An Australian junior company Longreach Oil Ltd (ASX: LGO) sees another sector as its way of going forward – the dairying industry in New Zealand.
The website SmallCaps said Longreach announced a conditional share purchase agreement to acquire the entirety of Happy Valley Milk Ltd (HVM) with the company likely to undergo a rebranding including a likely change of name.
SmallCaps said the buyout intends to bring together farmer suppliers, strategic local shareholders, offtake partners and key personnel to deliver “a sustainable and differentiated independent milk processing company.”
HVM has reportedly been given the go-ahead by the Otorohanga District Council to establish and operate a fully integrated milk processing, blending and packaging plant on a site near Hamilton.
The permission effectively allows the company to build a large-scale production line of dairy products that could generate strong commercial returns serving the Asian and Pacific markets.
SmallCaps said one of the most highly anticipated target markets is the daigou market that has seen several Australian/NZ-made goods being bought up by Chinese consumers, as superior quality products.
HVM intends to specialise in consumer-ready infant milk formula and other nutritional milk powder formulas using A2 and Organic milk.
With the deal provisionally agreed, Longreach says the next step is to obtain Waikato Regional Council water use and water discharge consents, a condition stipulated in the terms of the agreement between Longreach and HVM.
Longreach would issue shares to HVM’s current shareholders as part of the deal.
On completion of the acquisition and excluding a proposed $A3 million capital raising under, HVM shareholders will hold 77.8% of Longreach, with current Longreach shareholders retaining a 22.2% ownership stake.
SmallCaps said the prospective terms indicate that the facility will take about 12 months to build with an additional three months required for commissioning.
The website said the milk processing plant won’t come cheap. The capital cost was put at $NZ230 M ($A218 M) with at least 50% likely to be debt financed.