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Equatorial Palm Oil takes delivery of processing mill

Equatorial Palm Oil (LON:EPO) said this morning its processing mill has been delivered on schedule and should be up and running in the final quarter of the year.

The plant, which was manufactured by Modipalm Engineering in Malaysia and shipped out to EPO’s base in Liberia, will have the capacity to process five tonnes of fresh fruit bunches per hour.

Chairman Michael Frayne said: "Delivery of our first, and currently Liberia's only commercial palm oil processing mill, marks another key milestone in EPO's development plans to become a crude palm olil producers by the end of 2010. 

"Revenue from this initial production will contribute to funding our development programme, which is already well underway, with batches of oil palm seeds now arriving each month at our nurseries to coincide with the planned planting schedule."

The company is currently in the process of reactivating 3,000 hectares of palms and will plant up to a further 1,200 hectares next year.

However it is sitting on almost 170,000 hectares of land suitable for sustainable palm oil production.

Its 10-year plan is to be a 50,000 hectare producer, moving to 100,000 hectares five years after that, with output totalling 250,000 tonnes of oil.

Frayne likens the process to developing a mine, or proving up the reserves of a major oil and gas project.

‘You need to take time to set up a palm oil project properly .... but if you plant out your first 10,000 hectares and you can show you can go on to 100,000, especially if you plan to plant out sustainably, then you are on a roll,’ he said recently.

"There is a value re-assessment. By getting the initial planting going you upgrade the whole value."

Initial production will be modest, but it will contribute to financing the company’s ambitious planting programme.

Palm oil is to food production what iron ore is to heavy industry. It is an ingredient found in everything from Galaxy chocolate to Goodfella’s pizza. It even crops up in Persil soap powder.

And in common with many basic minerals and hard commodities, demand for palm oil is buoyant and expanding all the time.

The Chinese are recent converts as are the Indians. But the biggest surprise is America is slowly switching from soya bean oil to palm oil as a result mainly of the scare over trans-fats.

With the palm oil price hovering at around US$800 a tonne, the market remains buoyant for one emerging from recession. The recent high is US$1,200 a ton and the low around US$500.

Frayne says the EPO model works all the way down to around US$250. Not that it is ever likely to get this low, with demand from the biofuels market keeping the price well above this break-even figure.

"The price outlook is very good," Frayne says. "No one company dominates the market. It is a fundamental supply and demand story."

It also means that economically, Liberia becomes a very attractive destination, even for the normally risk averse giants of palm oil.

"China and the United States are investing in Liberia in a big way," Ahmad Zubir Murshid, chief executive of Sime Darby said recently. "We cannot wait until everything is perfect and then invest. By then it will be too late."