably. Putting the right land position together with the right agreements and getting it ratified internationally and so forth all took time. We had everything pretty much ready to go in 2008. Mirabaud Securities have been our brokers since 2007; they liked the project, they liked the sector and they understood it. In May/June 2008 we looked to re-list on the market but there were two problems, first, everyone goes on holiday at that time and, second, we had things like Lehman Brothers which meant the world wasn’t quite ready for us, unfortunately. In the meantime things progressed on the ground and then we looked to re-list in February this year.

Very good shareholders came in and we raised £6.5m and then subsequently a number of people out there showed an interest. We have got a very good management team, we’re a listed entity with good financial shareholders and a very clear development plan and a good land position. So we spoke to a number of different groups and took a further investment for just under 30% of the company from a large Indian development group called Silva Group, who put in £5m. So we have got a very good cash condition. Our share price has gone up and down and drifted like a lot of things on reasonably low volume but we’re focused on fundamentals, we think there’s a lot of underlying value and we just need to demonstrate and implement what we’ve been given our money to do.

We have actually ordered our first palm mill, which will arrive some time in the next couple of weeks, because we have existing palm oil plantation there. The mill was built in Malaysia and their engineers are actually on site at the moment and the plan is that we start building it by the end of this month and to be producing palm oil at the end of the year.