Biggest shareholder in Seafarms Group aims to oust CEO after collapse of $2bn scheme to build the world’s largest prawn farm
One of Australia’s biggest aquaculture businesses is in disarray, with a board spill now expected following the collapse of its $2bn flagship project in the Northern Territory.
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One of Australia’s biggest aquaculture businesses has fallen further into disarray, with a board spill now expected by mid-June following the collapse of its $2bn flagship project in the Northern Territory.
Perth-based rich lister Ian Trahar, a board member and the biggest shareholder in loss-making Seafarms, has sought an extraordinary general meeting for the sole purpose of ousting chief executive and chairman Mick McMahon just a few months after he came aboard.
Mr Trahar’s move comes after he initially lavished praise on Mr McMahon as “highly credentialled’’ to head the now-embattled company based in Darwin.
Following his appointment in September, Mr McMahon, the former CEO of Inghams, ordered a review of “Project Sea Dragon,’’ a hugely ambitious multistage scheme to build the world’s biggest prawn farm.
Upon its completion, the company aimed to operate ponds across 10,000ha and produce as much as 180,000 tonnes of fresh and frozen product a year, mainly for export markets. Up to 1500 new jobs were touted.
With the first black tiger prawns set to be harvested by mid-2024, the goal was to tap into a global market now worth about $US180bn a year and forecast to grow to $US245bn by 2027.
The project, initially proposed a decade ago, had its fair share of sceptics and stalled repeatedly despite amassing more than $200m of investment backing since 2012.
But Seafarms persisted under the leadership of Mr Trahar, who spent 20 years as executive chairman before relinquishing that job last November and handing it to Mr McMahon to tackle in addition to the CEO’s role.
After more than eight years of planning, construction of the 400ha first stage of Project Sea Dragon kicked off last year at Legune Station, a pastoral property about 340km southwest of Darwin and near the border with Western Australia.
In the lead-up, Seafarms had raised $92.5m from investors in mid-2021, with $20m of that sum coming from entities controlled by Mr Trahar.
Taxpayers are also on the hook for the development, which has enjoyed “major project status’’ from the NT and federal governments since 2015. The NT, WA and federal governments collectively have tipped in nearly $135m in infrastructure funding, primarily for roads.
But work on the farm by construction group Canstruct ground to a halt in December after Mr McMahon ordered a review of the project the previous month, based on concerns over a lack of adequate funding for the initial $280m build cost and beyond.
He then dropped a bombshell report in late March which concluded that Project Sea Dragon was not viable and only a greatly scaled-down version could progress, in the form of a modest pilot project at Legune Station.
In the “project review’’, Mr McMahon said the scheme could not continue in its “current form’’ since there was “no funding to proceed given (the) failure of (the) debt financing process’’.
“It will not generate acceptable financial returns, the existing scope cannot be completed for targeted costs or achieve target completion dates and the project currently involves unacceptable risk,’’ the report said.
“Prawn aquaculture is a complex, integrated, agricultural supply chain and the combination of a new location/environment, unproven 10ha ponds and lack of an existing competitive farming system make for unacceptable risk without piloting and proving farming outperformance.’’
Even the scaled-back pilot scheme will take up to three years to “re-scope’’ as it gets under way on the 21 partially completed ponds on site. The company’s work on ponds at Bynoe Harbour, near Darwin, also remains suspended. Not surprisingly, the share price plunged 42 per cent on March 31, the day of the announcement effectively scrapping Project Sea Dragon. The stock is down about 80 per cent since the start of the year and has been trading below 20c.
Mr McMahon – who is on a $1.25m a year salary package – hinted strongly at the drastic action he was about to take when addressing shareholders at the AGM in January.
“It‘s fair to say we were shocked at what we found when we came into the business,” Mr McMahon told investors.
“I feel significant responsibility to shareholders who have invested their money into this company and especially those who have done so since I came into the business. To them I apologise for what we’ve had to present today.”
Yet Mr Trahar, who controls 28 per cent of the company, mainly through his entity Avatar Industries, appears to have faith in the company’s prospects.
In early April, just a week after the market learned about the demise of Project Sea Dragon, he shelled out nearly $817,000 to acquire another 49.5 million shares in Seafarms, taking advantage of the slump in the stock price.
Mr Trahar had previously made clear his confidence in Mr McMahon and his fellow former Inghams colleague, Ian Brannan, a Seafarms director and chief financial officer who joined the company at the same time.
Last November, as he stepped down as chairman, Mr Trahar said the pair had “the right leadership to take Seafarms and Project Sea Dragon to the next stage”. Clearly, he has had a change of heart. Mr Trahar lodged paperwork on April 22 seeking the board spill and the EGM must be held by no later than June 20.
With Project Sea Dragon now halted, Seafarms will continue to rely on its operations in north Queensland, where it has been active since 1988 raising and processing prawns under the banner of Crystal Bay Tiger Prawns.
It’s based at Flying Fish Point, Ingham and Cardwell, where the company operates nearly 150 ponds, but this critical part of the business is also faltering.
Production in the last financial year fell to just over 1000 tonnes, down from 1366 tonnes in 2020, as the company reported a $25.7m net loss. Indeed, Seafarms has suffered years of similarly substantial losses, most recently in the six months to December 31, when it revealed $36.8m of red ink, including a $23.3m Project Sea Dragon writedown.
Mr McMahon acknowledged the grim reality in his March “project review,’’ when he noted that Seafarms volumes have fallen by half since their peak. “The business generates losses and has been cash negative for seven of eight years,’’ the study said.
A Seafarms spokeswoman declined to comment. Neither Mr Trahar nor Mr McMahon could be reached for comment.
Originally published as Biggest shareholder in Seafarms Group aims to oust CEO after collapse of $2bn scheme to build the world’s largest prawn farm
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