Seafarms Group has posted a substantial loss for 2021-22 financial year

Seafarms Group has recorded a mammoth financial loss with the company’s annual report showing how the planned prawn farm ended up on ice.

Seafarms Group, the company behind stalled Territory aquaculture development Project Sea Dragon, has recorded a whopping $85m loss for financial year 2021-22.

The Brisbane-based company, which attracted more than $100m in government spending on roads to support the project, released its annual report last week.

The company posted a post-tax loss of $85.4m, more than three-times the $25.7m loss it showed in 2020-21.

Seafarms planned to spend $1.1bn building the largest prawn farm in the southern hemisphere at Legune Station, about 340km south-west of Darwin.

The project had difficulty attracting funding and in November 2021 Seafarms announced a review that was released in March.

The review concluded the project would “not generate acceptable financial returns” and identified “unacceptable risk” such as biosecurity concerns.

The review said the company was committed to delivering Project Sea Dragon but said it should “pilot and prove up” before prawns could be successfully farmed at Legune.

The announcement caused turmoil in Seafarms management, which is addressed in the annual report.

Recently appointed chairman and chief executive Michael McMahon and executive director Ian Brannan resigned.

Former chairman and Project Sea Dragon supporter Ian Trahar returned as non-executive chairman.

The company also changed its chief financial officer twice during the past financial year.

In June 2022 Seafarms announced it was “conducting a thorough assessment of the key challenges, development path and opportunities for Project Sea Dragon.

The assessment is re-examining a number of matters raised about the viability of Project Sea Dragon announced by previous management in March 2022.”

A final decision on the future of the project is expected in late 2023.

The annual report detailed events that led to Project Sea Dragon being placed on ice.

“Significant progress in construction at Project Sea Dragon sites was made during the year up until the March 2022 review point announced by previous management,” the report said.

“Following the successful equity placement in June 2021 (funds received in July) and the appointment of Canstruct Pty Ltd as managing contractor, construction work commenced at Legune Station in July, and the procurement of long lead items for Legune, Exmouth and Bynoe were progressed.

“Prior to the wet season shutdown in late December the contractors had worked on almost 50 km of access roads, placed over 200,000 m3 of fill in embankments for nursery ponds and seawater intake, produced 38 precast concrete structures for nursery ponds and grow-out ponds, as well as crushing and grading almost 100,000 tonnes of material in Forsyth Creek Quarry.

“The contractors to the Northern Territory Government completed the construction of the bitumised all-weather road from the NT/WA border to Legune Station in 2021 and the WA Government completed construction of the Moonamang Road that connects the existing bitumised road from Kununurra to the upgraded Keep River Road in 2022.

“Following the statements made by the company in March of 2022 the company terminated contracts with most vendors, and the construction contracts with Canstruct were terminated for convenience in late April 2022.

“By the end of September 2022 the demobilisation of construction plant and equipment had largely been completed.

The company now faces claims of $27 million as a result of the cancelled contracts and has made provision for payment of $8.7 million to contractors.

The annual report noted “there are material uncertainties that may cast doubt on the Group’s ability to continue as a going concern and its ability to realise its assets and discharge its liabilities”.

This was largely due to the contractor claims, but directors believed the company would be able to continue to trade.

The previous Coalition federal government and Territory Labor Government provided considerable indirect support to the project through roads construction.

Canberra contributed $63.45m, the Territory Government $56m and WA contributed $15m.

About 30 million of the Territory’s contribution was spent sealing Gunn Point Rd, labelled “the road to nowhere” by critics.

It was built to service the proposed Gunn Point hatchery which was scrapped in 2018-19, when the road was already built. The bitumen finishes at the proposed hatchery and falls short of connecting with camping spots at Gunn Point.

The report also flagged Seafarms has an “obligation” to remediate and rehabilitate Legune Station if Project Sea Dragon did not proceed and flagged a $19.75m write-down on the value of the Legune Station lease in light of potential termination of the lease by the end of 2023.