Palm Mills: OUR PLAN

CPO MILLS & REGULATORY SPACE

Malaysia’s palm oil market is highly competitive, capital intensive and concentrated, with large players such as Sime Darby and Felda Iffco dominating the market. Most of the larger companies across Malaysia and Indonesia are integrated across the upstream, midstream and downstream segments. Although Indonesia is the largest producer of palm oil worldwide, Malaysia is the largest exporter.

Palm oil is viewed by Terravana as a future-proof product, in high demand as populations – particularly in emerging markets – experience exponential growth. Consumers do not choose palm oil for the flavour, but because it is cost effective, production efficient and highly stable. It can be used in a wide variety of products along the value chain, as well as being a source of bio-fuel.

The Malaysian government provides management expertise to run organized smallholdings across the country. Agencies such as Felda, Felcra and Risda allow land allocated for plantation to be distributed to the landless poor, while the Palm Oil Registration and Licensing Authority encourages coordination between palm oil cultivators and private equities. Furthermore, the government has responded to concerns about deforestation by upholding a pledge made in 1992 to retain a minimum of half of the uncultivated land in the country as forest cover.

5
mills to be built
75,000
hectares - the largest mill
98
million dollars of investment

BUSINESS MODEL

Terravana plans to construct five mills over the course of the next two years, to be fully operational by 2021. The first three stages of the project are underway.

The largest is on a 75,000-hectare area of land in Lahad Datu, Sabah, approximately 35 kilometres from the nearest refinery, which was acquired as a fully operational, 90tph mill ready for takeover. A 12,000-hectare site, approximately 84 kilometres from a refinery, is under construction in Bintulu, Sarawak. As well as having the necessary construction permissions, this site already had environmental compliance completed and logistics contracts negotiated. Construction is also underway at a 20,000-hectare site in Pitas, just over 22 kilometres from a refinery, marking our second and final site on Sabah.

In 2020, the Bintulu and Pitas sites will be completed by the end of Q2. The remaining two locations: a 33,000-hectare area in Sri Aman and an 18,000-hectare area in Miri, both in Sarawak and both approximately 160 kilometres from a refinery, will begin construction at the start of 2020, finishing a year later in Q1 2021.

PLAN & INVESTMENT

We have entered a contract with 250 smallholders and a cooperative to process their FFBs into CPO. We will protect the quality of the FFB throughout the process, particularly during transportation between the plantations and the mills. This transportation plan will address inconsistencies in the current supply chain, such as minimizing truck delay and contingency planning for breakdowns; utilizing suitable roads; employing plantation managers to assist smallholders to efficiently manage their produce; and looking after our smallholders through higher incomes and control over quality and pricing. Our CPO Mills segment is our second largest. We will be investing $98 million into the five mills.

Terravana will also provide management and advisory services to manage blocks efficiently to increase yield and earnings. By 2021, the cumulative capacity of all the palms mills will stand at ~300 tonne per hour serving a catchment area of 170k hectares, comprising of ~10 estates and ~20k smallholdings.