feasibility study biodiesel production · a.j. bush & sons (manufactures) pty ltd page 2...

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A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report TABLE OF CONTENTS

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111... PPPRRREEEFFFAAACCCEEE This Feasibility Study sets out, inter alia, details relating to the proposed establishment of a bio-diesel production facility ("the Project") to be carried out in the vicinity of Beaudesert, south east Queensland, under the auspices of A.J. Bush & Sons (Manufactures) Pty Ltd (“the Company”1) - an incorporated organisation.

This Project, initiated by Mr David Kassulke of A.J. Bush & Sons (Manufactures) Pty Ltd (“the Client”) has been carried out utilising the services of Global Solutions 4 Pty Ltd (“the Consultant”) on behalf of a consortium of consulting colleagues in Global Solutions 4 Pty Ltd, Hollingsworth Project Consultant, OSD Pty Ltd and Peter Stone Chemical & Environmental Engineers (“the Consulting Team”) as a Regional Business Development Scheme ("RBDS") program, as arranged through the Gold Coast Regional Office of the Department of State Development (“DSD”).

1 The term "Company" as used throughout this document is a generic term used to describe the

organisation A.J. Bush & Sons (Manufactures) Pty Ltd.



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1. PREFACE........................................................................................................... 2

2. TABLE OF CONTENTS .................................................................................. 3

3. TERMS OF REFERENCE ............................................................................... 7PURPOSE........................................................................................................................ 7BACKGROUND ............................................................................................................. 7PROJECT OBJECTIVES / SCOPE ................................................................................ 7PROJECT OUTCOMES / DELIVERABLES................................................................. 7

4. EXECUTIVE SUMMARY ............................................................................... 8DRAFT REPORTS ISSUED........................................................................................... 8EXECUTIVE SUMMARY & PROJECT OVERVIEW ................................................. 8

Key Outcomes ........................................................................................................ 8Market Prospects and Technology Selection ....................................................... 10Further Technology Evaluation – European Experience .................................... 12

5. INTRODUCTION............................................................................................ 14ALTERNATIVE FUELS .............................................................................................. 14A.J. BUSH & SONS (MANUFACTURES) PTY LTD’S POTENTIAL INVOLVEMENT IN BIO-DIESEL PRODUCTION ................................................... 15BIO-DIESEL AS A VALID FUEL REPLACEMENT – AN OVERVIEW................. 17RESEARCH & DEVELOPMENT – FUNDING SUPPORT ....................................... 18BIO – DIESEL PLANT SCHEDULE........................................................................... 19

6. CORPORATE STRATEGY ........................................................................... 20PROCESS OF STRATEGIC PLANNING ................................................................... 20STRENGTHS ................................................................................................................ 20WEAKNESSES............................................................................................................. 20OPPORTUNITIES ........................................................................................................ 21THREATS ..................................................................................................................... 21STRATEGIES ............................................................................................................... 22

7. RAW MATERIAL SUPPLY .......................................................................... 23TALLOW – CURRENTLY AN EXPORT BASED INDUSTRY................................ 23OVERVIEW OF PRODUCTIVE CAPACITY............................................................. 23PRICING OF RAW MATERIAL (TALLOW)............................................................. 28

Overview .............................................................................................................. 28Prices Achieved – Recent Historical Review ....................................................... 28Market Outlook – Tallow..................................................................................... 29US Market Outlook for Fat, Tallow & Grease .................................................... 30Conclusions.......................................................................................................... 30

WASTE COOKING OILS ............................................................................................ 31

8. PROCESS TECHNOLOGY REVIEW ......................................................... 32INTRODUCTION: BASIS FOR SELECTION OF TECHNOLOGY PROPONENTS ............................................................................................................. 32PROCESS & EXPERIENCE COMPARISON ............................................................. 33

Experience ........................................................................................................... 33Process................................................................................................................. 33



PROCESS INPUTS....................................................................................................... 34Inputs As Specified By Proponents ...................................................................... 34Use of Ethanol v. Methanol for Esterification ..................................................... 35Consumption of Raw Materials and Utilities....................................................... 36

PROCESS OUTPUTS................................................................................................... 37Bio-diesel ............................................................................................................. 37Glycerine.............................................................................................................. 39Fertilizer .............................................................................................................. 39

ENVIRONMENTAL AND SAFETY ASPECTS......................................................... 40Environmental Factors ........................................................................................ 40Licensing / Environmental Authority ................................................................... 41Effluent Loading at the Bromelton Plant ............................................................. 41Fuel Environmental & Safety Information........................................................... 42

WARRANTY ................................................................................................................ 43COMPARATIVE REVIEW.......................................................................................... 44VENDOR PROPOSAL SUMMARY............................................................................ 44VENDOR EVALUATION............................................................................................ 45CAPITAL COST VALIDATION ................................................................................. 45OPERATING COST VALIDATION............................................................................ 46

9. MARKET ANALYSIS .................................................................................... 47THE MARKET FOR BIO-DIESEL.............................................................................. 47THE MARKET FOR GLYCERINE ............................................................................. 48THE MARKET FOR FERTILISER (POTASSIUM SULPHATE) .............................. 49

10. EVALUATION OF GOVERNMENT SUBSIDIES ..................................... 51FEDERAL GOVERNMENT CAPITAL SUBSIDY - SCENARIO ............................. 51FEDERAL GOVERNMENT CAPITAL SUBSIDY - DETAIL................................... 51EXCISE TAX ................................................................................................................ 51BOUNTIES ................................................................................................................... 53

11. EUROPEAN VISIT TO INVESTIGATE BIO-DIESEL TECHNOLOGY .............................................................................................. 54INTRODUCTION ......................................................................................................... 54ENERGIA...................................................................................................................... 55

Minutes of Meeting .............................................................................................. 55Plant Inspection & Findings................................................................................ 56Energia Discussion .............................................................................................. 57

AUSTRIAN BIO FUELS INSTITUTE......................................................................... 58Minutes of Meeting .............................................................................................. 58Findings ............................................................................................................... 59Austrian Biofuels Institute - Discussion............................................................... 60

BIODIESEL TECHNOLOGIES ................................................................................... 60Minutes of Meeting .............................................................................................. 60Findings ............................................................................................................... 62Bio-Diesel Technologies Discussion.................................................................... 62

LURGI........................................................................................................................... 63Minutes of Meeting .............................................................................................. 63Findings ............................................................................................................... 64Lurgi Discussion .................................................................................................. 65

BIODIESEL INTERNATIONAL (BDI)....................................................................... 65Summary .............................................................................................................. 65The Trip................................................................................................................ 66German Government Treatment of BSE Issues.................................................... 67



Former East Germany – Government Assistance Issues ..................................... 68The Malchin Plant................................................................................................ 68Conclusions.......................................................................................................... 69

CONCLUSION AND RECOMMENDATIONS .......................................................... 69

12. SALES ESTIMATES, FINANCIAL PLANNING & ANALYSIS .............. 71PROJECT VIABILITY – OVERVIEW OF THE FINANCIAL “BASE” MODEL OUTCOMES ................................................................................................................. 71MAJOR ASSUMPTIONS............................................................................................. 72

Primary Variables................................................................................................ 72Utility Costs ......................................................................................................... 74Operational Expenses .......................................................................................... 74Salaries ................................................................................................................ 75Leasing................................................................................................................. 75Production Scheduling & Production Output...................................................... 75

CAPITAL INVESTMENT REQUIREMENTS ............................................................ 75Capital Funding Requirement Summary.............................................................. 75Capital - Plant Construction Contract Progress Payments................................. 76

EQUITY ........................................................................................................................ 77PROFIT & LOSS / CASH FLOW STATEMENTS...................................................... 77BALANCE SHEET ANALYSIS .................................................................................. 78

General ................................................................................................................ 78Profitability.......................................................................................................... 78Cost Structure ...................................................................................................... 79Capital Structure & Debt Servicing..................................................................... 80Liquidity / Working Capital ................................................................................. 82Conclusions.......................................................................................................... 84

FUNDING OPTIONS OR ASSISTANCE AVAILABLE............................................ 84Overall Funding Requirements............................................................................ 85Other Funding Sources / Assistance .................................................................... 85Department of Environment (Environmental Protection Agency, Sustainable Industries Division) .......................................................................... 86Department of State Development ....................................................................... 87Federal Department of Industry, Science & Technology..................................... 88

BASE MODEL – PRIMARY FINANCIAL & PRODUCTION INDICATORS ......... 89Nine Year Forecast Trading Summary & IRR Overview..................................... 89Forecast Closing Bank Balance........................................................................... 90Forecast Monthly Production Output – Biodiesel ............................................... 91Forecast Annual Production Output – Biodiesel ................................................. 91Forecast Annual Production Output – Glycerine & Fertiliser............................ 92Forecast Trading Results – 9 Year Projection..................................................... 92Forecast Summary Trading Results – 9 Year Projection..................................... 93

BEST / WORST CASE SCENARIOS .......................................................................... 93IMPACT OF FEDERAL GOVERNMENT SUBSIDY ................................................ 94SENSITIVITY ANALYSIS / BREAK EVEN ANALYSIS ......................................... 95

Key Sensitivities ................................................................................................... 95IRR Analysis......................................................................................................... 98Overview of Sensitivity & Break Even Analysis................................................. 101Company Tax Rate............................................................................................. 102Average Depreciation Rate................................................................................ 104Total Capital Cost.............................................................................................. 105Plant Construction Period ................................................................................. 106Plant capacity (Inputs)....................................................................................... 107Grant (Federal Government Subsidy)................................................................ 108

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report TERMS OF REFERENCE


Feedstock ........................................................................................................... 109Raw Material Costs – Tallow ............................................................................ 110Raw Material Costs - Waste Cooking Oil (WCO) ............................................. 111Conversion Factors (Plant Efficiency) - BIODIESEL ....................................... 112Conversion Factors (Plant Efficiency) – GLYCERINE ..................................... 113Conversion Factors (Plant Efficiency) – FERTILISER ..................................... 114Price Received - Biodiesel Fuel......................................................................... 115Price Received - Crude Glycerine ..................................................................... 116Price Received - Fertiliser (Potassium Sulphate).............................................. 117Overdraft Interest Rate p.a. ............................................................................... 118Plant Commissioning – Effect of "Ramp Up" Period ........................................ 119

13. DISCLAIMER & QUALIFICATION BY CONSULTANT...................... 120

14. APPENDICES................................................................................................ 121FORECAST PLANT CONSTRUCTION SCHEDULE ............................................. 121EUROPEAN SITE VISITATION ITINERARY ........................................................ 122

Bio-diesel European Site Visitation - Objectives............................................... 122Bio-diesel Vendor Site Visits.............................................................................. 122Bio-diesel Plant Site Visits................................................................................. 122

PRO-FORMA REQUEST FOR INFORMATION: BIODIESEL PRODUCTION FROM TALLOW & WASTE COOKING OIL .......................................................... 124BIODIESEL STANDARDS........................................................................................ 126MEAT INDUSTRY CO-PRODUCTS SUMMARY STATISTICS ........................... 126FAT CLASSIFICATION AND STANDARDS.......................................................... 127COMPOSITION OF RAW MATERIALS FOR INEDIBLE RENDERING.............. 129AMERICAN FATS AND OILS ASSOCIATION SPECIFICATIONS FOR TALLOWS AND GREASES...................................................................................... 130FEDERAL GOVERNMENT SUBSIDY ANNOUNCEMENT.................................. 131PROJECT INFORMATION BROCHURE (PREPARED BY THE CONSULTANT) ......................................................................................................... 133

15. ATTACHMENTS .......................................................................................... 135FORECAST PROJECT DELIVERY / PLANT CONSTRUCTION SCHEDULE..... 135FINANCIAL MODEL – SUMMARY DATA............................................................ 135FINANCIAL MODEL – YEARLY CASH FLOW / PROFIT & LOSS STATEMENT SUMMARY........................................................................................ 135FINANCIAL MODEL – MONTHLY CASH FLOW / PROFIT & LOSS STATEMENTS (9 YEARS)........................................................................................ 135FINANCIAL MODEL – BALANCE SHEET SCHEDULE & FINANCIAL RATIOS....................................................................................................................... 135

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report EXECUTIVE SUMMARY


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PURPOSE A.J. Bush and Sons (Manufactures) Pty Ltd (the Principal) is seeking offers from suitably qualified and experienced companies to undertake a study into the feasibility of the Principal developing a bio-diesel production facility.

BACKGROUND

A.J. Bush and Sons (Manufactures) Pty Ltd is a family owned company, which owns and operates two meat and poultry co-product processing (rendering) plants, one at Box Hill near Sydney in NSW, and one at Bromelton, near Beaudesert in South East Queensland. These plants produce high grade protein meals and tallows, the tallows being a potential feedstock for bio-diesel production.

PROJECT OBJECTIVES / SCOPE

The Consultant will be expected to evaluate and report on all issues related to the feasibility of this production facility, including but not limited to the following key issues:

• Site location and development • Technology selection • Financial viability • Cash flow projections • Required approvals • Anticipated problems/constraints and sensitivities • Capital funding availability and options, including subsidies • Risk analysis of the project’s ability to be delivered in accordance with the

project development plan and/or any conditions of funding.

PROJECT OUTCOMES / DELIVERABLES

A project feasibility report and development plan which represents a deliverable project, with the input of all stakeholders, and which is suitable for Board of Directors decision making, and capital funding assessment. This is not to be a scoping study.



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DRAFT REPORTS ISSUED

Prior to this Final Report, the Consultants have delivered three Draft Reports, whose purpose have been as follows:

The primary purpose of the first Draft Report, following an initial (unscheduled) Progress Report in November 2002, was to ensure that the Feasibility Study proponents were satisfied that there was sufficient scope for further development of the Project. This was based on clearly identification of the status of prospects for project development based on market research undertaken, in addition to technology evaluation, prior to undertaking further activities.

The second draft report was subsequent to undertaking of “face to face” discussions with European (particularly Austrian and German) renderers / operator(s), in order to gain insight into the practicalities and detail of plant set-up and operation, and other variables. This facilitated further evaluation of the available technology subsequent to having earlier conducted a “desktop assessment” of the processes understood to be available. This Study tour also involved visitation of certain other relevant organisations such as the Technical University Graz, and the Austrian Bio-fuels Institute.

The Third Draft Report contained details of the Financial Model, concentrating on exploring the optimum base model scenario, together with details of various assumptions used, in addition to conducting sensitivity analysis on a range of key variables. This enabled the establishment of viability for the Project, and provided the means to assess the degree of risk involved.

This Final Report covers all information gathered thus far, and is subsequent to a review of the Financial Model and a decision as to what assumptions should be used in determination of the “base case” scenario.

EXECUTIVE SUMMARY & PROJECT OVERVIEW

Key Outcomes

The outcome of this Report suggests there is strong viability for the establishment of a 60,000 tonne p.a. (raw material input) biodiesel plant at the AJ Bush Bromelton facility.

A plant of this size would provide an annual output (at full production levels) of 59.7m litres of biodiesel, 6.12m kilograms of crude glycerine, and 1,320 tonnes of fertiliser (potassium sulphate). This would result in a gross annual sales turnover of $47.443m, with the majority of this income derived from biodiesel fuel ($43.027m), and to a lesser extent, glycerine ($4.284m). The preceding amounts assume the “base



model” sale prices can be achieved, which are $0.72 / litre for biodiesel, $0.70 per kilogram for crude glycerine, and $100.00 per tonne for fertiliser.

The estimates provided herein suggest that the Project is capable of an IRR (Internal rate of Return) of 76.65%.. Alternatively, performance can also be measured by the following outcomes2:

• Net Income (Cash Flow) Year-In-Year-Out $8,887,356

• Net Profit p.a. (Year-In-Year-Out) Before Interest & Tax (EBIT) $12,158,817

• Net Profit After Interest Before Tax (Year-In-Year-Out) $12,158,817

• Net Profit After Interest & Tax (Year-In-Year-Out) $7,903,231

The total capital requirement for the plant is $21.307m, of which $20.0m is the estimated cost of the building, plant, machinery and equipment and associated ancillaries. The land is assumed to be available to the Project at zero cost. The balance of $1.307m is required for working capital.

The above capital requirement would be offset by a Federal Government Subsidy of $9.552m which is based on a grant of $0.16 per litre biodiesel output. This is in line with a recent announcement by the Federal Government3. Whilst this subsidy is not “make-or-break” for the Project, it does nevertheless considerably mitigate financial risk and improves overall return ensuring the Project is very likely to succeed. However, with a rebate production quantity limitation applicable to the subsidy, it will be the initial renewable fuel producers whom are able to quickly establish themselves that will be able to take full advantage of this offer.

The net amount of capital to be sourced by the Project’s proponents is therefore $11.755m.

Without the government subsidy, the IRR reduces to 37.66%, however long term annual trading profitability is unaffected since the additional interest component is paid off in the early years of the Project.

Primary inputs (feedstock) for this project are:

• 51,000 tonnes p.a. of tallow (25,000 tonnes of which will be sourced from AJ Bush’s rendering facility) at an average cost of $457.65 / tonne (or $23.34m annually)

• 9,000 tonnes p.a. of Waste Cooking Oil (WCO), to be acquired net on site for $350 / tonne (or $3.15m annually)

2 The Financial Model suggests that the cash at bank in Year 9 will be $57,974,424, with a 9 Years total

OPERATING PROFIT AFTER INTEREST & TAX of $52,964,248 3 The Federal Government has recently announced a $50 million program to ensure bio-fuels provide 2%

of Australia’s transport fuel consumption by the year 2010 (part of the $400 million Greenhouse Gas Abatement Program). The Government anticipate that at least five new ethanol distilleries will be established under this program. The announcement promises a capital subsidy of 16 cents for each litre of new or expanded bio-fuel production capacity constructed,



Other major inputs include 6.48m kg p.a. of methanol ($4.374m), 0.9m kg p.a. pf KOH (potassium hydroxide) @ $1.08m annually, and 780,000 kg p.a. of sulphuric acid @ $0.195m annually. The process also requires 1.44m litres of water, however output includes 2.5m of “waste” water.

Market Prospects and Technology Selection

Preliminary investigations suggested indicative returns for a 50,000 tonne (raw material) bio-diesel plant facility would provide an output of at least 44.1 million litres of Biodiesel4, 8.8 million kg Glycerine, and 900 tonne of fertiliser. Based on current prices, an anticipated gross return of approx.$33m p.a. would result, primarily from Biodiesel ($26.5m) and Glycerine ($6.2m). Under this scenario a net return of approximately $10m - $12m p.a. would be possible excluding government subsidies, tax, interest, and plant replacement (depreciation).

Further investigations revealed that these figures were perhaps by and large a little conservative, but nevertheless provided a reasonable indication of likely performance.

Suffice to say that aside from the apparent direct economic benefits, the establishment of a bio-diesel plant will also effectively “close the manufacturing loop” for plant operations, and will enable a premium to be paid for raw material if required.

With regards market prospects, the proposed plant annual output capacity of distillate is only a tiny fraction of the available market. Various market sectors are able to be exploited, including remote resorts, mines (power generation), marine (ports), various premium price market niches, railways, and oil companies (in many of these cases, as an additive to improve lubricity in low Sulphur petrodiesel / meeting 2% Government target level). The existence of greenhouse credits also means that some of these customers would be willing to pay a premium for the product.

It has also been important to establish market prospects for major inputs, including sufficiency of raw material supply, coupled with identifying any constraints. The primary variable here is tallow. In this regard, A J Bush & Sons (Manufactures) Pty Ltd is one of around 50 renderers producing tallow in Australia. Queensland’s output5

is responsible for approximately 20% of the national total. Whilst the Company has significant capability in terms of providing raw material (tallow) as feedstock for the Project, this represents a little less than half of the 60,000 tonnes per annum required for the plant as proposed. Production would therefore need to be augmented by drawing on tallow product from the Company’s Sydney operation, or alternatively sourced from other operators based in Brisbane or nearby. This infers the need (or opportunity) to form an alliance with an existing Queensland tallow producer.

4 The current A J Bush & Sons (Manufactures) Pty Ltd diesel utilisation is in the order of 540,000 litres

annually, which would account for only 1.22% of total expected production. The base model scenario established post these preliminary estimates indicate that the AJ Bush requirement is less than 1% of total expected production. Total production, depending on the technology / process selected, and the conversion rate applying which also depends on raw material quality, may be as high as approximately 56 million litres /annum +.

5 The best available statistics indicate that there is approximately 83,000 tonnes of tallow produced annually in Queensland, whereas Company management believe that this amount is more likely to be in the order of 120,000 tonnes.



A key sensitivity for Project viability is the price of Tallow - typically a very volatile market. The estimates provided herein assume a price of $450.00 per tonne, with a buy-in price at up to $415.00 per tonne (i.e. additional $15.00 / t freight inwards)6. The outlook for tallow in the shorter term is that prices will remain depressed, however, in the longer term prices are expected to generally increase primarily because of increased demand for raw material. Any substantial, sustained increase in prices may eventually force the Company to look at alternative cheap supplies of organic fats or oils.

With regards to screening appropriate technologies, of the eight bio-diesel vendors approached, there appears to be two firms most appropriately suited to supply the technology and detailed process plant within the size and market constraints of A J Bush & Sons (Manufactures) Pty Ltd.

Initial evaluation indicated that the capital expenditure for a 50,000 tpa production plant would be in the order of AUD$12 mill to AUD$14.5 mill being supplied from Energea or Bio-Diesel International (BDI) respectively. However, upon further investigation, and taking into account the cost of associated plant, tanks and equipment, the amount required is estimated to be in the order of AUD$20.0m. No change was made to this figure when the base case scenario was revised upwards to a 60,000 tonne p.a. plant since Company management are confident that, given their recent experience in rebuilding the Bromelton plant, various cost savings would be possible.

The total capital expenditure estimate also takes into account compliance with Australian Standards, since expenditure on equipment required for European conditions are not, in many instances, applicable at Beaudesert, Queensland.

A process evaluation was conducted principally upon two vendors which are Bio-diesel International and Energea. Another vendor - Lurgi – has been included where possible for comparison purposes only (due to lack of more comprehensive information). Processes from Energea and BDI are comparable, with bio-diesel fuel quality being guaranteed to comply with stringent standards. However, the main difference is the quality of the by-products produced, and hence the saleability of those by-products.

Lurgi is known to be a potentially sound proponent, however evaluation information from them has yet to be provided in sufficient depth to allow them to be considered in detail.

It has been established that Ethanol can be substituted for Methanol within the process, with several side-effects. A full economic evaluation has not been performed to determine the viability of ethanol use, however, initial indications do not seem detrimental to the project viability.

6 As at date of writing this Report, the price of tallow is around $400.00 per tonne.



The Forecast Plant Delivery Schedule (appended), shows that it is feasible to produce bio-diesel by October 2003, but dependant on several factors (notably site construction, earthworks and fabrication) the Project may be able to be “fast-tracked” for end June 2003.

Further Technology Evaluation — European Experience

The evaluation process has involved site visitations of primary vendors and corresponding producers in Europe. The primary purpose of this was to derive further crucial information, assisting in the definition of the final process or processes recommended to produce a high quality bio-diesel fuel that complies with the most stringent standards.

The undertaking of “face to face” discussions with European (particularly Austrian and German) renderers / operators, has provided further insight into the practicalities and detail of plant set-up and operation, and other likely variables7.

OSD Energy Services, as part of the Global Solutions 4 team, undertook a visit to Austria and Germany during the week commencing the 10th February 2002, to review the status of Bio-Diesel technology and its application to AJ Bush (Manufactures) Pty Ltd (Manufactures) Pty Ltd.

Mr Brian O’Sullivan met with 4 key technology supply groups in Austria and Germany. The trip was successful in that suitable companies were identified capable of supplying plant equipment and technology to AJ Bush (Manufactures) Pty Ltd (Manufactures) Pty Ltd for the development plans for Bio-Diesel at Bromelton.

Production of Bio-Diesel in Europe via continuous, high efficiency, production plants are not yet proven, however advanced plants are close to commissioning which may validate the current level of technological achievement.

Agricultural incentives in Europe make the production of Bio-Diesel from rapeseed a commercially viable process. Austrian and German Bio-Diesel equipment manufacturers have had significant interest from around the world as the global demand for renewable fuel sources increases.

The significant global demand on the potential technology providers has underpinned a “race” to be the first to produce a process plant able to harness this global demand. Two of these potential suppliers have process plants due to be commissioned in Austria by March 2002 (since delayed). Both plants are designed to operate in a continuous process using rapeseed or waste vegetable oil. Both of these technology providers believe that beef tallow could suitably be utilised in their plants. However, the economics of European production of Bio-Diesel from tallow is not as viable as

7 BDI was not visited by the Consultant during the European study tour because of sensitivities /

confidentiality to AJ Bush (Manufactures) Pty Ltd. As a result, AJ Bush (Manufactures) Pty Ltd representatives conducted an investigation of the BDI plants and facilities (a report provided by Company management is included herein), and OSD on behalf of the Consulting team conducted a review of the other companies.

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report INTRODUCTION


Bio-Diesel production from rapeseed, because the agricultural incentives favour rapeseed production.

By way of overall summary, the information gathered during this visit validates that suitable equipment is available. This is further confirmed subsequent to feedback from Company management with regards BDI capability.



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ALTERNATIVE FUELS

The increasing price of fossil based fuels, coupled with concerns over associated diminishing natural reserves and the physical concentration of available resources, has led to a world-wide interest in alternative fuels particularly over the last decade.

There are currently a number of alternate fuel sources available, which may be summarised as follows:

1. Electricity (e.g. Electronic powered vehicles)

2. Natural Gas

3. Ethanol (In the United States during 2001, the ethanol industry broke its all-time production record, producing over 1.8 billion gallons of ethanol. This year, the ethanol industry will most likely produce over 2 billion gallons of ethanol. There are many new ethanol plants under construction and in development, and many existing ethanol plants are expanding.)8

4. Methanol (also known as wood alcohol, has been used as an alternative fuel in flexible fuel vehicles that run on M85 - a blend of 85% methanol and 15% gasoline). However, it is not commonly used as such because automakers no longer are supplying methanol-powered vehicles.)9

5. A-21 (a new alternative fuel source made from water, currently under investigation in the arid US state of Nevada)10

6. Bio-diesel – the subject of this Report. Biodiesel is the result of a reaction with Methanol and a catalyst with any vegetable oil or animal fat. Biodiesel (alkyl esters) is a cleaner-burning diesel fuel made from natural, renewable sources.

Bio-diesel is a fuel that can be relatively easily made. There are many people throughout the world, including Australia, converting raw materials (waste cooking oil and / or fats) into bio-diesel within the context of a “home-based” or backyard operation. Indications are that it can be produced in this way for around 20 cents per litre. Aside from the raw material source, all that is needed are a few common chemicals, and limited equipment. The result is a cheap, clean-burning, non-toxic,

8 Source: Ethanol News January 2002 located at http://www.ethanol.org/ 9 Methanol can also be used to make MTBE, an oxygenate which is blended with gasoline to enhance

octane and create cleaner burning fuel. MTBE production and use has declined due to the fact that it has been found to contaminate ground water. In the future, methanol could possibly be the fuel of choice for providing the hydrogen necessary to power fuel cell vehicles.

10 Source: Erich Schunter. Water-based A-21 fuel is the brainchild of Reno inventor Rudolph Gunnerman, recently classified by the Nevada Division of Environmental Protection as a recognized clean alternative fuel. It is a stable emulsion, or mixture, of water and petroleum-based naphtha, with trace amounts of bonding and winterizing agents. Water comprises up to 55% of the total fuel volume, with the remainder consisting mostly of naphtha, a petroleum product from the earliest stages of the refinery process. The two substances are blended together into a milky liquid that can be used to run both gasoline and diesel engines with only minor modifications. The fact that the fuel contains petroleum products precludes it from being classified as an alternative fuel under current federal Department of Energy requirement



renewable, high-quality diesel motor fuel that can be used in a motor vehicle without modification.

The process utilised for bio-diesel production is called Transesterification. It involves removing the glycerine and other contaminants from the oil or fats to make a clean, and low viscosity diesel fuel.

Transesterification is similar to saponification or soap making where a transfatty acid or triglyceride (oil or kitchen grease) is blended with a solution of sodium hydroxide (NaOH, caustic soda or lye) and water. This reaction causes the ester chains to separate from the glycerine. These ester chains are what becomes the soap or lipids11.

In transesterification, lye (Sodium hydroxide: NaOH, also known as caustic soda), and methanol are mixed to create sodium methoxide (Na+ CH3O-). When mixed in with the oil -- waste vegetable oil (WVO) or animal fats, this strong polar-bonded chemical breaks the trans-fatty acid into glycerine and also ester chains (bio-diesel). The esters become methyl esters. They would be ethyl esters if reacted with ethanol instead of methanol.

Biodiesel is the pure, or 100 percent, biodiesel fuel. It is referred to as B100 or "neat" fuel. A biodiesel blend is pure biodiesel blended with petrodiesel. Biodiesel blends are referred to as Bxx. The xx indicates the amount of biodiesel the blend (i.e., a B20 blend is 20 percent biodiesel and 80 percent petrodiesel).

A.J. BUSH & SONS (MANUFACTURES) PTY LTD’S POTENTIAL INVOLVEMENT IN BIO-DIESEL PRODUCTION

Bio-diesel is registered as a fuel and fuel additive with the Environmental Protection Agency (EPA) in the USA and the Australian standard is currently being set by the Australian government. Bio-diesel is recognised by Federal, State and Industry as a valid alternative fuel, and is listed as one of the fuels eligible for a fuel rebate.

With two meat and poultry co-product processing (rendering) plants, i.e. one at Box Hill and one at Bromelton, A.J. Bush and Sons (Manufactures) Pty Ltd produce high grade protein meals and tallows, the tallows being a potential feedstock for bio-diesel production.

Bio-diesel is the name for a variety of ester-based oxygenated fuels made from vegetable oils or animal fats. The concept of using vegetable oil as a fuel dates back to 1895 when Dr. Rudolf Diesel developed the first diesel engine to run on vegetable oil. Diesel demonstrated his engine at the World Exhibition in Paris in 1900 using peanut oil as fuel.

The low emissions of bio-diesel make it an ideal fuel for use in marine areas, national parks and forests, and heavily polluted cities. Bio-diesel has many advantages as a

11 Their unique characteristic of being attracted to polar molecules such as water on one end and to

non-polar molecules like oil on the other end is what makes them effective as soap.



transport fuel, but more particularly reduces the Australia's dependence on foreign petroleum.

In this instance, the production of bio-diesel will provide fuel for all the transport operations of the company, producing a potential 165,000 litres per day of end product. It will effectively “close the manufacturing loop” for plant operations, and will enable a premium to be paid for raw material. This latter point should not be underemphasized since it could potentially remove all rendering operations from city areas, establishing a unique positive environmental consequence.

The establishment of a pilot plant at Bromelton will serve to prove the concept especially with regards continuous processing operations, with promising results already seen in a batch processing trial commissioned by AJ Bush over recent times. The Project’s success will see the retention of the 30,000,000 kgs12 of animal tallow currently being manufactured and exported by the Company overseas where it is made into a range of products (principally soap). It therefore has potential to create a higher value / increased earnings for the company, and create jobs for the region, as well as increased revenues to other renderers whom would enjoy a premium for the feedstock.

A good deal of market research has already been undertaken recently13, with the results of this data providing a useful grounding for carrying out the feasibility study.

In addition, the Project is likely to receive strong support from the Queensland Environmental Protection Agency whom are already aware of the company’s intentions and activities in the area of bio-diesel production in Queensland14. Further, Bio-diesel is the only alternative fuel in the US to complete EPA Tier I Health Effects Testing under section 211(b) of the Clean Air Act, which provide the most thorough inventory of environmental and human health effects attributes that current technology will allow.

A.J. Bush and Sons (Manufactures) Pty Ltd have been closely monitoring events overseas in relation to the production and distribution of bio-diesel, where it is likely that Biomass will play an increasing role in energy production. In Europe, an increase by a factor of 3 is projected from 1995 to 201015. Bio-diesel use will be an important contributor to this expansion. Series life cycle studies reviewed energy and CO2

balances as well as other relevant parameters such as NOx, SO2, N20, PAH, dioxins and furans. Under certain assumptions, bio-diesel has or can have an “overall” ecological advantage against diesel oil. Furthermore, there are around 2 million registered vehicles in Europe that are warranted by over 50 different vehicle manufactures (including VW, Toyota and MAN) for the use of bio-diesel. In addition, A.J. Bush and Sons (Manufactures) are aware that in Germany, there are currently 900 retail outlets for bio-diesel.

12 Source: A.J. Bush and Sons (Manufactures) Pty Ltd – results for 2000/2001. 13 Refer Gibson Associates, Bio-Diesel Market Study for A J Bush & Sons Pty Ltd (2001) 14 Reference: Mr Murray Vincent and Dr Martin Gellander of the Sustainable Industries Division of the EPA. 15 Source: BioEnergy ‘98: Expanding BioEnergy Partnerships, ENVIRONMENTAL IMPACTS OF BIODIESEL USE,

Bernd Franke and Guido Reinhardt



As an alternate, renewable fuel source, it has also become widely accepted in North America. For example, Company research has established that its use has doubled each year, strongly relating to the environmental positives16. Notably, machinery manufacturers such as Caterpillar have issued standards relating to bio-diesel and are actively recommending its use.

In summary, the Company’s vision for bio-diesel production in Queensland will see the streamlining of manufacturing operations, improved profitability, improved environmental outcomes, and an expanding skills base at the local rural region of Beaudesert.

BIO-DIESEL AS A VALID FUEL REPLACEMENT — AN OVERVIEW

With increased world interest in emissions and reducing the use of petroleum distillate based fuels, many governments and regulating bodies encourage the use of biofuels. Bio-diesel is a fuel that can be made from a variety of sources, notably soybean oil or rapeseed oil. Alternate base stocks for biofuel may, as in the case of this Project, include animal tallow, or other feedstocks such as waste cooking oils, or a variety of other materials. To use these oils as fuel, they must be esterified.

The use of bio-diesel fuels derived from vegetable oils or animal fats as a substitute for conventional petroleum fuel in diesel engines is receiving an increasing amount of attention. The use of bio-diesel results in lower emissions of unburned hydrocarbons, carbon monoxide, and particulate matter, with some increase in emissions of oxides of nitrogen on some engines. Bio-diesel also increases catalytic converter efficiency in reducing particulate emissions. Chemical characterization also reveals lower levels of some toxic and reactive hydrocarbon species when bio-diesel fuels are used. In addition, emissions of carcinogenic PAH and nitro-PAH compounds are substantially lower with bio-diesel, as compared to conventional diesel fuel.17

Bio-diesel is a complete replacement for petroleum based Diesel. It has improved emissions and better lubricative properties than all other alternatives. Australia has come to the point where it is willing and economically viable to start producing and using renewable fuels. Bio-diesel, which runs in Diesel motors without conversion and can be distributed throughout the current fuel transport and delivery industry, has a huge potential.18

16 The Biodiesel Association of Australia reports that (ref: website) “A total of seven companies in the US

have released premium additive packages containing biodiesel, in which biodiesel is a major marketing aspect of the products. In the summer of 1999, Koch - the second largest privately owned company in the US behind Cargill - launched a new premium diesel fuel product, US SoyField Diesel, which is now in over 20 terminals in the midwest and expanding. Also in 1999, Country Energy (the Farmland/Cenex petroleum joint venture) launched SoyMaster, their proprietary premium diesel containing biodiesel in four terminals in the Midwest.”

17 Source: EXHAUST EMISSIONS AND PERFORMANCE OF DIESEL ENGINES WITH BIODIESEL FUELS, Christopher A. Sharp, Southwest Research Institute (1998)

18 Biodiesel Association of Australia Inc, website information located at http://www.biodiesel.org.au/



In addition to factors mentioned above, there are a number of reasons why the establishment of a such project in Australia has become a commercial proposition. These include:

• More stringent environmental controls.

• Low and continually falling labour intensity in processing operations - primarily through technological developments

• Access to suitable raw material (in this case, beef and other animal tallows).

Oil reserves are finite. As oil becomes more expensive, alternative and renewable replacements become viable. Bio-diesel:

• Is a renewable energy carrier.

• Will run in any unmodified diesel engine (manufactured within the last 5 years or by modifying seals in earlier vehicles and addition of extra fuel filters).

• Can be used as a 100% replacement in any mix. (e.g.: bio-diesel, 80% fossil diesel 20%).

• Will be distributed through the existing infrastructure

• It can be used now.

• Helps rural economies as they “grow” the fuel.

• Reduces emissions by up to 75%.

• Reduces engine wear by extending the life of the engine19.

The challenge for A.J. Bush & Sons (Manufactures) Pty Ltd is one primarily of its ability to establish the viability of a continuous processing operation (as compared to batch). There is strong anecdotal evidence supporting the Company's ability or effectiveness to carry such a project through to fruition.

RESEARCH & DEVELOPMENT — FUNDING SUPPORT

Aside from government subsidies for biodiesel production as outlined in later sections of this Report, there is some evidence that the industry is receiving strong levels of support from within industry.

For example, the Meat & Livestock Corporation (MLA) reports that the world organisation Fats and Protein Research Foundation annual research budget of about $400,000 is similar to the MLA expenditure on co-products research. Much of the FPRF research is about rendered products and animal nutrition but there are many topics where FPRF and MLA topics coincide. For example, MLA studies on odour control in rendering plants will be of interest to the FPRF and the FPRF experience

19 Taken from: BAA Biodiesel Association of Australia Inc. pamphlet

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report CORPORATE STRATEGY


with biodiesel should be helpful with a possible biodiesel project that MLA is supporting in Queensland. 20

The Queensland EPA (Environmental Protection Agency) also recognise the potential for Biodiesel. Hudry21 concludes that the potential for commercial production of biodiesel on a large scale in Queensland is a very real possibility. The production of Biodiesel is one technology which has the potential to replace, and in some cases has already replaced, one of the world’s most widely used non-renewable fuels – diesel. Hudry also states that Biodiesel is a cleaner burning diesel fuel alternative made from natural, renewable resources such as tallow or vegetable oil, having been tested widely by both private and public sectors throughout Europe and the United States, and currently produced and sold by a number of commercial ventures on both continents. However, Hudry points out that from experience using and testing biodiesel in overseas countries such as Austria, Germany and the United States it can be concluded that perhaps the biggest hurdle for biodiesel in Australia is the high cost of production, which consequently would result in a high cost product. (This paper was written prior to the recent Government subsidy announcement).

BIO — DIESEL PLANT SCHEDULE The Forecast Bio-diesel Plant Construction / Project Delivery Schedule (appended to this Report), shows that a realistic timeframe for production of bio-diesel for the Company is likely to be October 2003, but may be able to be fast-tracked to June 2003.

This schedule has been drawn from information supplied by vendors and included into a project plan which is designed to minimise the capital cost as well as minimise the risk to A. J. Bush.

The methodology proposed for project delivery is derived from a staged approach to commencement. Following the completion of the feasibility study and development of a Business Plan, vendor bids are proposed to be called to provide a sound basis for a commercial arrangement.

Following receipt and application of the bids, the economic model can be revised to support A. J. Bush to a commitment decision.

Following a decision to commit, all process equipment is proposed to be purchased from European suppliers whilst infrastructure is proposed to be designed and constructed by Australian contractors. This will minimise cost and ensure compliance with Australian Standards.

The schedule allows for delivery of the equipment to A.J. Bush in time to have it installed prior to pre-commission, commissioning and hand over to AJ Bush & Sons (Manufactures) Pty Ltd in October 2003. 20 Source: Australian Renderers’ Association Inc., Rendering Circles, No. 8 – June 2000. A Quarterly

newsletter produced by the Australian Renderers’ Association for customers and members 21 Hudry, S., Biodiesel: Overseas Experience and the Scope for Production and Use in Queensland,

December 2001



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PROCESS OF STRATEGIC PLANNING

In an effort to “realise the vision” and to recognise the Company’s competitive advantages, the Consultant facilitated a Strategic Planning Workshop on Monday 15 October 2001 with Company representatives, DSD, EPA, and others. The primary purpose was to emphasise those factors affecting the Company's ability to deliver the Project’s business objectives as identified, and attempting resolution of those factors. It has set in place strategic intent and implications.

The initial process resulted in the identification of the Project’s perceived "Strengths, Weaknesses, Opportunities and Threats" (SWOT). Each of the SWOT’s have been prioritised (as numbered below), with less important matters remaining as “dot points” as follows:

STRENGTHS

1. Bromelton site zoning / location / Established infrastructure o Raw materials supply – quantities “in-house” o Value adding to existing Product o “IN House” Market for biodiesel o Established networks

2. Unique window – AJ Bush ahead of the pack

• Environmental / Green Value • Improvement over petrol / diesel • QA Established overseas • Government support • Attractiveness to environmentally sensitive regions• Exponential growth of industry overseas • Northern Australia – natural advantage

WEAKNESSES

1. Uncertainty – legislative risk o Subsidies benefit o Excise o Carbon credits, Renewable Energy Credits or other

2. QA not established in Australia

3. Off take agreements – biodiesel

• Raw materials – contracts need to be in place



• Feedstock suitability • Limited use in southern Australian states (cloud point)

OPPORTUNITIES

1. Local, secure supply of raw material

2. Government support o Legislation – e.g. 2% B/D required overseas o Legislation –sulphur content o More stringent emission standards o Carbon credits

3. Increased tallow price / value

4. Alliance with traders of vegetable oil / tallow

5. By products – glycerine and fertilisers (key sensitivity)

6. Expansion of AJ Bush business into other areas

• Other feedstocks • Corporate support – project, and clientele • Education: customers • “Sexy” industry • If ethanol can be used – is greener / locally made • Technology could be saleable / licensed • Cost of product alternatives – petrol / diesel

THREATS

1. Legislation – excise

2. Feedstock – price variability

3. Corporate vandalism o Pricing control by competitors

4. Other B/D operators o Competition o Product Quality Control / Warranty claims o Low barrier to entry – capital cost

• Abundant vegetable oils and other feedstock • Education: customers • The Process Equipment – efficiency untested • Methanol / ethanol availability

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report RAW MATERIAL SUPPLY


STRATEGIES

As a result of the SWOT analysis conducted (above), the following business objectives have been developed:

1. To maximise the opportunities of the Bromelton site and its manufacturing activities

2. To be the first large scale bio-diesel producer in Queensland

3. To influence government policy in order to facilitate the Project’s rapid development

4. To identify and implement a risk averse quality standard that is acceptable to Australian government & industry

5. To underpin the Project economics by establishing a sufficient number of off take agreements for biodiesel and associated by-products in place prior to financial close

6. To exploit the Local advantages of a secure supply of raw material

7. To increase the beneficial use of tallow

8. To increase opportunities to acquire raw material (including process ingredients)

9. To identify markets and establish contacts for the sale of glycerine, fertilisers and other by products

10. To expand AJ Bush’s business into other areas

11. To limit exposure to corporate interference

12. To set the industry standard



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TALLOW — CURRENTLY AN EXPORT BASED INDUSTRY

Australia exports approximately 350,000 metric tons of tallow per annum. The main export regions include the Far East (China, Taiwan and Korea), the Middle East (Bangladesh, Pakistan, Iran, and Egypt) and Africa. The main buyers of tallow include soap manufacturers, chemical companies, feed compounders and edible users22.

OVERVIEW OF PRODUCTIVE CAPACITY

A J Bush & Sons (Manufactures) Pty Ltd is one of around 50 renderers producing tallow in Australia, and is the largest Queensland producer. Whilst their current production has been reduced due to a recent fire, our estimates have been prepared on the basis of 25,000 tonnes per annum production as per advice from Company management.

The best available information on raw material supply has been compiled by the Australian Renderers Association (Meat & Livestock Australia). This data has been derived from information provided by renderers, with some of the unavailable data estimated by the Consultant and included in the data provided herein. Therefore whilst its accuracy cannot be guaranteed it nevertheless provides a reasonable guide. For example, the compiled results indicate that there is approximately 83,000 tonnes of tallow produced annually in Queensland (see table below), whereas Company management believe that this amount is more likely to be in the order of 120,000 tonnes.

Tallow Production in Australia

No. of Producers

Annual Production Capacity (tonnes)

Tallow Feed Tallow

Poultry Oil Other TOTAL

NSW 14 32,250 3,500 20,120 43,100 98,970Qld 13 39,554 375 0 43,160 83,089SA 4 13,650 0 0 26,850 40,500Tas 2 1,500 0 0 7,800 9,300Vic 8 27,885 1,560 0 93,400 122,845WA 7 39,900 3,380 0 17,000 60,280

Australia 48 154,739 8,815 20,120 231,310 414,984

The above table may therefore be somewhat conservative in its estimate of a total Australian production of just over 400,000 tonnes.

22 Source: Gardner Smith Pty Limited, located at http://www.gardnersmith.com/Australia2.htm



The context in which this data must be viewed is in relation to the availability of raw material sufficient to supply a 50,000 tonne per annum operating plant for bio-diesel. This means that such a plant would need to augment A J Bush & Sons (Manufactures) Pty Ltd annual production of 25,000 tonnes even though this is a significant proportion of Queensland’s output which is responsible for approximately 20% of the national total.

The diagram below presents an overview of the state by state proportions of tallow production in Australia:

98,970 (23.8%)

83,089 (20.0%)

40,500 (9.8%)

9,300 (2.2%)

122,845 (29.6%)

60,280 (14.5%)

NSW

Qld

SA

Tas

Vic

WA

Tallow Production in AustraliaAnnual Production Capcity (tonnes)

Source: Australian Renderers Association, Directory of Australian Renderers (July 1998), Meat & Livestock AustraliaSome estimates: Global Solutions 4 Pty Ltd

In the case of A J Bush & Sons (Manufactures) Pty Ltd, raw material intakes have fallen subsequent to the effects of the fire in 2001, with a resultant decrease in tallow production. However, this has been rapidly increasing as the old plant has been re-commissioned pending the imminent operation of a newly constructed plant being erected on the Bromelton site.

There has also been a recent industry downturn due to scarce stock numbers, high stock prices, with some BSE cases in Japan driving down demand for meat. All these factors have served to impact the output from the Company’s plant.

Nonetheless, Company management believe that they will rebound to full production in 2002. Therefore, in addition to augmenting the annual output from the plant at Bromelton by drawing on tallow product from the Company’s Sydney operation, tallow could also be sourced from other operators based in Brisbane or nearby (see table below). However, this infers the need (or opportunity) to form an alliance with an existing Queensland tallow producer.



Manufacturer (Queensland only) Annual Production (tonnes)AJ Bush & Sons (Manufacturers) Pty Ltd 25,000Teys Bros (Holdings) Pty Ltd 17,000Queensland Abattoir Corporation 11,160South Burnett Meatworks Co-op Assn 10,000Warwick Bacon Pty Ltd 7,500Kilcoy Pastoral Company Limited 4,800Sunland Meats Pty Ltd 3,640Nolan Meats Pty Ltd 2,080

This information is graphed for convenience below:

0 10 20 30

Thousands

AJ Bush & Sons (Manufacturers) Pty LtdTeys Bros (Holdings) Pty Ltd

Queensland Abattoir CorporationSouth Burnett Meatworks Co-op Assn

Warwick Bacon Pty LtdKilcoy Pastoral Company Limited

Sunland Meats Pty LtdNolan Meats Pty Ltd

FD and JI Allen Pty LtdGoondiwindi Meats Pty Ltd

Swickers Kingaroy Bacon Factory Pty LtdCarey Bros Pty Ltd

Mac's Meats Pty Ltd

Tallow Production in QueenslandAnnual Production Capcity (tonnes)


There is also the possibility of utilising waste cooking oil from restaurants (estimated to be in the order of 15,000 tonnes per annum) – much of this is currently waste product.

The following graph and table details the annual productive capacity of the majority of tallow producers in Australia, followed by a graphical representation of the top 20 producers nationally:

Special Note Concerning Free Fatty Acid (FFA23): The reaction between an alkali and fat or fatty acids is the basis of two important analytical determinations. Firstly, acid value is defined as the number of milligrams of potassium hydroxide required to neutralise the free fatty acids in one gram of fat. Acid value is a measurement that avoids the use of assumed molecular weights as occurs in the following determination. The acidity of fats is also often expressed directly in terms of percent Free

23 Source: Dupps website, located at http://www.dupps.com/



Fatty Acids (FFA).The assumption usually made in the calculation is that the acids have a molecular weight equal to that of an oleic acid. The relation between avid value and percent free fatty acids calculated as oleic is as follows: 1 unit of acid value = 0.503% free fatty acids.

In many types of fats and oils the percentage of free fatty acids is calculated as oleic acid, but with coconut and palm kernel oils it is expressed in terms of lauric acid and in palm oil as palmitic acid. The definition of FFA for feed grade fats is the same. The FFA of feed-grade fats during summer can be higher due to higher temperatures causing fat hydrolysis in the tissues prior to processing. Similarly, restaurant greases can have higher FFA levels. When acidulated soapstock, the by-product of edible oil refining, is blended with tallows and greases the FFA will be much higher. An increase in FFA level in edible fats dies indicate a deterioration in quality due to increased hydrolysis and the development of oxidative rancidity. However, an elevated FFA level in feed fats is not necessarily indicative of poor quality.

0 20 40 60

VicWA

QldSA

VicVic

NSWQld

VicNSW

NSWVic

QldNSW

WAQldNSW

NSWSATas

Thousands

Peerless Holdings Pty LtdHarvey By-Products

AJ Bush & Sons (Manufacturers) Pty LtdMetro Meat International Limited

SBA Foods Pty LtdAustralian Tallow Producers Pty Ltd

Bindaree Beed Pty LtdTeys Bros (Holdings) Pty LtdWodonga Rendering Pty Ltd

Steggles LtdSouthern Meats Pty Ltd

Warrambool Stockfeeds Pty LtdQueensland Abattoir Corporation

Rockdale Beef Pty LtdTallowman (Derby Industries)

South Burnett Meatworks Co-op AssnCowra Rendering Pty Ltd

Cargill Foods AustraliaAgro By Products - SAMCOR

Blue Ribbon Meat Products Pty Ltd

Top 20 Tallow Producers in AustraliaAnnual Production Capcity (tonnes)




Tallow Production in Australia Source: Australian Renderers Association, Directory of Australian Renderers (July 1998), Meat & Livestock Australia

Company Domicile Annual Production Capacity (tonnes) FFA (max) FFA (max) MIU (max)

Tallow Feed Tallow Poultry Oil Other TOTAL Range min. Range max

Agro By Products - SAMCOR SA 8,000 8,000 4.00% 15.00% 1.00%AJ Bush & Sons (Manufacturers) Pty Ltd Qld 25,000 25,000 1.00% 5.00% 1.00%Australian Tallow Producers Pty Ltd Vic 18,200 18,200 0.05% 0.50% 0.10%Bartter Enterprise NSW 2,000 2,000 3.50 n/a Bindaree Beed Pty Ltd NSW 17,000 17,000 1.00% 1.50% n/a Blayney Meat Packers NSW 7,500 7,500 1.20% n/a Blue Ribbon Meat Products Pty Ltd Tas 7,800 7,800 1.40% 2.00% n/a Camilleri Stockfeeds Pty Ltd NSW 3,120 3,120 2.40% 1.00%Cargill Foods Australia NSW 8,400 8,400 1.50% n/a Carey Bros Pty Ltd Qld 300 300 1.50% 1.00%Clover Meats -Waroona WA 1,450 3,380 4,830 1.00% 2.00% 1.00%Conroys Smallgoods Pty Ltd SA 5,000 5,000 1.40% n/a Cowra Rendering Pty Ltd NSW 9,600 9,600 2.00% 4.00% 0.30%Mudgee Regional Abattoir NSW 3,600 3,600 2.00% 1.00%Devonport City Abattoir Pty Ltd Tas 1,500 1,500 2.50% n/a Eurobodalla Stock Feeds Pty Ltd NSW 600 600 1.20% 2.50% 2.00%Fertal Holdings Pty Ltd WA 5,000 5,000 1.00% 2.00% n/a Fletcher International Exports Pty Ltd NSW 1,000 1,000 2.00% 1.00%Goondiwindi Meats Pty Ltd Qld 375 375 9.80% n/a Harvey By-Products WA 20,000 17,000 37,000 1.00% 2.00% n/a Hillside Protein Pty Ltd WA 1,000 1,000 1.50% n/a FD and JI Allen Pty Ltd Qld 750 750 2.00% n/a K Grieves and R Read and Co WA 1,350 1,350 3.50% n/a Kilcoy Pastoral Company Limited Qld 4,800 4,800 1.00% 1.00%Macleay River Protein NSW 2,600 2,600 1.50% 2.00% 1.00%Mac's Meats Pty Ltd Qld 120 120 8.00% n/a Metro Meat International Limited SA 8,400 11,350 19,750 1.00% 1.50% 1.00%Nolan Meats Pty Ltd Qld 2,080 2,080 n/a n/a Peerless Holdings Pty Ltd Vic 25,000 31,000 56,000 1.00% 60.00% 1.00%Queensland Abattoir Corporation Qld 11,160 11,160 0.60% 2.00% n/a Riverside Meats Pty Ltd Vic 875 875 2.20% 0.40%R Radford & Son Pty Ltd* Vic 10 10 n/a n/a Rockdale Beef Pty Ltd NSW 7,500 3,500 11,000 1.00% 1.00% n/a SBA Foods Pty Ltd Vic 18,200 18,200 2.50% 1.00%South Burnett Meatworks Co-op Assn Qld 10,000 10,000 0.60% 0.90% n/a Southern Meats Pty Ltd NSW 7,800 6,000 13,800 2.00% 2.00% n/a Steggles Ltd NSW 15,000 15,000 n/a n/a Sunland Meats Pty Ltd Qld 3,640 3,640 1.80% n/a Swickers Kingaroy Bacon Factory Pty Ltd Qld 364 364 2.00% 3.00% n/a Tallowman (Derby Industries) WA 10,000 10,000 2.00% 10.00% 1.00%Tamworth City Abattoir NSW 3,750 3,750 1.00% n/a Tatiara Meat Company SA 5,250 2,500 7,750 1.50% 10.00%Teys Bros (Holdings) Pty Ltd Qld 17,000 17,000 1.00% n/a V & V Walsh Pty Ltd WA 1,100 1,100 0.30% 0.60% n/a Vodusek Meats Vic 2,000 2,000 n/a n/a Warrambool Stockfeeds Pty Ltd Vic 1,560 10,400 11,960 2.00% 10.00% 1.00%Warwick Bacon Pty Ltd Qld 7,500 7,500 0.50% n/a Wodonga Rendering Pty Ltd Vic 15,600 15,600 4.00% 1.00%TOTAL 154,739 8,815 20,120 231,310 414,984

= Estimate only (Global Solutions 4 Pty Ltd) * Annual Production is 1,200 drums of high grade edible tallow

FFA Free Fatty Acid (Lower grades of tallow have greater than 4% free fatty acid.)



PRICING OF RAW MATERIAL (TALLOW)

Overview

Tallow prices are typically very volatile. For example, Company management advise that towards the close of 2001 the industry witnessed a decrease of $160.00 per tonne across all grades of tallow.

The estimates provided herein assume a price of $450.00 per tonne, with a buy-in price at up to $465.00 per tonne (i.e. additional $15.00 / t freight inwards). This equates to an average cost of $457.65 per tonne. This compares the current price (as at date of writing) of approximately $400.00 per tonne.

Prices Achieved — Recent Historical Review24

Blood meal, meat meal and tallow prices all increased in December Tallow prices increased in December due to reduced kills and the shortage of supply in Queensland. Plant closures over Christmas and uncertainty about when production might resume generated concerns about supply through January. However, with US prices down in December and continuing to fall, it is expected that Australian tallow prices will also fall in January. There is strong production in the US and with some areas experiencing a mild winter the demand for feed tallow has been lower than expected.

24 Certain information has been extracted from primary source: December 01 co-products monitor

summary - Co-products monitor, Meat & Livestock Australia – downloaded from http://www.mla.com.au/content.cfm?sid=999



Palm prices are firm but the value of tallow in China and Taiwan has remained unchanged. However, buyers are now looking to push down prices to match the US price.

There was an extraordinary increase in meat meal prices in December. The price increases were driven by domestic demand in Queensland and again were caused by anticipated plant closures and fears of shortage of supply. Some domestic customers stockpiled product despite the high prices to ensure they had meat meal supplies in January. The domestic prices were up to $150 per tonne above the export parity price.

A summary of all rendered co-product prices, and price comparisons for up to 12 months prior, are appended to this Report.

Market Outlook — Tallow25

There is a huge oversupply of fats and oils on the world market and the price of tallow in US$ terms is not expected to change in the next twelve months. Australian renderers may see some movement in tallow prices due to fluctuations in the exchange rate. Better grades of tallow have probably hit the bottom but have found a stable level against other fats and oils. Lower grades of tallow are in worse trouble and there is very little demand for tallow with greater than 4% free fatty acid. Customers that might have bought lowers grade tallow for soap manufacture find that they can now afford the better grades. Also, a major use of lower grade tallows was in feed lot rations and this market has almost dried up.

Both meat meal and tallow prices are under attack on international markets but Aussie prices have been buoyed by the record low value of the A$. Export demand for meat meal is quiet with Japan using very little imported meal. Japanese importers are waiting to see if the MAFF make a decision about meat meal being delivered to designated usage points. The Japanese government may require that ruminant feeds are only produced in designated production lines and buyers are hesitant to use imported meat meal until it is clear in what lines and feed mills meat meal can be used. In the meantime Japanese feed mills have a preference for domestic meat meal.

25 Certain information has been extracted from primary source: Australian Renderers’ Association Inc.,

Rendering Circles, Quarterly newsletter produced by the Australian Renderers’ Association for customers and members



US Market Outlook for Fat, Tallow & Grease26

Holidays normally would be a time to expect something in the market that would provide a basis for a winter rally in these markets. This year is different. No cold weather until the end of December has put the balance of supply and demand a little out of kilter and even more off centre with a less enthusiastic vegetable oil program world-wide. Strong kills, even through the holidays, are going to make for heavy inventories coming out of what is normally a period of short supply. A volume of BFT Rendered Chicago is offered down a half-cent, to 11 cents today, with no confirmed trades at that level. Packer did trade at 10.5 Chicago, off a half cent. Other than that no markets reported any movement. This will change soon as production facilities that had planned for short supplies are receiving adequate to normal production, meaning there will be excess availability for almost all products.

Conclusions

In the shorter term, tallow prices are expected to remain depressed, primarily due to international market pressure. In the longer term, price volatility is likely to remain the order of the day, with generally increasing prices due to increased demand for raw material – including pressure exerted by the construction of biodiesel plants both domestically and offshore.

Whilst this substantiates a generally positive outlook for the rendering operations of for A J Bush & Sons (Manufactures) Pty Ltd, the impact of such volatility will need to be incorporated into the economic model for this Project. Any substantial increase in prices may eventually force the Company to look at alternative cheap supplies of organic fats or oils. At this stage, the level at which that might occur is unable to be determined, but will is a focus of the viability testing / sensitivity analysis contained herein.

26 Source: The Jacobsen Commentary, By-Products.com http://www.by-

products.com/bprd/mainFrameset/1,4394,0,00.html , reference Mr Ed Fickey at [email protected]

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report PROCESS TECHNOLOGY REVIEW


At this point the utilisation of $450.00 per tonne average for tallow (plus freight inwards if applicable) appears conservative but appropriate for inclusion in the base economic model.

WASTE COOKING OILS

The tallow from the Company’s operations are also potentially able to be supplemented by a range of other fats of oils, possibly the one offering most potential being waste cooking oil (WCO).

In terms of WCO, Gardner Smith Pty Ltd are Australia’s largest Service collector. They supply 300 to 600 litre heated mobile bulk bins to fast food outlets, restaurants and commercial kitchens for the purpose of collecting used frying media.

The collected oil is returned for refinement, clarification and storage. The final product is commonly used as an animal feed stock supplement, however new uses are being found, such as into the steel rolling industry and as a raw material for biodiesel.

There are also a range of other oils available on the market suitable for feedstock (Vegetable Oils falling under the main categories of such as Palm Oils, Laurics, and Soft Oils), but these represent generally higher priced alternatives.

The base economic model contained in this Report assumes a buy-in price for Waste Cooking Oil (WCO) of $350.00 per tonne net, which is the approximate current price for the product conformed by AJ Bush management. The Consultant comments that a substantially lower buy-in price (to approximately $100.00 per tonne) may be able to be achieved long term, and will greatly depend upon contracting arrangements struck with waste management service providers. A best case scenario may well be argued for an amount even lower than this.



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INTRODUCTION: BASIS FOR SELECTION OF TECHNOLOGY PROPONENTS

Eight companies with experience in the manufacture of Biodiesel from oil/fat feedstocks were invited to respond to pro-forma request for information (a copy of the pro-forma request is attached to this Report). These companies, and a summary of the evaluation of their responses, are given in Table 1 below.

Companies who did not respond or who only supplied services rather than process plant were eliminated from further evaluation. Since A J Bush wishes to have a continuous processing plant rather than a batch process, companies not offering continuous or semi-continuous processes were also eliminated. One respondent was eliminated as they were unable to offer a process utilising a tallow feedstock.

Of the remaining companies only two, BDI International and Energea made any attempt at providing pricing and scope of supply detail. Lurgi International provided process data that indicated their ability to supply a plant. For this reason they were included in the process comparison as the information provided by them gave a valuable insight into the technology options.

From a review of the technical data provided, Bio-diesel International and Energea are leading contenders for supplying equipment and technical support for the bio-diesel plant.

A copy of the Energea proposal, and the Lurgi process information will be provided to A J Bush separately. The BDI data has been forwarded to A J Bush & Sons (Manufacturers) Pty Ltd directly.

In conclusion from the vendor selection process, the companies listed as Bio-diesel International and Energea are leading contenders for supplying equipment and technical support for the bio-diesel plant.



TABLE 1: KEY VENDORS APPROACHED

No. Company (Location)

Response Detail

Response Time

Vendor Suitability

Comments

1 Austrian Biofuels Institute (Austria)

Satisfactory Excellent NO Service Company only

2 Bio-diesel International (Austria)

Satisfactory Poor YES -

3 Energea (Austria) Satisfactory Excellent YES - 4 GEA Westfalia Separator

(Australia/Germany) Satisfactory Excellent NO Rapeseed oil

feedstock only (Tallow FS not to standards)

5 Lurgi/Niro (Australia/Germany)

Not-Satisfactory

Poor POSSIBLE General process response received, In – depth response and pricing not received.

6 Neoteric Biofuels Inc. (Canada)

None - NO -

7 Ocean-Air Environmental Engineering Services (USA)

None - NO -

8 Pacific Bio-diesel (USA) Satisfactory Excellent NO Batch Plant only

PROCESS & EXPERIENCE COMPARISON

Experience

A comparison of the experience of the selected proponents and an overall review of the processes offered by them is given in Table 1. A more detailed process comparison is given in subsequent sections.

Process

The processes offered are basically similar. Lurgi and Energea include pre-treatment although this may also be included in the BDI “black box”.

BDI offers a distillation option to purify the biodiesel to make it suitable as a chemical feedstock. It is unlikely that this option would be viable in Australia. It could be added at a later stage if required.

Whilst the BDI proposal is described as “semi-continuous” it is probable that this refers to a resetting of control parameters when changing feedstocks. The Energea plant has a lower “on-line” time than the other plants. It also operates at a higher pressure. Manning requirements for both plants are similar.

Only BDI give any detail of the control system offered. The entire process is program controlled and is able to be run in both auto and manual modes as well as semi-



continuous and batch modes. Set points and operating parameters can be controlled using the feedstock recipe. A simulation program is provided which will assist in training and start-up. Energea also offers an automatic control system, enabling the plant to be manned by one person. The Lurgi system is expected to be similar.

The Free Fatty Acid (FFA) content in the feedstock governs the ultimate biodiesel quality in respect of the Cold Filter Plugging Point (CFPP). The European Standard (DIN E 51606) can only be met under other than summer conditions (in Europe) by the addition of vegetable oil to the tallow feedstock. It is desirable that A J Bush decides upon the proposed uses for the biodiesel so that the governing ambient conditions can be specified. Alternatively extra flexibility must be allowed in the feedstock selection e.g. by providing for the use of vegetable oil rather than only tallow and waste cooking oil (wco).

TABLE 2: PROCESS & EXPERIENCE COMPARISON

BDI Energea Lurgi EXPERIENCE Experience with Tallow feedstock

Yes Understood to have experience

Yes

Experience with waste cooking oil

Yes Yes Not listed in references

Experience with size of plant

30,000 tpa rapeseed oil, 50,000 tpa tallow + wco under construction and in design stage

40,000 tpa waste vegetable oil +fresh oil being commissioned

Yes

Experience in Australia

No None claimed Yes

PROCESSType of Process Transesterification Transesterification plus

pre-treatment Transesterification plus pre-treatment

Process Option Distillation (produce methyl ester for chemical industry)

No additional No additional

Type of operation Semi-Continuous Continuous Continuous Operating time 330 days per year (8000 hrs per year) 300 days per year 8,000 hrs per year Manning 1/shift, 1 daywork 1/shift, 1-2 daywork 1/shift, part time

control room operator Operating pressure Atmospheric Pressure Atmospheric

PROCESS INPUTS

Inputs As Specified By Proponents

None of the proponents based their responses on the feed composition specified in the request for information (65% tallow, 35% waste cooking oil with the possibility of using oil from seeds). Energea based their proposal on alternatives of tallow and rapeseed oil. The BDI proposal is based on a mixture of 70% tallow, 20% wco, and 10% vegetable oil. The Lurgi feed was not specified.

The BDI and Energea processes require similar types and quality of raw materials.



The Lurgi process utilises a different catalyst and a different acid. The effect of this is that a waste product requiring disposal is produced rather than the saleable potassium sulphate by-product produced by BDI and Energea. The Lurgi process also requires an additional chemical, caustic soda.

The quantities of the various input and utility requirements are listed in the table below. These show only marginal differences for the BDI and Energea processes.

Use of Ethanol v. Methanol for Esterification

The determination of which chemical – ethanol or methanol – is driven by economics. Ethanol is required:

• in a greater proportion to extract a yield equivalent to methanol

• in a “pure” form

Only Energea addressed the use of Ethanol as an alternative esterification agent to methanol. The use of ethanol requires 50% more KOH than methanol. Energy requirements are also higher. It is known that the capital cost is greater, however the yield of biodiesel increases by approximately 5% when the feed is esterified using ethanol. Also, ethanol is cheaper and more readily available than methanol in Australia.

In Australia CSR is a major manufacturer of methanol, and costs in the order of $220.00 inc. tax per 200 litre drum (or $0.83 / kg), however in line with our research bulk prices for Methanol have been budgeted at $0.68 per Kg (equivalent to $180.00 per 200 litre drum).

Locally, ethanol (and possibly methanol) may be available from the nearby (Beenleigh) Rocky Point Sugar Mill and associated power station development. Apparently, ethanol output is expanding rapidly.

CSR is also heavily involved in the Ethanol market, supplying around half of the Australian ethanol market. In Australia, this is a market of about A$40 million a year. CSR Distilleries operate several internationally-competitive ethanol production and distribution plants (Sarina in North Queensland and Yarraville in Melbourne). They currently provide a range of quality ethanol products which can be tailored to the needs of the market.

The CSR distillery at Sarina produces ethanol (ethyl alcohol) by fermenting molasses, the sugarcane milling by-product, using Biostil semi-continuous fermentation technology. Plant capacity is 55 million litres of 95% strength ethanol per year. About half of the output is exported in bulk. The remainder is sold to the domestic market with some of the ethanol upgraded to 100% strength at CSR’s plant in Melbourne.

Industrial markets for ethanol include manufacturers of printing inks and the printing industry itself, cosmetics, toiletries and aerosols, chemicals, household cleaning products; pharmaceutical, medical and biological products; foods and beverages, and



paint and surface coatings. There is an emerging market for ethanol as an additive to petrol. This is validated by BP refinery’s addition of ethanol as part of its fuels in the Clean Fuels Project.

CSR Distilleries manufacture pure and methylated ethanol to a range of specifications. A range of imported industrial chemicals are marketed including iso-propanol, methyl ethyl ketone, methanol, ethyl acetate, n-propanol and n-propyl acetate.

TABLE 3: INPUTS COMPARISON

INPUT TYPE & QUALITY

BDI Energea Lurgi

Waste cooking oil & animal fat, purified

Free Fatty Acids (FFA) 20% max

FFA varies – pre-esterification used if>5%

Tests required

Esterification Agent

Methanol - 99.8% Methanol – 99.8% Methanol

Catalyst KOH – technical – 88%

KOH – 90-92% Na methylate (CH2ONa) – 30%

Emulsion breaking /catalyst acid

Sulphuric – 95% min Sulphuric – 95-97%

Hydrochloric – 37%

Caustic Soda Not required Not required 50%

Consumption of Raw Materials and Utilities

Given the difference in feed types used by BDI and Energea there are only small differences in usage figures between the processes. Detailed analysis will be required when figures from a common feed type are available. Lurgi uses a different catalyst and acid. If the process is considered further then the detailed analysis will need to be extended to include this process.



TABLE 4: CONSUMPTION FIGURES PER 1000 kg BIODIESEL PRODUCT

BDI Energea Lurgi Feedstock Basis 70% tallow, 20%

wco, 10% veg oil feed

Tallow (8% FFA) /rapeseed oil (1% FFA)

unspecified feed

Feedstock 1000 kg 1004 kg ~ 1000 kg Methanol 108 kg 113 kg 96 kg KOH 15 kg 12/12.7 kg 0 Sodium Methylate

0 0 16 kg

Sulphuric acid 13 kg 9/8 kg 0 Hydrochloric acid

0 0 10 kg

Process Water 24 L 40/14 L (demin) 20 L Nitrogen 3 Nm3 (99.5% purity

@ 11 bar) 4 Nm3 (99.5% purity @ 3 bar)

1 Nm3

Electrical energy

55 kWh 65/50 kWh 12 kWh

Light fuel oil 26 kg Not specified Not specified Saturated Steam Qty (8 bar) not

specified 280/100 kg (8 bar abs.)

416 kg

Cooling energy 329 kWh 120/80 kWh See cooling water below

Cooling water See cooling energy above

See cooling energy above

25 m3

Chilling energy 45 kWh 120/80 kWh Not specified Instrument air Not specified 16 Nm3 4.8 Nm3

PROCESS OUTPUTS

Bio-diesel

Specifications

Each of the proponents produces a diesel to relevant specifications. It is recommended that all proponents be provided with feed samples for testing prior to finalisation of tender &/or contract details, and performance guarantees should also cover any proposed Australian standard.

All proponents state that ability to meet the CFPP (Cold Filter Plugging Point) specification is dependent on the feedstock quality, in particular the proportions of the various components27. It is essential that a suitable value is selected to match the

27 Beef tallow ester is generally recognised as having poor low-temperature properties. Blending with

mineral diesel in the ratio 1:4 can achieve an acceptable CFPP. Source: http://www.teagasc.ie/research/reports/crops/4355/eopr-4355.htm



temperatures in the proposed areas of bio-diesel use. If the DIN and other standards are to be met this may involve compromise in the selection of feed stocks.

A number of studies around the world have sought to overcome any shortcomings in feedstock quality, particularly with regards to tallow. Examples include investigations undertaken by the Austrian Biofuels Institute28, the Technical University Graz (Austria)29, and the EU30.

Conclusions from such research indicate that:

1. It is possible to produce bio-diesel of acceptable quality from low-grade tallow. Some modifications and additions to the conventional esterification process are required.

2. Esters of waste oils and fats oils give a performance similar to rape methyl ester in vehicles. Problems of high melting point can be overcome by mixing with mineral diesel. Tallow ester requires careful filtration.

3. Waste oils and fats are available in sufficient quantities at a price much lower than that of virgin oil. The quality of these materials is generally acceptable for bio-diesel production.

Storage of Bio-diesel

In general, the standard storage and handling procedures used for petroleum diesel can be used for biodiesel. The fuel should be stored in a clean, dry, dark environment. Acceptable storage tank materials include aluminium, steel, fluorinated polyethylene, fluorinated polypropylene and Teflon. Copper, brass, lead, tin, and zinc should be avoided. In general terms then, whilst Biodiesel or premixed blends can be stored wherever petroleum diesel is stored, it cannot be stored in concrete-lined tanks. At higher blend levels, biodiesel may result in some deterioration of rubber or polyurethane foam materials. Tests sponsored by the United States Department of Agriculture confirm that biodiesel is less toxic than petroleum diesel and biodegrades as fast as dextrose (a test sugar). In addition, biodiesel has a flash point of over 125˚C which makes it safer to store and handle than petroleum diesel fuel. 31

28 The Austrian Biofuels Institute is an international centre of competence for liquid biofuels, such as Bio-

diesel and Bioethanol. The activities of the Austrian Biofuels Institute and its members cover a wide scope of projects which can be seen at http://www.biodiesel.at/references.html

29 The Technical University Graz in conjunction with the Austrian Biofuels Institute have also undertaken the most elaborate and detailed international standard literature studies concerning Bio-diesel from waste oils.

30 B. Rice, A. Fröhlich and R. Leonard, Crops Research Centre, Oak Park, Carlow, COST REDUCTION IN BIO-DIESEL PRODUCTION , report that, as part of a programme to assess bio-diesel production from low-cost materials, the availability of waste oils and fats in Ireland and the EU was assessed, and the behaviour of their esters in vehicles was measured. The utilisation of beef tallow from BSE risk organisms was given special attention. Esterification of high-FFA tallow required the use of excess methanol and base catalyst. Acidification, followed by glycerol separation and secondary acid-catalysed esterification, brought ester yields up to acceptable levels. The high melting point of the ester restricted its use in vehicles to low proportions in mixes with mineral diesel. Fuels made up from low-cost esters behaved well in vehicle trials, even where there was a high level of dilution of the engine oil. The only problems arose from inadequate low-temperature properties and from suspended solids in the tallow ester. Within the EU, there are sufficient waste oils and fats available to greatly increase bio-diesel production. In Ireland, there is sufficient for a small production unit.

31 Source: Biodiesel Association of Australia Inc, website information located at http://www.biodiesel.org.au/



Glycerine

The concentration of the glycerine by-product produced by the Energea process is lower than that from BDI. This will realise a lower price, assuming it is acceptable. The yield of glycerine from the Energea process is higher due to the lower concentration of the active material.

Recent studies have also concluded that Glycerol, as a by-product of biodiesel production, can be a suitable high value supplement for diets for ruminants.32

Glycerol can be derived from the production of biodiesel. It is a glucogenic substance similar to propylene glycol, which has been used effectively to prevent ketosis in high yielding dairy cows. The results of these studies suggest that the glucose precursor glycerol is an excellent feed constituent, even when included in an impure form as derived from biodiesel production. Glycerol may serve as an ingredient both of pelleted concentrates or of total mixed rations. Glycerol of different purities can be included in mixed diets for ruminants up to 10% of the dry matter as a substitute for rapidly fermentable starch sources, e.g., wheat or tapioca, without negatively affecting ruminal environment, ruminal nutrient turnover and whole-tract digestibilities of organic matter constituents.

The glycerine by-product also makes an excellent industrial-type degreaser/soap. It can also be broken down to usable methane gas, with a methane digester or, it could be broken down with pyrolisis. Pyrolisis was used extensively to run cars on firewood in oil-scarce Europe and elsewhere during World War 2. The processor has a heat source that heats the fuel (wood or glycerine) in an airtight box without oxygen. This allows the fuel to release its methane while not allowing it to burn. The methane is trapped in an inflatable storage container or compressed into a tank.33

Fertilizer

Both BDI and Energea produce a fertilizer by-product that is basically potassium sulphate. Lurgi on the other hand produce a waste rather than a by-product.

The BDI by-product is in the form of a powder, whilst the Energea by-product is in a paste form. This can be dried if extra equipment is provided.

The Energea fertilizer as specified contains higher levels of contaminants than the BDI by-product in respect of glycerine, methanol, and diesel. The methanol content (0.3% max.) may leach from the fertilizer to an extent that results in the material being classified as hazardous for land disposal. The TCLP (Toxicity Characteristic Leaching Procedure) measure of leachability should be checked to ensure acceptability. The BDI material should also be checked.

32 Angela Schröder and Karl-Heinz Südekum, Institute of Animal Nutrition, Physiology and Metabolism,

University of Kiel, 24098 Kiel, Germany, Glycerol as a by-product of biodiesel production in Diets for ruminants, e-mail: [email protected]

33 Source: Keith Addison, Journey to Forever website URL at http://journeytoforever.org/



The active potassium sulphate content of the BDI material is approx. 90-95%, whilst the Energea material is 70-75% without drying.

The process outputs are compared in the following Table 5.

TABLE 5: OUTPUTS COMPARISON

OUTPUT TYPE & QUALITY

BDI Energea Lurgi

Bio-diesel DIN E 51606 Future CEN, DIN E 51606 & ASTM

Up to 100% replacement of petroleum based diesel – tests required

Crude Glycerine

Min. 80% Max. 80% 80%

Fertilizer 90-95% K2SO4

powder 70-75%K2SO4 paste (can be dried)

Not K2SO4 – may need to compost or dispose of otherwise

The following table analyses the production outputs for each of the potential vendors:

TABLE 6: PRODUCTION FIGURES PER 1000 kg BIODIESEL PRODUCT

BDI Energea Lurgi Feedstock 70% tallow, 20%

wco, 10% veg oil Tallow (8% FFA) / rapeseed oil 1% FFA

unspecified feed

Crude Glycerine 98 kg 105-130/129 kg 128 kg Potassium sulphate 20 kg 32/10 kg 0 Waste water 42 L 0 Not specified MeOH in Vent gas 0.8 kg Not specified Not specifiedOther waste product 0 Not specified Not specified

ENVIRONMENTAL AND SAFETY ASPECTS

Environmental Factors

The types and quantities of wastes, where the prospective tenderers have specified these, are given in Table 6 above. Detail is lacking in all submissions and requires further investigation. Other environmental factors are compared in Table 7. The following lists items needing detailed investigation.

• Waste Water - quantity & quality particularly the effect of the Chemical Oxygen Demand (COD) in the BDI process

• Vent Gas – methanol content, volume, odour units • Other Odours – tank vents etc. • Ambient Air Quality • Solid Waste – particularly Lurgi, packaging • Fertilizer Quality – is leaching a problem?



• Explosion Hazard – the need for greatly increased safety standards and changes in work practice and culture required

• Other Hazards – chemicals

TABLE 7: ENVIRONMENTAL ASPECTS

BDI Energea Lurgi Waste Water 0.26 m3/hr Nil discharge Not specified Vent gas Methanol in N2 Methanol in N2 Methanol in N2

Solid waste Packaging Packaging Packaging plus process waste

Fertilizer contamination

Methanol plus from feedstock

Methanol, glycerine, biodiesel plus from feedstock

Not produced – other wastes not thought saleable

Licensing / Environmental Authority

There are a number of licensing requirements required in relation to the environmental and operational aspects of the plant.

Preliminary indications are that these should not be detrimental to the development. However, these shall be detailed in subsequent reports.

Additional Environmentally Relevant Activities will be carried out when the project is implemented. These will require changes to the Environmental Authority, but are unlikely to result in increased Licence fees. The question of whether Public Notice will be required will need to be decided by consultation with the EPA after the proponents provide further environmental data.

Environmental Authority Conditions will need to be amended but the project is not expected to cause them to be more stringent than the existing conditions.

Effluent Loading at the Bromelton Plant

Company management advised in late 2001 that that they have seen a consequent decrease in effluent load consistent with the decrease in raw material intakes following the fire in 2001.

It may be expected that productive capacity will resume more normal levels upon commissioning of the Company’s newly constructed plant, combined with an anticipated improvement in overall market conditions for the industry generally.

It should also be pointed out that Australia’s excellent disease free status (including BSE34 free) makes it an ideal choice for the location of a animal co-products processing facility. 34 Australia is free of bovine spongiform encephalopathy (BSE) –colloquially known as “Mad Cow Disease”

- and other transmissible spongiform encephalopathies (TSEs). Australia is one of only a small number of countries in the world judged by the European Union to meet ‘Category 1’ status for BSE freedom status. Australia undertakes comprehensive disease surveillance for BSE in accordance with international standards. These surveillance data have also been used by the European Union, which



Further, AJ Bush (Manufactures) Pty Ltd have additional space on the neighbouring meatworks site enabling it to easily double existing wastewater treatment capacity – if needed. At present, the Company treats around 1 Mega litre of effluent at approximately 25,000 BOD35 back to less than 100 BOD when irrigated. The Company employs an agronomist who monitors irrigation areas, and their organic loading / history.

Fuel Environmental & Safety Information36

Acute Oral Toxicity/Rates

Biodiesel is non-toxic. The acute oral LD50 (lethal dose) is greater than 17.4 g/Kg body weight. By comparison, table salt (NaCL) is nearly 10 times more toxic.

Skin Irritation -Humans

A 24-hr. human patch test indicated that undiluted biodiesel produced very mild irritation. The irritation was less than the result produced by a 4 percent soap and water solution.

Aquatic Toxicity A 96-hr. lethal concentration for bluegill of biodiesel grade methyl esters was greater than 1000 mg/L. Lethal concentrations at these levels are generally deemed "insignificant" according to NIOSH (National Institute for Occupational Safety and Health) guidelines in its Registry of the Toxic Effects of Chemical Substances.

Biodegradability Biodiesel degrades about four times faster than petroleum diesel. Within 28 days, pure biodiesel degrades 85 to 88 percent in water. Dextrose (a test sugar used as the positive control when testing biodegradability) degraded at the same rate. Blending biodiesel with diesel fuel accelerates its biodegradability. For example, blends of 20 percent biodiesel and 80 percent diesel fuel degrade twice as fast as #2 diesel alone.

Flash Point The flash point of a fuel is defined as the temperature at which it will ignite when exposed to a spark or flame. Biodiesel’s flash point is over 125° Celsius, well above petroleum based diesel fuel’s flash point of around 58° Celsius. Testing has shown the flash point of biodiesel blends increases as the percentage of biodiesel increases. Therefore, biodiesel and blends of biodiesel with petroleum diesel are safer to store, handle, and use than conventional diesel fuel.

assesses BSE risk through a process called geographical BSE risk (GBR) assessment. Australia gained the highest possible GBR rating — ‘Category 1’— defined as ‘highly unlikely that domestic cattle are (clinically or preclinically) infected with BSE-agent’.

35 Biochemical oxygen demand (BOD), is the amount of oxygen used by micro-organisms in the process of breaking down organic matter in water. The more organic matter there is, the greater the number of microbes. The more microbes there are, the greater the need of oxygen to support them; consequently, less oxygen is available. The BOD is therefore a reliable gauge of the organic pollution of a body of water. One of the main reasons for treating waste water prior to its return to a water resource is to lower its BOD--i.e., reduce its need of oxygen and thereby lessen its demand from the streams or rivers into which it is released. Extracted from Source: Encyclopaedia Britannica (1999 Edition)

36 Source: Biodiesel Association of Australia Inc, website information located at http://www.biodiesel.org.au/



WARRANTY

A comparison of warranties offered is given in Table 8. Warranties are likely to be tied to feed quality.

TABLE 8: WARRANTY COMPARISON

ITEMS WARRANTED BDI Energea Lurgi Plant capacity yes yes t.b.a. Equipment 3 months 12 months t.b.a. Methanol usage yes t.b.a. t.b.a. KOH usage yes t.b.a. t.b.a. H2SO4 usage yes t.b.a. t.b.a. Biodiesel yield yes t.b.a. t.b.a. Glycerine yield yes t.b.a. t.b.a. Biodiesel quality likely - dependent on

feed quality yes – dependent on feed quality

t.b.a.

With regards to the product itself, the Biodiesel Association of Australia Inc. state that Biodiesel enjoys the support of the Fuel Injection Equipment industry as an option to solve the lubricity problem with petrodiesel. Stanadyne Automotive Corp., the leading independent US manufacturer of diesel fuel injection equipment, supports the inclusion of low levels of biodiesel in diesel fuel for two reasons. First, it would eliminate the inherent variability associated with the use of other additives and whether sufficient additive was used to make the fuel fully lubricious. Second, Stanadyne considers biodiesel a fuel or a fuel component not an additive. It is possible to burn pure biodiesel in conventional diesel engines. Thus, if more biodiesel is added than required to increase lubricity, there will not be the adverse consequences that might be seen if other lubricity additives are dosed at too high a level.

Although biodiesel can be used in any diesel engine, among the first to switch to biodiesel include centrally fuelled fleets such as urban buses. In the US, it is now being used in transit bus fleets, heavy-duty truck fleets, airport shuttles, marine, national parks, military and mining operations, as well as other state and federal fleets.



COMPARATIVE REVIEW

TABLE 9: VENDOR COMPARATIVE REVIEW

No Comparative Measure Bio-Diesel International

Energea

COSTING and SUPPLY 1 Budget Price to Vendor (for supplied

equip.) EUR3.516 mill (note*)

EUR4.2 mill

2 Estimated Cost for Entire Plant (est. by vendor)

AUD$14.5 mill AUD$12.3 mill (note **)

3 Warranty after Plant Completion 3 months 12 months4 Delivery of Major Plant Items 7 months 7 months 5 Lead Time for Plant (estimated by

vendor) 14 months 11 months

6 Equipment Supplied Standard DIN/ISO t.b.a. 7 Operation Duration: days per year/hrs 330 days/24hrs 300 days 8 Utilities Required: Steam (saturated) 170oC @ 8 bar

abs 170oC @ 8 bar abs.

9 Water (demineralized) Min 15oC @ 4bar 30oC @ 3 bar 10 Compressed Air 7 bar 8-10 bar 11 Hot Water/Cooling Water 28oC/-5oC @ 4

bar 80oC/30oC

12 Electric 400V/50Hz 400V/50Hz 13 Electric Consumption per 1000kg Bio-

diesel 27 KW 50 KW

Note: * Price detailed does not include the additional distillation option offered by BDI, Equipment supplied by both vendors are not for the same scope of works

** AUD Pricing for Energea has been calculated at the same conversion rate used within the BDI Profitability Model: EUR1.68 = AUD$1

VENDOR PROPOSAL SUMMARY

BDI and Energea Technologies both appear to be suitable, however detailed evaluation is required to determine which is the most suitable. This is only possible after further investigations in information gathering from vendors.

The following are points that should be noted concerning the above proposals:

� The scope of works provided by BDI, although stating clearly what is NOT on offer, does not provide in detail what is actually “on offer” for the purchase price.



� BDI offers an optional “distillation” process that is not detailed within the proposal, with exception to some brief advantages of the process outlined and the mass balance sheet.

� Energea has listed modules that come complete to make-up pipe flanges.

� The additional cost to complete the plant, for both proposals, is likely to be based on a European cost for surplus equipment and construction works, and is in need to be “Australianised”. This costing is listed in the above summary table as item number 2, “Estimated Cost for Entire Plant”. As well as this, the additional costing described will include items such as; large feedstock tank and utilities infrastructure (i.e. steam, hot water, and compressed air), all of which may not be necessary due to the existing AJ Bush plant.

� Neither proposal provides enough detail to form the basis of a commercial proposal.

� To reach a commercial proposal from the prime vendors, a bid document may need to be prepared by AJ Bush, after the completion of the feasibility37.

VENDOR EVALUATION

At this stage it is not possible to carry out a comparable economic evaluation between vendors. This is due to the necessity to differentiate between the two proposals and what additional equipment is required for completion of both plants. However it can be stated that since Energea supplies equipment in complete modules ready for connection to each other to complete the process, of which these modules contain all intermediate pipework and valves necessary for operation. BDI on the other hand has listed valve and piping materials within Section 7.2 of the proposal “Scope of Delivery and Services Supplied by the Customer”. This would explain why the installation time (and hence cost) for BDI is more than Energea.

From a purchase perspective, the Energea modules seem most appropriate as there is a clear definition in scope between what is in, and what is out, of their offer.

The BDI equipment, which require the fabrication of a structural support also may offer advantages such as ease of access for maintenance.

These issues can only be determined following further and more detailed discussions with the vendor.

CAPITAL COST VALIDATION

To validate capital costs a complete list of equipment provided by the suppliers is required. This is ideally requested as part of a P&ID of the entire plant with supplied

37 To obtain capital cost estimates of sufficient accuracy for a final decision on the plant by A J Bush it

may be necessary to bring this step forward

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report MARKET ANALYSIS


equipment colour coded. Only then can a more definitive Australian costing can be performed to determine additional pricing to complete the plant.

OPERATING COST VALIDATION

Operating cost validation requires a detailed understanding of the particular process technology.

The operating cost model contained herein is based on the vendor process data, and includes Australian supply costs.



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This feasibility study follows considerable market research conducted by Gibson Associates in 2002. The information contained in this section, rather than seeking to duplicate information already provided, is an adjunct to that Report and is an update in confirmation of available prospects.

THE MARKET FOR BIO-DIESEL

Identification of markets for bio-diesel have been well established by Gibson38. Bio-diesel is a complete replacement for petroleum based Diesel. It has a huge potential since it runs in Diesel motors without conversion, and can be distributed throughout the current fuel transport and delivery industry.

Suffice to say in that in addition to direct sales, the prospect for its inclusion as an additive is excellent since oil companies will need to meet the Government target level of 2% inclusion in all transport fuels.

This follows similar initiatives instigated in the USA, Europe and elsewhere. In France (a large producer and user of bio-diesel) petroleum diesel is understood to be mixed at the ratio of 5% bio-diesel in every litre of diesel sold.

In the US, beginning in November 1998 with the passage of the federal EPACT amendments which allowed biodiesel greater access to the alternative fuels market, biodiesel has become one of the fastest (if not the fastest) growing alternative fuel in the country. In addition, to being marketed as an alternative fuel technology to meet EPACT requirements, biodiesel has also seen widespread acceptance as a fuel lubricity additive in diesel fuel39. It may be anticipated that a similar experience might result in Australia.

The proposed plant capacity of at least 59.7 million litres of output distillate annually is a tiny fraction of the available market. The actual total output will depend upon process technology utilised, and the conversion rate due to both technology and the quality of raw material used. Eventual output could range up to 20% higher. Whilst discussions held with one oil company to date have provided little encouragement40, there is little doubt that various market sectors are able to be exploited, including:

38 Gibsons Study Report : Bio-Diesel Market Study for AJ Bush & Sons Pty Ltd 39 Source: Biodiesel Association of Australia Inc, website information located at

http://www.biodiesel.org.au/ . The article provided also states that “a total of seven companies in the US have released premium additive packages containing biodiesel, in which biodiesel is a major marketing aspect of the products. In the summer of 1999, Koch - the second largest privately owned company in the US behind Cargill - launched a new premium diesel fuel product, US SoyField Diesel, which is now in over 20 terminals in the midwest and expanding. Also in 1999, Country Energy (the Farmland/Cenex petroleum joint venture) launched SoyMaster, their proprietary premium diesel containing biodiesel in four terminals in the Midwest.”

40 Refer Global Solutions 4’s Progress Report 19 November 2001, whereby it was indicated by Caltex that they see A J Bush (Manufactures) Pty Ltd bio-diesel production project as one being too small for them



• Remote resorts

• Mines (power generation)

• Marine (ports)

• Various Premium Price market niches

• Railways

• Additive to improve lubricity in low Sulphur petrodiesel / meeting 2% Government target level (i.e. mixed by oil companies)

The current A J Bush & Sons (Manufactures) Pty Ltd diesel utilisation is in the order of 540,000 litres annually, which would account for only 0.9% of total expected production.

THE MARKET FOR GLYCERINE

Glycerine – also known as glycerol C3H5(OH)3

Our assumptions at this point are based on 6,120 tonne of Glycerine being sold at an average of $700 / tonne (equating to $4,284,000). This product is therefore an important component of sales income.

This level of production represents a significant proportion of the domestic market and may approach oversupply, although Gibson41 reports that Australian imports approximately 4,754 tonne annually (crude refined, year 2000) where prices of AU$1,191 to AU$1,981 per tonne have been realized. That report states that most natural glycerine used in Australia is imported from Malaysia at US$500 / tonne for crude glycerine (80% glycerine + 20% water), and US$900 / tonne for purified glycerine (99.5% glycerine). The price is understood to be quite volatile with prices in 200 rising to US$800 per tonne.

Glycerine is typically used in the manufacture of hand and body lotions and creams, soaps, and skin care products. There are also a wide range of other uses in the manufacture of food, drugs, surfactants, surface coatings and other products. An ICI company – Uniqema (formerly Unichema International when owned by Unilever Corporation) - located in Melbourne42 is a potential purchaser of significant quantities of glycerine. Uniqema produces a wide range of fatty acids, esters, amides, glycerine and polymerized fatty acids. These are used in the manufacture of hundreds of products from cosmetics to crayons, soaps, textiles, engine oils and rubber tires. Proprietary Uniqema products derived from Glycerine and Triacetin include Pricerine™ and Priacetin™43.

to be concerned with. (Caltex alone have an estimated annual production of 2,007 million litres of diesel (petroleum distillate). The proposed Company plant is approx. 2.97% of this amount)

41 Gibson Consulting: Study Report – Bio-Diesel market Study for A J Bush & Sons Pty Ltd, June 2001. 42 Uniqema was formed in January 1999 with the merger of 5 ICI Group businesses. The company offers a

range of surfactants and oleochemical derivatives 43 PRICERINE™ - is glycerine in several purity grades – it has application as alkyd and polyester coating

resins and for the manufacture of polyether polyols for flexible and rigid polyurethane foams.



The prospect of sourcing export markets is a likely scenario, however A J Bush & Sons (Manufactures) Pty Ltd have been heavily involved in export marketing for other products over many years and their experience in this regard would prove invaluable.

THE MARKET FOR FERTILISER (POTASSIUM SULPHATE)

Solid waste from the process will be sold as fertiliser – probably as potassium sulphate depending on the catalyst used during esterification. This is a minor component of output, both in quantity and dollar terms, i.e. anticipated production of 1,320 tonnes estimated value being $100 per tonne or $132,000 annually.

The three elements that most commonly must be supplied in fertilizers are nitrogen, phosphorus, and potassium. Most inorganic or chemical fertilizers contain the major nutrients (nitrogen, phosphorus, and potassium) in proportions required by the crop.

Typically, potassium-based fertilisers are based on a form of potassium chloride (also known as muriate of potash), however potassium sulphate and potassium nitrate are also used as specialised fertiliser or as additives to other fertilisers. Compositions are depicted in the following table:

Composition of Common Potassium Based Fertilisers and Soil Amendments44

Fertiliser N P K Ca S

Potassium Chloride (muriate) - - 48-50 - - Potassium sulphate - - 40-42 - 16 Potassium Nitrate 13 - 37 - -

Until recently the use of nitrogen and potassium fertilisers was limited largely to sugar cane and horticultural crops. In recent years, nitrogen usage for cereals has exceeded that for sugar cane, and now constitutes about half the total fertiliser-nitrogen demand. The post-war changes in the usage of N, P & K indicate increasing usage of the first and third of these elements, both proportionately and in total terms.

For the purposes of market establishment for this Project, fertiliser would be on sold to existing manufacturers for inclusion in their product lines. There are currently45 a total of 48 Chemical Fertiliser manufacturing establishments in Australia. The industry is in fact dominated by a few very large “players”. Only 5 of these establishments (or a little over 10% of the total number) account for approximately 74% of total industry turnover. Major manufacturers operating in Queensland include Terra Firma, Incitec, Grow Force, Pivot, and Hifert.

44 Extract from Source: Reid, R.L. The Manual of Australian Agriculture (Fifth Edition, 1990), Australian

Institute of Agricultural Science (Butterworths), p. 38 45 Based on latest available industry data - source: A.B.S.

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report EVALUATION OF GOVERNMENT SUBSIDIES


The following table lists the major fertiliser companies operating in Queensland46

representing good potential for forming suitable contractual arrangements for the acquisition of fertiliser.

Company Domicile Major Products 1 Agrichem Manufacturing

Industries Pty Ltd Loganholme NPK's, TE's, Soil

Conditioning 2 Craig Mostyn & Co. Pty Ltd Hemmant Importers of fertilizers,

nutrients, trace elements & associated products

3 Grow Force Australia Ltd Rocklea 4 Incitec Ltd Gibson Island Marketers of Crop King,

Greenleaf, Agchem Fertilizer for Agriculture

5 Summit Fertilizers Pinkenba / Toowoomba

6 Terra Firma Fertilizers Pty Ltd Beaudesert Organic Fertilizers 7 Top Australia - Pivot Eagle Farm Pivot Range of Mineral,

Organic, Soluble & Liquid Fertilizers

46 Primary Source: Yellow Pages, subjected to verification check, plus Consultant’s own sources



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FEDERAL GOVERNMENT CAPITAL SUBSIDY - SCENARIO

At a rebate of 16 cents per litre for a renewable fuel produced is offered for the first 350 million litres produced. A bio-diesel plant producing 60, 000 tonnes/yr (i.e. approx. 60 million litres biodiesel output), evaluates to AUD$9.6 million – the subsidy is capped at $10.0m for each production plant.

The relevant Government announcement is appended to this report – refer “FEDERAL GOVERNMENT SUBSIDY ANNOUNCEMENT”.

FEDERAL GOVERNMENT CAPITAL SUBSIDY - DETAIL

The Federal Government has recently announced a $50 million program to ensure bio-fuels provide 2% of Australia’s transport fuel consumption by the year 2010 (part of the $400 million Greenhouse Gas Abatement Program).

The Government anticipate that at least five new ethanol distilleries are expected to be established under this program – and we need to ensure that the planned AJ Bush facility is one of them.

The announcement promises a capital subsidy of 16 cents for each litre of new or expanded bio-fuel production capacity constructed, which is estimated by government to be the equivalent of a subsidy of about 16% on new plant. However, in this instance the subsidy equates to around 47.76% of plant capital costs. One reason for this is that ethanol distilleries are known to have a higher capital cost input.

The urgency of the matter may be appreciated when considering that the subsidy will be paid until the 350 million litres target is reached, or until June 30 2007, whichever occurs first.

The significance of this is that based on a 60 million litre plant, the subsidy equates to around $10m for AJ Bush, representing a substantial portion of the likely plant cost. However, as noted above the subsidy is time-limited, therefore providing an even greater reason to complete the Feasibility Study and proceed to commissioning at the earliest possible time.

For this reason AJ Bush has contacted the relevant Minister to flag their intentions to ensure their inclusion in the scheme.

EXCISE TAX

The Australian Taxation Office (ATO) has given preliminary advice that biodiesel by itself does not attract excise tax. That is, if the biodiesel is sold in the neat, or 100%



pure form, then no excise tax is payable. However, it would seem that a biodiesel “blend” attracts duty. Unlike ethanol, there is no mention of biodiesel in the Excise Tariff Act.

The omission regarding blending is significant, since it is likely that the industry would start off by blending the limited quantities of biodiesel that would initially be manufactured in Australia. Industry, primarily through the Biodiesel Association of Australia Inc., are proposing that biodiesel be given parity with fuel ethanol in the Excise Tariff Act by way of a simple addition to Section 6G of the Act which states:

6G(1)

“Duty payable under this Act on an excisable blended petroleum product (other than an excisable blended petroleum product referred to in subsection (2)) is worked out using the formula:

[Volume X Blending rate] - Previous paid duties

where:

Volume means the volume of the excisable blended petroleum product.

Blending rate means:

(a) if goods referred to in subitem 11(H) (other than subparagraph11(H)(2)(d) or subitem 11J (other than subparagraph 11(J)(2)(c) of the Schedule are included in the excisable blended petroleum product – the excise duty tax rate that applies to goods classified to subparagraph 11(H)(2)(b); or

(b) if no goods classified to either of those paragraphs is included in the excisable blended petroleum product – the excise duty rate that applies to goods classified to subparagraph 11(C)(2)(a) of the Schedule.

Previously paid duties means the sum of excise duties (if any) already paid on products included in the excisable blended petroleum product under items 2, 11 and 12 of the Schedule worked out in accordance with subsection (4) “

As a consequence it would appear that the ATO is relying upon Section 6G(1)(b) as the authority that a blend of petroleum product with biodiesel should attract duty at the rate of diesel fuel. That is, if neither of those two previous paragraphs applies, then the rate defaults to 11(C)(2)(a) which is the diesel rate of $0.38118 per litre.

6G(2)

“Duty payable under this Act on an excisable blended petroleum product comprising a blend of gasoline classified to subparagraph 11(H)(2)(b) or (c) of the Schedule and of ethanol classified to sub-item 2(R) of the Schedule, with or without other substances, is worked out using the formula:

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report EUROPEAN VISIT TO INVESTIGATE BIO-DIESEL TECHNOLOGY


[Volume of gasoline X Gasoline rate] + [Volume of ethanol X ethanol rate]

where:

Volume of gasoline means the volume of gasoline in the excisable blended petroleum product.

Gasoline rate means the excise duty rate applicable to gasoline classified to subparagraph 11(H)(2)(b) or (c) of the Schedule whichever is appropriate.

Ethanol rate means the excise duty rate applicable to denatured ethanol classified to sub-item 2(R) of the Schedule.” [This schedule states that Denatured ethanol for use as a fuel in internal combustion engines, as prescribed by law – Free]

Accordingly, in the case of ethanol in gasoline, the ethanol proportion is free of excise tax. Industry are keen to ensure that the biodiesel industry should have the same advantage as an alternative fuel.

BOUNTIES

As for the excise tax, ethanol currently has an advantage over biodiesel in that the Bounty (Fuel Ethanol) Act 1994 provides for “the payment of bounty on the production in Australia of certain fuel ethanol to assist the development of a competitive, robust and ecologically sustainable fuel ethanol industry.”

However, the recently announced Federal Government initiative (i.e. ensuring bio-fuels provide 2% of Australia’s transport fuel consumption by the year 2010) - paid until the 350 million litres target is reached or until June 30 2007 (whichever occurs first) - is certainly a good substitute for the Ethanol Act which provides that when a producer reaches a minimum production of bountiful fuel, the producer receives a bounty rate of 18 cents per litre. The Ethanol bounty continues for three years to help subsidise the development of the producer.

In the longer term, and upon conclusion of the biodiesel program in 2007 or earlier, similar legislation as that applying in the case of Ethanol could be reasonably expected, since conceptually there is little difference between developing an ethanol fuel industry or developing a biodiesel industry - both fuels are derived from biomass.



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INTRODUCTION

A study visit was made to three European suppliers of equipment and to one institute providing technology. The entities visited were:

Energia Equipment Suppliers Austrian Bio Fuels institute Technology InstituteBio Diesel Technologies Equipment Suppliers Lurgi Equipment Suppliers

Each of these entities are dealt with in the separate sections of the report.

The other key Austrian supplier of bio diesel equipment is BDI. This company was not visited during the trip because of sensitivities / confidentiality to AJ Bush (Manufactures) Pty Ltd. As a result, AJ Bush (Manufactures) Pty Ltd representatives conducted an investigation of the BDI plants and facilities, and OSD conducted a review of the other companies.

Two suppliers were found to have plants of a size comparable to the study guidelines. One at 60,000 tonnes per annum (Lurgi) in Houston; and one at 40,000 tonnes per annum (Energia) in Austria. A third supplier, Bio Diesel Technologies, has a plant with an 4,000 tonne capacity in Austria. All three plants are about to be commissioned.

In Europe, the economic focus is for production of Bio Diesel from rapeseed vegetable oil (VO), or waste vegetable oil (WVO). However because of the global market requiring tallow as a feed stock, all producers recognise the need to have provisions within their plants to allow tallow as a feed stock. Energia and Bio Diesel Technologies are planning tallow trials.

The new Energia production facility and the Bio Diesel Technologies (BDT) are weeks away from commissioning and are planning a tallow feed demonstration. The Lurgi facility is in Houston and was designed for tallow but have been changed to handle vegetable oils, for Kosher marketing of the products to the pharmaceutical sector.

Lurgi proposed a plant to cost effectively refine glycerine to pharmaceutical grade. They also proposed a winterisation additive to mitigate the effects of the cold filter plugging point of tallow feedstock Biodiesel.

Following the successful commission of the two European supplier’s plants, a detailed process review is recommended to validate the process. Lurgi are dispatching a proposal to OSD with all aspects of their process as well as budget costings.



ENERGIA

Minutes of Meeting

An all day meeting commenced at 09.30am at Energia Vienna Offices on 12th Feb 2002 and was completed following a site visit to their, soon to be commissioned, plant.

Attendees:

Barbara Oman Energia Engineer Nurhan Ergün Energia CEO Herbert Prischink Energia Brian O’Sullivan OSD Energy Services

� Nurham is the CEO and he is an accountant.

� 4 years ago an inventor approached him to provide finance to his continuous flow Bio Diesel process. The company is now part of the larger Donna Wind group

� The Donna Wind group own and operate wind mills for power generation with a revenue of Є4 million/annum

� Barbara Oman is going to email pictures of the plant; the new EU standard; and details of Donna Wind.

� The new plant at Zistersdorf is ≈80% owned by Donna Wind and 20% by Energia which gives Nurham ≈7% (all approximate) – thus, there is no independent owner to validate production issues.

� The Zistersdorf plant only operates on VO and WVO. They advise it can operate on tallow, however this is yet to be proven in practice. Tallow trials are planned for approximately 2 months time after the new plant is commissioned.

� The plant is 40,000t/a and is the largest made by Energia so far.

� This is the plant provisionally ordered by Amadaus in WA, but they are waiting until the tallow trials are completed on the Zistersdorf facility.

� The plant is compact and is housed in a 50mx20m building with shipping size process containers within. Their whole site is approximately 0.5 Ha.

� They have one piece of plant known as a “reactor” which they want kept secret (and do not allow the owner {say AJ Bush (Manufactures) Pty Ltd} to inspect).

� They will offer process guarantees but these are negotiable

� Sulphur levels are higher if the tallow is derived from product containing degraded animal hair



� The plug point of tallow is high and Energia only suggested physical methods of altering this, such as trace letting.

� There is a need for pre treatment of high FFA, WVO and an inlet filter plant.

� A new plant is being designed with one 40ft container (to be installed vertically) with vertical separator columns, as well as two 20 foot containers.

� Tallow requires a pre-esterification phase.

� Their contract Engineers are Austrian Anembrau, previously known as Mannesman (a well respected international engineering group).

� The control system is a Siemens V7 400. Operator interface is screen based and process control is via a mouse.

� A J Bush (Manufactures) Pty Ltd and their consultants will have an opportunity to review design prior to order, to ensure suitability and space for maintenance, etc.

� Their Australian representative would visit the Bromelton plant twice per year to inspect reactors to ensure they have not been opened.

Plant Inspection & Findings

Following the meeting, Energia’s new plant at Zistersdorf was inspected and found to be a high quality installation. Zistersdorf is approximately one hours drive north of Vienna.

The process plant was contained in a separate factory facility. Outside were waste vegetable oils tanks and a separate receivals and dispatch facilities. The Bio-Diesel tanks were located underground at the rear of the facility. The plant was approximately 2 to 4 weeks from commissioning. The facility looks very professional and well engineered.

This plant is an upgrade of a smaller plant which they have commissioned elsewhere in Austria, however they were not open about where this facility was.

The intent of Energia’s development plans are to: • bed down and commission of the plant at Zistersdorf for WVO • do tallow trials and prove equipment • review any modifications that were required, • produce another detailed design for installation of the equipment in 3 shipping

containers. • commence fabrication to meet orders.

Energia advised that 5 companies are ready to place orders for the packaged units, once the Zistersdorf plant is commissioned and proven. Energia estimated that the



plant could be delivered ex-works in six to eight months from the time of a firm order, however this is yet to be demonstrated.

It was confirmed that Amadeus Petroleum of West Australia are intending to purchase one of the Energia plants for their proposed Bio-Diesel facility in West Australia. Media reports have indicated that the Amadeus Petroleum plant would be commissioned by June 2002. However, OSD advise, a more likely scenario would be a plant commissioning by June 2003.

Recent developments (litigation and associated problems with plant commissioning due to a software dispute) with Energia indicate that the above time-frames are likely to be significantly extended.

Modifications proposed for the next generation of Bio-Diesel plants would include a 40 foot container which would be stood upright to provide a more efficient column for the Bio-Diesel. This also has the benefit of reducing the numbers of pumps involved.

The Siemens control system seemed adequate for purpose and easy to use.

Energia’s engineering focus is to provide a fully detail design to fully fabricate the equipment for sale to prospective customers. The interconnecting pipe work would be provided as well based on a agreed plant lay out with the customer.

Further details of Energia’s plant were included in an Attachment to the second Draft Report, along with some photographs of the exterior of the facility taken by OSD. Internal plant photographs were not permitted.

Energia Discussion

If the Energia plant were purchased by AJ Bush (Manufactures) Pty Ltd, then the construction methodology would involve a focus on the storage and handling plant. The process plant would be housed in a suitable factory complex capable of housing the Energia containers.

The design and construction of all ancillary equipment, such as tanks, for the receipt of goods and off-take of Bio-Diesel would be the responsibility of AJ Bush (Manufactures) Pty Ltd.

Energia propose to test the plant on tallow in the next two months.

It is proposed that AJ Bush (Manufactures) Pty Ltd:

� monitor the plant commissioning progress by maintaining contact with Energia. � request Energia to conduct the tallow trials to prove their process. � Monitor events with regards plant commissioning and the status of the

Armadeus (WA) facility



AUSTRIAN BIO FUELS INSTITUTE

Minutes of Meeting

A meeting was held on Monday 11th February 2002, with the Austrian Biofuels Institute where the following information became evident.

Attendees:

Dr Werner Körbitz (WK) Australian Biofuels Institute (ABI) Brian O’Sullivan OSD Energy Services

� The ABI is a private entity which WK coordinates.

� ABI have approximately 40-50 supporting entities which pay a registration fee.

� The intent of ABI is to be a collective for all areas of expertise, from farming through to processors, technologists, and car manufacturers.

� ABI have a facilitation role whereby they draw on their collectives experience to undertake studies, or to lobby groups for the promotion of Bio Diesel.

� They promote a high standard product, and are actively supporting the new European Union standard.

� The ABI has one man – WK - who has a single sublet office in an oil traders company location in central Vienna.

� ABI partially funds WK, and the rest of his revenue is from consulting at “KÖRBITZ Consulting”.

� Discussions were held regarding confidentiality and how WK may assist AJ Bush (Manufactures) Pty Ltd (Manufactures) Pty Ltd, and what conflicts there may be. WK advised that his consulting work always remains confidential, or the fabric of the ABI would not sustain the Institute into the future.

� WK is very interested in providing services to AJB.

� When asked on the type of services he would prefer to provide, it is apparent that he could produce a quality specification and also provide high level planning expertise.

� Feed stocks were discussed at length. Vegetable oil (VO) is widely used.

� Equipment vendors were discussed.

� When it became apparent to him that tallow was the primary source of stock, he advised that the field of suppliers became narrow.



� He advised BDI had the most advanced process for tallow and was ahead in the field. He said that in 6 months or a year, Energea would be in a position to be a competitor.

� We discussed BDI and found that the management did a “Management Buy Out” a few years ago. He advised that the manager’s name was Hammer, but he could not remember his first name. I advised Wilhelm.

� He stated that BDI had made a strategic plan to target rendering plants around the world and to focus on tallow feed stock.

� He advised that there were other suppliers of equipment, but they were not quality focussed (this may be a professional position).

� He advised “not to trust” Dr Konder of E.I.A Warenhandles Gmbh. They are a potential equipment supplier (this comment was found to be out of character).

� He is chairing a workshop at the coming (March) Asia World Bio Diesel Conference in Singapore. I suggested he should consider coming to Australia and inspecting the AJ Bush (Manufactures) Pty Ltd Facility, subject to the owner’s approval.

� I understand he has really only been in a rendering plant once.

� We discussed Mad cow (BSE ) in British tallow, and how conversion to Bio Diesel may have been a solution. He advised that the British tabloids ran a scare campaign that cars would be spreading BSE. This ended the option to create Bio-Diesel from tallow in the UK.

� Pamphlets on vehicles operating on Bio-Diesel were provided by WK.

Findings

The Austrian Bio Fuels Institute is essentially an organisation that is centred around Dr. Werner Korbitz. Dr. Korbitz is engaged by a 35 member industry association. The industry members range from farmers, process technologists to Bio-Diesel manufacturers and other interested parties.

Dr. Korbitz also receives revenue from “Korbitz Consultanting” through which he provides advice to industry and Government on benefits and issues associated with Bio-Diesel production and market developments.

Prior to the meeting there was a perception that the Austrian Bio Fuels Institute would be able to provide engineering advice to AJ Bush (Manufactures) Pty Ltd on contractual and technical issues associated with Bio-Diesel. It became apparent during the course of discussions that the institute is only able to provide that service via pulling together a team of appropriate expertise from within its member base.



Dr Korbitz has been associated with the development of the Bio-Diesel Industry within Austria for over 10 years. It is believed that his key capacity to assist AJ Bush (Manufactures) Pty Ltd is in high level market and technology forecasts and planning for a business case for the establishment of Bio-Diesel Fuels Industry within Australia.

His operation in Vienna is involved in significant interfacing and lobbying which is of limited benefit in Australia. His services may be used to reflect Austrian and German Bio-Diesel issues to the Australian authorities, which may validate the use of Bio-Diesel in the emerging Australian market.

In the relevant Attachment to the second Draft Report, there are details of the Bio-Diesel conference that was recently held in Singapore where Dr. Korbitz is operating a workshop. Other Bio-Diesel publications and news letters were also included.

Austrian Biofuels Institute - Discussion

Dr. Korbitz seems to be an authority on a high level strategic issues of Bio-Diesel but is not involved in Engineering or detailed process evaluation.

He has a passion for Bio-Diesel and may be a suitable resource to utilise for lobbying of Government in Australia or for a technical input into the Australian Standard.

It is recommended that a strategy be developed to include the resources of Dr. Korbitz in the Bromelton development even if only in a small way. The benefit of having him on-side would provide AJ Bush (Manufactures) Pty Ltd (Manufactures) Pty Ltd with availability to European experience and information through the ABI.

BIODIESEL TECHNOLOGIES

Minutes of Meeting

A meeting was held on the 13th February 2002 in Vienna with Bio Diesel Technologies and OSD Energy Services at the offices of WarrenHandles GmbH.

Attendees:

Dr Laszlo Kondor Bio Diesel Technologies Claus Jurgen WarrenHandles GmbH Brian O’Sullivan OSD Energy Services

� Kondor advised that they have an operating plant in Slovakia producing Bio Diesel from Vegetable Oil and Beef tallow.

� Bio Diesel Technologies produce a small scale production plant which has all process equipment within one 20ft container.



� They have 5 contracts in place for containerised units.

� By 21st February they shall have an operating plant 40km south of Vienna producing 500L / hour (4,000 tons per annum) from WVO. The plant is in Burgenland.

� Kondor advised their process is continuous

� They have 3 sized units 200L/hour, 500L/ hour, 1000L/ hour. All units operate on waste vegetable oil, however, can be modified to handle beef tallow. The process produces sludge waste only for land fill, but the quantities were not reviewed in detail by OSD.

� The system has its own integrated control system.

� Tallow operation would require a pre processor to reduce the FFA content.

� The pricing for the 3 different size units are as follows:

� 200L/h 1,600 tons/annum Є75,000 � 500L/h 4,000 tons/annum Є90,000 � 1000L/h 8,000 tons/annum Є127,0 00

� Jurgen advised that subsidies are paid to primary producers if 10% of their land is left fallow. However, the 10% can be used for technology based development, such as the production of rape seed for Bio-Diesel.

� Rape seed normally produce around 3t/hectare for human consumption. There are new varieties for non human consumption which produces 6t/hectare, which is still appropriate for the use of Bio Diesel.

� Rape seed oil is approximately Є0.35/L

� Diesel at the filling station is around Є0.72L

� Tax is approximately is 40% of gross distillate cost.

� Bio-Diesel is exempt of tax.

� Trading price (wholesale) Ex-works for Bio-Diesel is approximately Є0.50/L.

� Methanol in Europe is approximately Є300/t.

� European Government targets are for 3.5% Bio Diesel content on all fuel used by 2005; 20% by 2020.

� Beef tallow is not used in Europe because it is too highly priced. Also there have been issues with British tallow because of the BCE campaign and a public perception that BCE would be spread through car exhaust



Findings

BioDiesel Technologies existing plant is 6000t/annum, which is significantly less than the AJ Bush (Manufactures) Pty Ltd target 50,000t/annum (since revised to 60,000 t p.a.). The plant was not inspected, as it is in Slovakia.

Bio-Diesel Technologies are proposing to commission a plant 40km south of Vienna in approximately 3 weeks. They have invited AJ Bush (Manufactures) Pty Ltd to inspect the plant post commissioning. The plant shall be operating on waste vegetable oil and rape seed. They have advised that the plant is suitable for beef tallow, providing a pre treatment plant is installed.

Bio-Diesel Technologies have also advised they would operate their plant on beef tallow to validate the process capabilities of their plant. If AJ Bush (Manufactures) Pty Ltd expressed interest they would run a demonstration during an AJ Bush (Manufactures) Pty Ltd plant visit.

The plant of Bio Diesel Technologies is a continuous process and, it was gleaned that it does not have the complexity of the Energia plant. From discussions and review of technical information and of their facilities, there is also a higher waste and less efficiency associated with the process.

Detailed process discussions were not possible since the technical director was not available at the time.

The option of a smaller plant should not be dismissed immediately, and it may provide an appropriate stepping stone for AJ Bush (Manufactures) Pty Ltd to produce Bio-Diesel in smaller quantities to allow an appropriate testing and evaluation of the market prior to commitment to a large more automated facility.

Information provided by Bio-Diesel Technologies have been included in the relevant Attachment to the second Draft report, along with other data they supplied.

Their plant is also supplied in a single 20 foot container which includes mixing tanks, pumps, and trans-esterification plant.

Bio-Diesel Technologies Discussion

It is recommended that discussions with Bio-Diesel Technologies are continued, whilst the marketing and development plan of AJ Bush (Manufactures) Pty Ltd are confirmed. This is to facilitate any considerations relating to the strategic options pertaining to a smaller plant.

If an inspection is planned for the operation of the Energia plant on tallow, this could be timed to occur at the same time as the Bio Diesel Technologies tallow demonstration.



Further process evaluation of this option is required to determine the quality and quantity of wastes, Australian standard conformance, and general process capability. This is not recommended to occur unless the small style plant becomes a possibility.

LURGI

Minutes of Meeting

A five hour meeting was held with Lurgi at Oberusel outside Frankfurt on 7th

February 2002.

Attendees:

Holgar Kirsthbaun Lurgi (Marketing with Australian const’r experience) Gunter Brauner Lurgi (Senior Process Engineer) Martin Clever Lurgi (Senior Process Engineer) Brian O’Sullivan OSD Energy Services

� Lurgi confirmed that they had an interest in providing a turn key plant to AJ Bush (Manufactures) Pty Ltd, and are preparing a budget quotation for a 50,000t/annum plant based on the information provided in the enquiry facsimile to Lurgi Australia in November 2001.

� They were unable to explain why there were issues with the Australian Lurgi group’s lack of responsiveness, but it would be looked into.

� Lurgi have a 60,000t/annum plant in Houston which was originally designed for beef tallow but is now processing VO and WVO. The output of the plant is not BioDiesel, but fatty acids and glycerine for sale to the pharmaceutical sector and other soap manufacturers. Lurgi advised that minimal change is required to produce BioDiesel.

� The plant was converted away from tallow because of the requirement to have “Kosher” products for the Jewish market influence.

� The plant in Houston requires simple modification to actually produce Bio Diesel.

� Lurgi have a plant design capable of refining the bi-product, glycerine, to pharmaceutical standard product which significantly increases the sale price.

� 80% pure Glycerine is valued in Germany at approximately Є300 whereas 99% pharmaceutical grade attracts values of Є1000 / tonne.

� The plant has a pre-esterification process for reducing the fatty acid to less than 0.1%. This is the process used for the treatment of tallow or higher fatty acid waste vegetable oil.



� Ethanol versus methanol was discussed. Their process is based on methanol, and would require some re-engineering and validation tests to ensure that it could operate on ethanol.

� Lurgi proposed to inject additives for winterisation of the Bio Diesel to reduce the cold filter plugging point (this is likely to cost between Є0.5c to Є1.0c/ Litre).

� Lurgi would fabricate the vessels in Germany, and rely on a local mechanical / electrical / civil fabrication and installation contractor in Australia.

� The plant commissioning would be approximately 18 months after placement of an order.

� Lurgi intend to provide the full interim proposal in 2-3 weeks.

� Lurgi and OSD Energy Services reviewed all process, site, and standards issues associated with the Bromelton Site.

� Lurgi provided a Brochure information on their facilities.

� For each plant they design they produce a model. A picture of the model of the Houston plant was provided ( It is included in the relevant Attachment to this Report).

� The Houston plant is not contained in a plant room, and is open air.

Findings

Contact with Lurgi in Australia in November 2001 proved unsuccessful for reasons yet to be determined. However it is clear there was a lack of communication between the technological group of Lurgi Australia, and Lurgi Frankfurt.

OSD Energy Services investigations of the Lurgi organisation of Frankfurt led to the meeting with the appropriate head of department and senior process engineers to discuss Lurgi’s technological capability to undertake the Bio-Diesel plant for AJ Bush (Manufactures) Pty Ltd.

Lurgi indicated that they are very keen to provide a facility for AJ Bush (Manufactures) Pty Ltd requirements and it is clear that they have the capability to provide a complete turnkey solution for all aspects of the proposed AJ Bush (Manufactures) Pty Ltd plant.

A key recommendation provided by Lurgi was for the installation of a glycerine refining process unit which would addend to the principal Bio-Diesel facility. This would provide the capability to upgrade the glycerine from a low value product to a high value product, for use in pharmaceutical products. Only Lurgi has proposed this type of technology to provide a value adding capability for the glycerine.



A second proposal by Lurgi was for the injection of winterisation chemicals into the tallow derivative Bio-Diesel to counter the effects of the cold filter plugging point.

Lurgi has not responded to any of the process requests for information or pricing information prior to the meeting in Frankfurt. These issues were discussed in the meeting and they have committed to provide a proposal to AJ Bush (Manufactures) Pty Ltd within 2-3 weeks including a budget price and full details of their offer for a turnkey Bio-Diesel plant at Bromelton.

Detailed discussions occurred regarding the Bromelton site with respect to the location and siting of the plant. It is expected that the proposal should be a quality document. From the meeting, some of the key items to be included in the report are:

� Budget costs ( the glycerine process costs would be separated out), � Schedule, � Standards, � Process description and process flow diagrams, � Site layout, � Details of Turn-Key proposal issues, � Process Guarantee details.

Lurgi Discussion

In conclusion, Lurgi have the process technology in house to devise a turnkey solution for AJ Bush (Manufactures) Pty Ltd. This clearly has a number of significant advantages however, the principal disadvantage is that its likely to cost significantly more than plants provided by other potential contenders namely, Energia. Such a determination can only be made once the bid arrives.

The key benefits of a process solution by Lurgi is that they have a significant financial balance sheet behind their company, and thus are able to offer process guarantees to ensure that their process is adequately commissioned and operating to specifications.

Documentation received from Lurgi is contained in an Attachment to the second Draft Report.

BIODIESEL INTERNATIONAL (BDI)

The following information has been provided by the Manager of the AJ Bush (Manufactures) Pty Ltd Bromelton facility (Mr David Kassulke), whom was able to visit BDI and their facilities (as Directed by the Company, the Consultants were unable to visit here due to BDI’s concerns with confidentiality):

Summary

Production of Biodiesel is now a viable option for Tallow, Waste Cooking Oils and Vegetable Oils. However, the technical skills necessary to do so must not be



underestimated. Marketing of Biodiesel and associated by-products also present a challenge.

BioDiesel International (BDI):

Basis: 50,000 tonnes / annum Feedstock: 0 to 20 % Free Fatty Acid

• Moisture Max 0. 5 % • Impurities Max 0.2 % • Unsapon's Max 1.3 %

Glycerine binds fatty acids - No glycerine in Free Fatty Acids

So that High % FFA Feedstock yields more biodiesel and less glycerine. And Low % FFA Feedstock yields less biodiesel and more glycerine.

Glycerine quality best from 70 to 80 percent pure. Low sulphur standards will require reduction to 10 ppm; Ash 40/o.

Use Methanol - light alcohol Petroleum, produce Biodiesel to DIN standard If use Ethanol, then make Biodiesel to ASTM standard but have 2 problems:

1. Ethanol is more expensive than Methanol; 2. No ethyl ester standards exist yet, cost to retest all spec's prohibitive

Both DIN and ASTM are same for Fuel use (i.e. OK)

The Trip

Much travel on a tight time schedule was necessary to fully appreciate issue's with the two principal suppliers identified as being technically proficient to provide a Biodiesel production facility.

Departed Brisbane on Saturday, 9th February for Singapore then onto Frankfurt. Arrived Frankfurt Sunday morning, stayed overnight and then caught a flight from Frankfurt to Graz, Austria the next morning. Was met at Graz Airport by Wilhelm Hammer of BDI and went to their Office. Went through their proposal to supply a Biodiesel plant That afternoon went with Helmut Gossler to see Gerhad Maitz of M&R, who supply the electrical design and PLC control for all BDI plants. As they have done this for many years (and BDI Biodiesel plants) now they have much expertise in supplying these services.

Following day went with Edgar Ahn of BDI to see Thomas Hilber of the Technical University of Graz. Here the original Biodiesel pilot plant was developed. The TUG facility is also involved with the design and emission testing of diesel engines. So the two projects served to support the other. BDI still use TUG for the evaluation of Biodiesel feedstocks and process methods. BDI also actively recruit graduates from TUG, and have up to 6 out in the field who are involved in the design and commissioning of new biodiesel plants for BDI. BDI also keep TUG on a retainer for



all their laboratory testing requirements. BDI and TUG are very close, with TUG effectively serving as the BDI Research and Development Centre, as well as identifying suitable graduates who become BDI staff. Returned to BDI office to continue to discuss their proposal. (This work might have yielded more benefit ff it had followed on from the visits to the BDI Biodiesel plants).

Departed Graz on Wednesday with a 6 am flight to Munich, with then another flight onto Berlin. Helmut Gossler accompanied me which made travel easy as he did all the driving. Arrived at Saria Bio-Industries Mulching plant around 11.30 am and met Klemens Rethmann. Malchin comprises a rendering plant approx 3 years old, along with the BDI supplied Biodiesel plant which was opened last October. Rendering issue's at Malchin:

German Government Treatment of BSE Issues

By-products are kept separated into low-risk and high-risk (specified risk) materials. Specified risk materials are spinal columns and also include all fallen / dead stock. Note that all fallen stock are tested for BSE. Keep rigorous testing in place -and the Govt are certain to identify some possible risk. I suggested that it was in his interest that the testing continues to find BSE. BSE = Bloody stupid Europeans - but has proved a huge boost for his waste disposal business. Saria operate approx. 30 rendering plants in Europe. They say in stage one they will convert and use Biodiesel in approx 800 of their 4,000 trucks. Malchin plant has separate process areas and process lines - duplication is the order of the day. Even the plant control room has another room so that it may accommodate a separate control room should that be deemed necessary - and ff the Govt is willing to pay for that privilege, no doubt!

Specified risk material is processed through a high temperature process, then meal is put through an expellor press. The Meal cake is trucked off to power stations and cement plants to be burnt for destruction. Tallow is used to fire the Boilers. Low risk materials are kept separate for processing in a specified line by means of high temperature, and expellor press cake is also incinerated to destroy it. Tallow from low risk material is utilised in the Biodiesel plant. Saria expect that all Tallow will soon be excluded from animal feed ingredients so it is timely to have alternate means of disposal, which they manage by firing their boilers and make biodiesel with the rest.

As stated, by-products are kept separate and trucked and processed separately but the meal is all destined for incineration to destroy it. So Saria could collect 2 one-half loads, then treat in this manner whereby all Meal product is destroyed anyway. No internal walls separate these process lines at the Malchin plant. Why keep separate ? Forget reality, this is Europe, and if the Govt requires action, Govt will pay all the costs.

Saria-Rethmann also collect and process restaurant scraps, this being mainly vegetable off-cuts that were formerly fed to stock. With the perceived risk of swine fever the Govt has this material collected. Saria use wheelie bins for this purpose. At the plant they are manually unloaded, and the restaurant scraps is heat sterilized -



and the dried scraps are fed to stock This restaurant collection is paid on a 50 / 50 basis by the Govt and the waste generator.

Former East Germany — Government Assistance Issues

Following “removal of the former internal boundary” that is the Iron Curtain, the West German Govt was keen to try and attract development within what had been East Germany. They offered a 40 percent reimbursement of all construction projects undertaken in East Germany. Plus an annual depreciation rate of 50 percent could also be applied to such Projects. Most residents of West Germany took this golden opportunity to build anything as long as it was in East Germany. Many new buildings went up, but remain vacant to this day. Saria took the opportunity to build the new rendering plant on this basis, and if you were also going to build a Biodiesel plant under those terms of course it would be built in the former East Germany.

The Malchin Plant

The Malchin plant is maintained in very good order. Cookers used there are rotadisc copies made by a German company called T.U.G.. Klemens mentioned that Rene Madelaire of Atlas Stord sent his regards. He said Rene now had the difficult assignment of making the workshops used by Atlas Stord cost competitive so had to go over all the specifications to see where they could cut costs to be competitive.

Was impressed by the BDI Biodiesel plant at Malchin. Plant was not operational when I was present, but I did see the semi-solid fertilizer which is the catalyst removed from the fuel. This had a caramel smell. In the Biodiesel plant itself there was a very odour - like ammonia and vinegar all at once. It did not concern them at all, they may be used to the smell which may have been from the methanol used to produce Biodiesel. Also was shown through all the PLC control screens located in the plant control room.

Also impressed by the team of field engineers that BDI have in place. BDI supply approx 20 folders for each of their plants covering all technical details and environmental compliances, workplace health and safety requirements and quality requirements. Very high standard. This had not been evident to me from our limited contact with BDI when they visited us here in Australia. Their field personnel are all graduates of the Technical University of Graz where, as students they had worked on the biodiesel pilot plant and laboratory analysis of this fuel.

Obtained 2 brochures from Saria Rethmann re Malchin plant which I will copy to you. Also asked and permitted to arrange future trip to this site per BDI. If we decide that Australian Govt representatives are to be included then the relevant German Govt representatives in the Malchin area would be enlisted to meet and discuss Biodiesel project - that is give their impressions of it to the Australians. Note that Saria have an alliance in place with TME, Niederpollittzto source biodiesel made from virgin Rapeseed oil to help offset difficulty CFPP - Cloud factor pour point characteristics of Biodiesel made solely from animal tallow.



Conclusions

My principle reservations would be attaining the standards and the safe operation of a Biodiesel plant 24 hours daily for 7 days per week. It is a complex plant - made easier by the PLC system - but is still a risk element in normal operation. If our plant were to attract substantial Federal funding then would be inclined to give it a go. Would appear that BDI are clear leaders having numerous reference plants. As stated earlier I had definitely under-estimated their ability and capability in the practical process for the production of Biodiesel fuel.

This trip establishes BDI to be worthy of our active consideration if we elect to proceed with a Biodiesel plant.

Left Malchin plant and drove back via Berlin airport to retrieve lost baggage, then a further 200 kms by car to the vicinity of the Niederpollnitzto plant. TME is a very large company with massive storage capacity for Rapeseed grown in the area. Approx 2 weeks out from commissioning a 4 level BDI Biodiesel plant with capacity to produce 50,000 tonnes / annum. BDI were again impressive. No strange ammonia odours here as plant not yet running. In this plant a vacuum dryer installed to dry out spent catalyst for fertiliser use. TME were already using Biodiesel produced elsewhere. Annual German production capacity for Biodiesel now stands at approx 800,000 tonnes.

From TME Niederpollnitz returned to Liepzig. Helmut Gossler flew out that afternoon for Graz, I stayed overnight to catch a flight to Frankfurt on Friday morning, connecting with the flight to Toronto.

Arrived Toronto Friday evening.

CONCLUSION AND RECOMMENDATIONS

Suitable technology exists for Bio-Diesel requirements for AJ Bush (Manufactures) Pty Ltd at Bromelton. The European visit investigated companies plants of the following capacities:

� Bio-Diesel Technologies Group (8,000t/annum plant) � Energia (40,000t/annum plant) � Lurgi (60,000t/annum plant) � BDI (on the basis of 50,000 t plant – refer David Kassulke’s report)

Each of the processes and companies have sensitivities associated with them, and the selection of the plant is reflective of the level of market risk that AJ Bush (Manufactures) Pty Ltd are prepared to consider for the offtake of Bio-Diesel into the Australian market.

Subject to considerations relating to BDI, it is likely that the Energia plant will prove to be the most cost effective and would require AJ Bush (Manufactures) Pty Ltd to be

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report SALES ESTIMATES, FINANCIAL PLANNING & ANALYSIS


responsible for conducting the engineering and construction of the ancillary plant around the process units.

The turnkey approach by Lurgi, is likely to be a high cost solution with the benefit of their high value balance sheet and capability to support any process guarantees.

It is recommended that:

• A detailed evaluation of the Lurgi proposal is undertaken when the bid is received.

• The offer by the Energia group to undertake an operating review of their plant at Zistersdorf be accepted at a time when it is operating on tallow.

• Following the successful commission of the two European supplier’s plants, a detailed process review is recommended to validate the process.

• The Bio Diesel Technologies plant near Vienna be inspected when it is operating on tallow, if this small scale option becomes a possibility for AJ Bush (Manufactures) Pty Ltd.



111222... SSSAAALLLEEESSS EEESSSTTTIIIMMMAAATTTEEESSS,,, FFFIIINNNAAANNNCCCIIIAAALLL PPPLLLAAANNNNNNIIINNNGGG &&& AAANNNAAALLLYYYSSSIIISSS

PROJECT VIABILITY — OVERVIEW OF THE FINANCIAL “BASE” MODEL OUTCOMES

The Base Model scenario in created for the Project establishes strong viability for the establishment of a biodiesel plant at the AJ Bush Bromelton facility. The following data provides a summary of the key outcomes:

1. Plant size - 60,000 tonne p.a. 47 (raw material input48).

2. Annual output (at full production levels) of: o 59.7m litres of biodiesel o 6.12m kilograms of crude glycerine o 1,320 tonnes of fertiliser (potassium sulphate)

3. Gross annual sales turnover of $47.443m, with the majority of this income derived from biodiesel fuel ($43.027m) assuming the “base model” sale prices can be achieved, which include $0.72 / litre for biodiesel

4. The Project is capable of an IRR (Internal rate of Return) of 76.65%.49

5. Net Profit p.a. Before Interest & Tax (EBIT) of $12,158,817 Year-In-Year-Out.

The Financial Model suggests that the cash at bank in Year 9 will be $57,974,424, with a 9 Years total Operating Profit After Interest & Tax of $52,964,248. Performance can also be measured by the following outcomes:

• Net Income (Cash Flow) Year-In-Year-Out $8,887,356

• Net Profit After Interest Before Tax (Year-In-Year-Out) $12,158,817

• Net Profit After Interest & Tax (Year-In-Year-Out) $7,903,231

The total capital requirement for the plant is $21.307m, of which $20.0m is the estimated cost of the building, plant, machinery and equipment and associated ancillaries. The land is assumed to be available to the Project at zero cost. The balance of $1.307m is required for working capital.

The above capital requirement would be offset by a Federal Government Subsidy of $9.552m which is based on a grant of $0.16 per litre biodiesel output. Whilst this subsidy is not “make-or-break” for the Project, it does nevertheless considerably

47 51,000 tonnes p.a. of tallow (25,000 tonnes of which will be sourced from AJ Bush’s rendering facility) at

an average cost of $457.65 / tonne (or $23.34m annually), plus 9,000 tonnes p.a. of Waste Cooking Oil (WCO), to be acquired net on site for $350 / tonne (or $3.15m annually)

48 Other major inputs include 6.48m kg p.a. of methanol ($4.374m), 0.9m kg p.a. pf KOH (potassium hydroxide) @ $1.08m annually, and 780,000 kg p.a. of sulphuric acid @ $0.195m annually. The process also requires 1.44m litres of water, however output includes 2.5m of “waste” water.

49 Without the government subsidy, the IRR reduces to 37.66%, however long term annual trading profitability is unaffected since the additional interest component is paid off in the early years of the Project.



mitigate financial risk and improves overall return ensuring the Project is very likely to succeed. The net amount of capital to be sourced by the Project’s proponents is therefore $11.755m.

MAJOR ASSUMPTIONS

Major assumptions used in the Financial Model (“Base Case”) are summarised as follows:

Primary Variables

Commencement Date: 01-Jul-2002Period of Project forecast 108 months (9 Years) Final month of cash flow Jun-2011Cash at Bank (opening) $0Working Capital (initial provision) $0Overdraft Interest Rate p.a. 8.00% per annum Bank Loan Interest Rate p.a. 8.50% per annum (none proposed) Hire Purchase Interest rate p.a. 14.00% per annum (none proposed) Leasing Interest Rate p.a. 12.00% per annum Company Tax rate: 35.00% (est. long term rate) Carry Forward Tax Losses at Commencement

$0

Average depreciation rate 10.00% per annum Net Impact of GST on cash flow nil (assume monthly payments: paid = payable) Currency Rates

$1.00 AU = 0.63 Europe Euro $1.00 AU = 0.55 USA Dollar $1.00 AU = 1.25 Germany Deutsche Marks $1.00 AU = 9.08 Austria Schilling

Opening Capital Value $0

Plant Capital Cost $14,500,000 Base Plant & Equipment $5,500,000 Cost of associated plant, tanks and equipment

$20,000,000 Cost of Building, Plant & Equipment $0 Cost of Land

$20,000,000 Total Capital Cost Plant Construction Period 12 months Plant Construction Commencement

16 weeks from commencement = 21-Oct-2002

Plant capacity (Inputs) 60,000 tonnes per annum GRANT (Fed Gov't subsidy) $0.16 per litre - Assume payment made at time of

constructionGRANT (Fed Gov't subsidy) = $10,000,000 MAXIMUM ALLOWABLE CLAIM GRANT (Fed Gov't subsidy) therefore

$9,552,000 Total Value, equal to 47.76% of total Capital cost

INPUTS50

Feedstock 60,000 tonnes per annum (total): Tallow 85.00% of Raw material total = 51,000 tonnes per

annum 50 Note: Inputs / Output quantities based on BDI Mass Balance Data



Waste Cooking Oil (WCO) 15.00% of Raw material total = 9,000 tonnes per annum

Vegetable Oils 0.00% of Raw material total = 0 tonnes per annum

Max. tallow provided by AJ Bush =

25,000 tonnes per annum, or 2,083 tonnes per month

Other Inputs Recovery RatesMethanol 10.80% per Kg Raw Material Input = 6,480,000 Kg p.a.

at full production -99.90% purity KOH (Potassium Hydroxide) 1.50% per Kg Raw Material Input 900,000 Kg p.a. at

full production - 91.00% purity Sulphuric Acid (H2S04) 1.30% per Kg Raw Material Input = 780,000 Kg p.a.

at full production - 96.00% purity Water 2.40% per Kg Raw Material Input = 1,440,000 Kg p.a.

at full production

Raw Material CostsTallow $450.00 per tonne (AJ Bush) Tallow $465.00 per tonne (Other) incl. Freight = $15.00 per

tonne Tallow (average cost) $457.65

Waste Cooking Oil (WCO) $350.00 per tonne Other Oils / Fats $1,000.00 per tonne (Sunflower Oil, Palm Oil, equivalent)

Methanol $180.00 per 200 litre drum = $0.68 per Kg, based on 0.75 Kg = 1 Litre methanol

KOH $1.20 per Kg Sulphuric Acid $0.25 per Kg

Water $0.2000 per Kg

OUTPUTS Conversion Factors

BioDiesel 100.0000% per Kg Raw Material Input Glycerine 10.2000% per Kg Raw Material Input (min. 80% purity

depends on FFA) Fertiliser 2.2000% per Kg Raw Material Input

Water 4.2000% per Kg Raw Material Input

Quantities (annual @ full production) BioDiesel Fuel51 59,700,000 litres, with 540,000 Litres utilised by AJ Bush =

0.90% of the Total Crude Glycerine 6,120,000 Kilograms

Fertiliser (Potassium Sulphate) 1,320 Tonnes Waste Water 2,520,000 Litres (Kg)

PricesBioDiesel Fuel $0.7200 Per litre (wholesale price)

BioDiesel Fuel (sold to AJ Bush) $0.8000 Per litre - Wholesale price +11.1100% Crude Glycerine $0.70 Per Kilogram

Fertiliser (Potassium Sulphate) $100.00 Per Tonne Waste Water $0.00 Per MgL

51 Assume 0.9950 Kg Biodiesel = 1 Litre



Utility Costs

Quantities Required at full production

Per 1,000 Kg

Full Production Quantity

Nitrogen $0.40 per Mm3 10.00 600 Nm3 Electrical Energy $0.07 per KWh 160.00 9,600 KWh Fuel Oil Light $0.55 per Kg 1.00 60 Kg

Cooling Energy52 $0.07 per KWh 0.00 0 KWh

Operational Expenses

Accounting / Audit Fees 0.0750% of Gross Receipts Bank Charges 0.0250% of Gross Receipts Entertainment 0.0150% of Gross Revenues Fuel & Oil 0.0250% of Gross Revenues (non operational, vehicles, etc.)Hire of Plant and Equipment 0.0000% of Gross Turnover Insurance 0.7500% of Capital Value (Fixed Assets) Legal Expenses 0.0125% of Gross Revenues Licences Fees Permits Subs $5,000 per annum Motor Vehicle Expenses 0.0250% of Gross Revenues Postage 0.0088% of Gross Revenues Consultants 0.4000% of Gross Receipts Marketing / Promotion / Advertising 0.1000% of Gross Revenues, plus initial provision of $12,000 Research & Development 1.0000% of Gross Turnover Conferences/Seminars 0.7500% of Gross Salaries & Wages costs Professional Development 1.0000% of Gross Salaries & Wages costs Freight 0.0313% of Gross Revenues Printing & Stationery 0.0333% of Gross Revenues, plus initial provision of $15,000 Salaries see tableSuperannuation 12.00% of Gross Salaries & Wages costs Workers Compensation 2.50% of Gross Salaries & Wages costs Employment Recruitment $1,750 one off fee at start of Project Rates 0.2500% of Capital Value (Fixed Assets), paid quarterly Security 0.0200% of Capital Value (Fixed Assets) Repairs and Maintenance 5.0000% of Capital Value (Fixed Assets) Computer Expenses 0.0250% of Gross Revenues Telephone 0.0500% of Gross Revenues Travelling & Accommodation 0.0625% of Gross Revenues Sponsorships 0.0200% of Gross Revenues Sundry & Miscellaneous 0.1250% of Gross Revenues (includes contingencies) HIRE PURCHASE noneLEASING see tableLOAN REPAYMENTS noneCAPITAL EXPENDITURE (Plant) see separate schedule CAPITAL EXPENDITURE (Other) none

52 Note: energy for cooling incl. in electrical energy



Salaries

Position Annual Salary

No. people

Total Annual Salary

Employed from

Cash Flow Month

commences

Production Manager 60,000 1 $60,000 01-Jul-2002 1 Laboratory Assistant 50,000 1 $50,000 21-Oct-2003 16 Administration Assistant / Bookkeeper 40,000 1 $40,000 21-Oct-2003 16 Shift Workers 35,000 5 $175,000 18-Nov-2003 17

Totals 8 $325,000

Leasing53

Item Value $ Period

mths

Date Residual Amount to finance

Monthly Repay-ment

amount $

Cash Flow Month

commences

Computer #1 10,000 36 21-Oct-2002 0.00% $10,000 332 4 Motor Vehicle #1 (Sedan) 45,000 48 01-Jul-2002 25.00% $33,750 889 1 Motor Vehicle #2 (Utility) 32,000 48 18-Nov-2003 25.00% $24,000 632 17 Computer #2 10,000 36 21-Oct-2003 0.00% $10,000 332 16

$97,000 $77,750 $2,185

Production Scheduling & Production Output

Completion of Plant due: 21-Oct-2003 Full Production (Annual Outputs) BioDiesel Fuel 59,700,000 litres Crude Glycerine 6,120,000 Kilograms Fertiliser (Potassium Sulphate) 1,320 Tonnes Waste Water 2,520,000 Litres

Completion

Plant Commissioning / testing (zero production)

4 Weeks 18-Nov-2003

Production Commences, therefore 18-Nov-2003 Period to full Production 25 Weeks 11-May-2004 Total "Ramp Up" Period 29 Weeks

CAPITAL INVESTMENT REQUIREMENTS

Capital Funding Requirement Summary

53 assume all are ongoing commitments with replacement due at end of period



The net funding requirement for AJ Bush (Manufactures Pty Ltd is $11.755m, including $1.307m for working capital. The balance ($9.552m) would be provided by the $0.16 / litre Federal Government capital subsidy.

This information is summarised in the table below:

Total Capital Costs (Land, Plant & Equipment) $ 20,000,000Working Capital (Operational Expenses) 1,307,454Total Capital Requirement $ 21,307,454Less Federal Government Subsidy 9,552,000Net Capital Funding Requirement $ 11,755,454

The above scenario assumes that the federal government subsidy will be paid in line with, and pro-rata to, progress payments for buildings, plant and equipment. Any departure from this assumption will mean increased capital funding requirement by virtue of timing differences and increased interest costs.

The Consultants have conducted extensive investigations into the proposed arrangements for the subsidy funding, which have not, as at date of writing, been finalised. This has included an analysis of authorised media statements54 and newspaper clippings, along with direct contact with the bureaucrats / parliamentarians concerned.

The Company will need to monitor for the issuing of formal policy guidelines to ensure that the above assumptions remain valid to ensure that sufficient capital is raised for the Project as currently proposed.

Capital - Plant Construction Contract Progress Payments

Plant Construction period = 12 months Plant Construction Commencement = 16 weeks from Project commencement

%Completed

Commencement

(month)

Completion Payment Cash Flow

MonthStage Deposit 5.00% 0 21-Oct-2002 $1,000,000 4

1 Base Stage 10.00% 2 14-Dec-2002 $2,000,000 5 2 Frame Stage 15.00% 4 07-Feb-2003 $3,000,000 7 3 Lock Up Stage 35.00% 8 15-Jun-2003 $7,000,000 11 4 Precomm Stage 20.00% 10 27-Aug-2003 $4,000,000 14 5 Practical Completion 15.00% 12 21-Oct-2003 $3,000,000 16

Total (Buildings Plant & Equipment)

100.00% $20,000,000

PLUS Cost of Land - to be purchased (months after commencement) =

1 31-Jul-2002 $0 1

54 Refer Appendix to this Report “FEDERAL GOVERNMENT SUBSIDY ANNOUNCEMENT”



Total CAPITAL COST $20,000,000

EQUITY

For the purpose of this Report, it is assumed that the Project will operate as a 100% owned subsidiary of AJ Bush (Manufactures) Pty Ltd, with no outside equity contribution.

PROFIT & LOSS / CASH FLOW STATEMENTS

A nine year monthly cash flow budget and associated Profit & Loss Statements have been calculated for the Project, and are a fundamental component of the Financial Model produced for viability testing.

The results of the Financial Model (“Base Scenario Model”) are attached to this Report with the major output provided as follows:

1. FINANCIAL MODEL – SUMMARY DATA

This provides a one page summary of the major assumptions used in the financial model (inputs and outputs), in addition to “bottom line” profitability for the Project overall and IRR calculation.

2. FINANCIAL MODEL – YEARLY CASH FLOW / PROFIT & LOSS STATEMENT SUMMARY

This is a one page summary of income and expenses, net income, and closing bank balances for each of the nine years.

3. FINANCIAL MODEL – MONTHLY CASH FLOW / PROFIT & LOSS STATEMENTS (9 YEARS)

This contains 18 pages representing monthly income and expenses, net income, and closing bank balances for every month over the nine year period analysed.

4. FINANCIAL MODEL – BALANCE SHEET SCHEDULE & FINANCIAL RATIOS

This is a year-by-year summary of each of the following:

• Balance Sheet (Assets, Liabilities, Equity) for each of the nine years

• Trading Results (Sales, Gross Profit, EBIT, Operating Profit etc) for each of the none years

• Financial Ratios for Profitability, Capital Structure / Debt Servicing and Liquidity, for each of the nine years.

An overview of the above is contained in a later sub-section in this section of the Report entitled “BASE MODEL – PRIMARY FINANCIAL & PRODUCTION INDICATORS”. This provides an overview of:



• Nine Year Forecast Trading Summary & IRR Overview • Forecast Closing Bank Balance • Forecast Monthly Production Output – Biodiesel • Forecast Annual Production Output – Biodiesel • Forecast Annual Production Output – Glycerine & Fertiliser • Forecast Trading Results – 9 Year Projection • Forecast Summary Trading Results – 9 Year Projection

BALANCE SHEET ANALYSIS

General

• In the process of assessing the financial strength of an organisation, there are typically many calculations (primarily, ratios) used by lenders in analysing a company’s balance sheet, and profit and loss statements. There are at least ten fairly “standard” ratios from which financial performance can be assessed. These ratios (and others) been incorporated into the following analysis.

• The Analysis conducted is based on the forecast position for the year ending 30 June, 2011, with details provided for the prior eight (8) years. The commentary below relates to the position as at 30 June 2006, where the “year-in-year-out” (YIYO) position is essentially reached.

• Please refer to the attached “Balance Sheet Analysis” for actual data and calculations, including calculation of the ten (10) key financial ratios mentioned below:

Profitability (1) Operating Profit Before Tax/Sales (23.59%)

The ratio is a basic measure of the company's profitability and when analysed over a number of years gives a measure of the company's ability to command an adequate profit margin and to control operating costs.

Method of Calculation

(i) The profit figure used is after all expenses including depreciation and interest but before income tax, extraordinary income and before deducting profits due to minority interests. The profit might include some non-operating and abnormal income items, and where these items are significant it is specifically commented on.

(ii) Sales:

The sales figure to be used will exclude other revenue (i.e. it is an attempt to measure profitability on each dollar of sales revenue).



(2) Operating Profit After Tax/Shareholders Funds (26.78%)

This ratio is the most widely used measure of corporate performance and indicates the company's ability to give an adequate return to shareholders (or the “owners” of the business. It has the advantage of providing some generally accepted benchmarks for performance (e.g. returns in excess of 15% are considered very attractive). In this instance, the IRR provides a more reliable indication of return since the OPAT/SF is based on a return to Shareholders funds which are reliably calculated due to a number of factors including the impact of an effective equivalent to an equity contribution via the Federal Government subsidy being discounted.


(i) The profit figure to be used is after deducting tax and dividends on redeemable preference shares (which should be included as part of interest expense) but before deducting extraordinary items.

(ii) The shareholders funds figure is year end shareholders funds, which includes intangible assets.

Comments on Profitability

1. The nine year period under analysis exhibits an overall significant and rapid increase in profitability to the YIYO position achieved in 2006, with Earnings Before Interest & Tax (EBIT) coming from +$11.2m in 2005/06, to + $12.2m in the y/e 30 June 2011.

2. Operating or Net Profit Before Tax becomes positive by the end of Year 2 (2003/04) (+$1.53m ), compared to +$11.2m in 2005/06. OPAT is +$12.2m in 2011. “Extraordinary items” (i.e. Federal Government Grant) skews the figures in 2002/03 and 2003/04.

3. Return to Shareholders (either on shareholders funds, or assets employed) is therefore excellent.

Cost Structure

1. Wages are very minor in comparison to turnover and / or costs.

2. Total Operating (ex raw material) expenses are also low in relation to earnings.

3. However, purchases (raw material inputs) are clearly a major determinate of profitability



Capital Structure & Debt Servicing (3) Retained Earnings/Total Assets (21.37%)

This ratio measures the level of profits ploughed back into the business each financial period. Investors and financiers generally like to see some of the profits ploughed back into the business to assist in the funding of future growth.

Successful and well managed companies usually retain profits equivalent to at least 2% of total assets. Companies whose annual retained earnings are consistently below this figure or which fluctuate either side, represent a higher risk than companies that consistently achieve a 2% benchmark or better.

In this instance, and in accordance with first principles of modelling data, the Project “base model” assumes that all profits will be retained, with no provision made for dividends. Therefore this RE/TA is not unexpectedly high (favourable).


(i) Retained earnings is the unappropriated profit for the financial period after payment of all dividends and includes extraordinary items.

(ii) Total assets includes intangible assets.

(4) Interest Cover (48.15 times by 30 Jun 2005, not applicable after this time)

This is a very important ratio because it reveals the company's ability to service interest and other financing obligations from profits. It gives a quick indication of what variation in profits or interest expenses can be sustained before debt service is threatened.


Earnings before interest and tax Interest Cover = ----------------------------------------------------------------- Interest expenses + other financing expenses

(i) Earnings before interest and tax is calculated from operating profit before tax and adding:

• interest expense • finance lease charges • dividends on redeemable preference shares

(ii) Interest expense and other financing expenses should include interest expense, finance lease charges and dividends on redeemable preference shares



Note: many companies have now converted finance leases into operating leases and are incurring large rental expenses on operating leases. Where significant, the impact of the operating lease rentals are explored.

(5) Gross Cash Flow / Total Financial Debt (n/a %)

This is a very important ratio because it shows the company' ability to service its total financial debt obligations. It also gives a quick indication of the potential payback term based on a company's present cash flow position.

The better managed companies consistently achieve a ratio of 15% or more - i.e. they have the theoretical potential to repay all debt within 7 years.

In this instance the analysis is not applicable since the entity has no debt after the establishment period of up to 2 years


Gross Cash Flow = Earned for ordinary (i.e. OPAT + extraordinary items -minority interests - pref. dividends) + depreciation & extraordinary losses.

Total Financial Debt = Total Liabilities minus trade and sundry creditors and provisions

(6) Surplus/Total Tangible Assets (79.1%)

This is the basic gearing ratio to be used and shows the proportion of total tangible assets financed by the shareholders of the company. The ratio is designed to reveal an over-reliance on external sources of funds. It also indicates what level of diminution can be suffered in asset values before creditors and lenders would be exposed to losses in a liquidation.


(i) Surplus includes:

• all capital and reserves relating to ordinary shares • non-redeemable preference shares and perpetual subordinated

convertible notes

(ii) minority interests in subsidiaries providing it represents permanent capital in the subsidiaries and not redeemable preference shares

(iii) Shareholders funds will be reduced by any intangible assets such as goodwill, patents, trademarks, future income tax benefit, etc..



(iv) Total assets are also reduced by the same intangible items listed above.

(7) Short Term Debt / Total Financial Debt (97.61%)

One important aspect of the capital structure is the extent to which a company is reliant on short term debt particularly where it is being used to fund permanent requirements. An over-reliance on short term debt can reveal poor financial management or a general unwillingness of lenders to make longer term commitments to the company.

In this instance there is virtually no long term debt (other than a minor leasing obligation), therefore the amount of short term debt is disproportionately high.


Total Financial Debt is defined to include all financial liabilities on which interest payments or quasi-interest payments are due. Short term debt will include overdrafts, other loans, convertible notes and finance leases due within the next twelve months. Total Financial Debt will similarly include all financial obligations.

Based on our calculations, total financial debt equals total liabilities minus trade and sundry creditors and provisions Comments on Capital Structure & Debt Servicing

1. Debt servicing ability quickly increases along with increased net earnings even during the early stages of the Project. This therefore represents a low risk factor.

2. Interest cover is sound, with positive retained earnings and virtually no debt by 2006.

Liquidity / Working Capital (8) Current Ratio (269.97%)

The current ratio is a long established measure of the company's ability to meet its short term obligations. It is based on the concept that current assets (largely debtors and stock) can be used to liquidate short term liabilities as they fall due. The ratio has been less widely used as the predominant effort of many companies is on reducing the current assets (and hence reducing the current ratio).

The ratio does highlight changes in the liquidity structure over time. The liquidity in this instance continues to rapidly improve to the point where the Current Ratio is 883.05% by 2011.


Current Assets



Current Ratio = ------------------------ Current Liabilities

If this ratio is improving then it is cross-checked against Days' Receivables and Days' Inventory to verify the improvement.

(9) Days Receivables (30 Days)

This ratio measures the effectiveness of management in collecting trade debtors and in minimising investment in trade debtors. The average number of days receivables should reflect the selling terms being offered by the company, however allowance must be made for the portion of sales made for cash.

In this instance, the forecast model “forces” an average 30 day debtor recovery.


Trade Debtors Days Receivables = ----------------------- (Sales / 365 )

(i) Trade debtors will be the year-end trade debtors and will exclude other debtors and prepayments not related to the trading activity of the company.

Trade debtors will be after deducting provision for doubtful debts.

(ii) Sales will exclude other revenue (i.e. not related to sales)

(10) Days Inventory (7 Days)

Days inventory measures the effectiveness of the company in turning over stock quickly, minimising investment in stock and reducing the risk of obsolete stock.

In this instance, the forecast model “forces” an average 7 day stock turnover.


Stock Days Inventory = ---------------- Sales / 365

While the ratio roughly approximates to the number of days of sales to exhaust the company's stock, it does understate the number of days that would be required. This is because stock is in the books at cost, where the sales number includes a profit margin. To calculate the ratio correctly, it would be necessary to know the cost of goods sold in each year, which is usually not available.



(i) Stock, is the year end trading stock figure, after deduction of any provision for obsolescence.

(ii) Sales excludes other revenue. Comments on Liquidity / Working Capital

1. Liquidity (ability to meet short term obligations) is a major positive feature of the forecast model. The Project will quickly reach, on the face of it, the point where it has sufficient working capital to fund its own immediate needs, without reliance on previous years retained earnings or capital input from other sources..

2. At an average of 30 days, the ability to recover receivables is a key factor to maintain performance levels indicated.

Conclusions

1. The Project exhibits all the signs of a very solid forecast for financial performance

2. The Company has quickly reaches a sound overall financial performance with YIYO achieved by 2006 or earlier.

3. Raw material (input) expenses will need to be closely monitored – however other operating costs do not have a significant bearing on Project outcomes.

4. Debt Collection procedures assume an average 30 day recovery. It is likely that actual performance will be better than this, especially given that AJ Bush themselves will be a reasonably significant debtor

5. Careful attention to cash flow planning and performance monitoring must be instigated to ensure maximum plant efficiency / achievement of performance. This should be done on a minimum monthly basis.

FUNDING OPTIONS OR ASSISTANCE AVAILABLE

Refer section of this Report entitled: “EVALUATION OF GOVERNMENT SUBSIDIES”. This section explores the Federal Government Capital Subsidy, Excise Tax Issues, and Bounties.

In consideration of funding options or assistance available, the Consultant assumes a base premise that the Project must be commercially viable without a demonstrated need for propping up by Government or other 'artificial' assistance measures.



In this regard, it is important to note that Project viability is still indicated without government assistance measures. However, and as commented in other sections of this Report, government assistance significantly mitigates project risk and for this reason alone must be vigorously pursued by the Project’s proponents.

Overall Funding Requirements

Based on a Plant, Building & Equipment cost of $20.0m, the total Capital requirement for the Project is $21.307m including working capital.

The net funding requirement for AJ Bush (Manufactures Pty Ltd is $11.755m, including $1.307m for working capital. The balance ($9.552m) would be provided by the $0.16 / litre Federal Government capital subsidy.

On the attached cash flows, all funding is assumed to be carried by “overdraft” (although the reality might be structured loan or other arrangement, depending on the source of funds utilised for capital). Accordingly, a peak debt of $11,755,454 is indicated in November 2003. The Project becomes cash flow positive by February 2005.

The cash flow demonstrates that the Company will be able to survive on the basis of the above capital funds injection, with the only other repayments required being leases established for minor capital items (refer Table under sub-section “MAJOR ASSUMPTIONS”, minor sub-section “Leases” above.

Other Funding Sources / Assistance Having first made the previous comment concerning commercial viability, there are however a number of programs available for which the Company may be considered eligible, and these are detailed below55. Clearly, management must give appropriate priority for actively canvassing such assistance in order to enhance best prospects for success.

The following assistance measures are considered by the Consultant to be those schemes available (considering Company size, projected modus operandi, and funding requirements) to best assist the Company in achieving its objectives, i.e. those funding or assistance measures available, which are considered to have greatest potential for impact on the Company's bottom line, and where the Company is most likely to meet the required eligibility criteria.

55 Note: all schemes are subject to change without notice, and accordingly the Consultant implies no

warranty as to individual scheme terms and conditions and eligibility criteria, nor warrants the Company's ability to access funding or other support.



Department of Environment (Environmental Protection Agency, Sustainable Industries Division)

The Queensland Sustainable Energy Innovation Fund

In Queensland, the Environmental Protection Agency’s Sustainable Industries Division helps innovators to:

• assess their sustainable energy technology and its potential market; • contact potential project partners and specialist advisors; • develop and plan project proposals; and • investigate available government and private funding sources.

The Queensland Sustainable Energy Innovation Fund is managed by the Department, and is aimed at assisting businesses to develop innovative, sustainable energy technologies.

The development of sustainable energy technologies are products and technologies which: • produce energy from renewable resources; • use a fraction of the energy to provide the same or better level of service; or • replace conventional energy sources with those that produce less pollution and

greenhouse gas emissions.

The Queensland Sustainable Energy Innovation Fund aims to assist development of industries that develop and produce sustainable energy technologies. including pilot/demonstration plants and applied research projects.

The Fund can create business opportunities and employment in Queensland ’s sustainable energy industries by:

1. Assisting Queensland businesses to develop sustainable energy products/technologies Funding can offset costs for producing prototypes; purchasing components or equipment; product testing; design, engineering, marketing or other consulting services selected by competitive tender; or patenting fees).

OR

2. Assisting Queensland businesses to introduce into the marketplace Queensland-made sustainable energy products/technologies; Funding can offset the costs for retooling, manufacturing parts for an initial production run, a demonstration unit, or marketing the energy-saving advantages of the product. To be eligible, products must be largely produced in Queensland (and preferably developed in Queensland),and must be substantially more efficient (or more effective in providing energy saving or renewable energy)than current mainstream products on the market.

QSEIF funding available Funding of up to several hundred thousand dollars may be provided for any one project. Applicants may re-apply for later phases of their



projects. Funding will generally offset external costs borne by the applicant, which can be documented by invoices and receipts.

Minimum eligibility criteria:

• Applications in this funding round must be received by 5.00pm on 28 June 2002. Late applications will not be considered.

• The applicant organisation: ⇒ must be Queensland-based, with the main activities of the project to be

undertaken within Queensland; ⇒ must not be in breach of the Environmental Protection Act or other

legislation, at the time of application and during the project; and ⇒ must be financially solvent.

Timelines for QSEIF Round 5

The closing date for applications in Round 5 is 28 June 2002. Winning applications are expected to be announced in October 2002. Consequently, the application must be written from the perspective of where the project is expected to be, and what will need to be done to progress the project, at that time.

Submitting a QSEIF application

Prospective applicants must contact the Sustainable Industries Division, Queensland Environmental Protection Agency, to discuss their proposal and receive an application form. Advice can be sought from EPA staff regarding proposal development and completion of a detailed application form. Completed applications must be lodged by the closing date. Early submission of applications (in draft or final form)is strongly recommended.

Applications can initially be sent by email to [email protected], with eight copies (including one original signed copy)sent by post. Inquiries should be made to Dr Martin Gellender at the Sustainable Industries Division, Telephone 32248606 , fax 32278341 or email [email protected].

Department of State Development

A range of AusIndustry56 programs may be available for the Company, including the Marketing and Business Planning, Human Resource Program, PEP (Preparing for Export). Profit by Design, Total Quality Management (TQM), and others. Most of these programs are delivered through registered consultants available to help with the strategic planning process and the conduction of related activities.

Accelerated Internal Change Program

56 Formerly - NIES (National Industry Extension Service)



Under AusIndustry, DSD has developed the Accelerated Internal Change Program which assists eligible firms to employ a person as a Project Officer to drive a specific change process identified in the organisation’s Business Plan.

Assistance is available for implementation of a project in either of the following areas:

• Human Resources (“people” related activities)

• Processes (improvements to product development or service delivery, and / or the overall manufacturing process, and / or improvements to internal business processes)

• Technology (implementation of technology such as Computer Aided Manufacturing or Design, Management Information Systems, or Activity Based Costing Systems)

Both DSD, and the Queensland Manufacturing Institute are available to assist with the formulation of a Project. Dollar for dollar assistance is available up to a maximum of $30,000. Applicants would be expected to have a business plan or strategy document in place clearly outlining the firm’s commitment to the Enterprise Development process and identifying the priority for the proposed Project. Eligibility is generally restricted to firms having a turnover of at least $2.5m or minimum 10 employees.

Federal Department of Industry, Science & Technology

Export Access

Financial assistance is available for agricultural enterprises requiring training or practical assistance for the development of offshore activities. Participation in Export Access assists with:

• Identification of opportunities (evaluation of Company's products / services and advice on financial and management requirements.

• Training (assistance with strategic planning and assisting with the preparation of a Business Plan).

• Overseas market visits (up to 10 days subsidised accommodation and living costs per company in the target market)

• Post Market Evaluation

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Jul-

20

02

Jul-2

00

3Ju

l-20

04

Jul-2

00

5Ju

l-20

06

Jul-

20

07

Jul-

20

08

Jul-

20

09

Jul-2

01

0

AJ

Bus

h (M

anuf

actu

res)

Pty

Ltd

Bio

dies

el P

roje

ctC

losi

ng B

ank

Bal

ance



Forecast Monthly Production Output — Biodiesel

0

2

4

6

Mill

ion

s

Year Ended

Litr

es

Jul-2002 Jul-2003 Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 Jul-2009 Jul-2010

AJ Bush (Manufactures) Pty Ltd Biodiesel ProjectMonthly Production Output - Biodiesel

Forecast Annual Production Output — Biodiesel

0

20

40

60

80

Mill

ion

s

Litr

es

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

AJ Bush (Manufactures) Pty Ltd Biodiesel ProjectAnnual Production Output - Biodiesel



Forecast Annual Production Output — Glycerine & Fertiliser

0

2

4

6

8

0

500

1,000

1,500

Mill

ion

s

Cru

de

Gly

ceri

ne

(K

g)

Fe

rtili

ser

(Po

tass

ium

Su

lph

ate

) -

ton

ne

s


Crude Glycerine Fertiliser (Potassium Sulphate)

AJ Bush (Manufactures) Pty Ltd Biodiesel ProjectAnnual Production Output - Glycerine & Fertiliser

Forecast Trading Results — 9 Year Projection

($5)

$0

$5

$10

$15

$20

Mill

ion

s


GROSS PROFIT EBIT (Earnings Before Interest & Tax) OPERATING PROFIT BEFORE TAX

OPERATING PROFIT AFTER TAX EARNED FOR ORDINARY

AJ Bush (Manufactures) Pty Ltd Biodiesel Project

Summary Trading Results - 9 Year Projection



Forecast Summary Trading Results — 9 Year Projection

(0.0%)(2.7%)(0.0%)(0.9%)(87.4%)

(8.8%)

(0.3%)(0.0%)

Working Capital (Loan) GRANT (Fed Fov't subsidy GRANT (Other) Fuel Sales (BIodiesel) - AJ

Fuel Sales (BIodiesel) - Ext Crude Glycerine Fertiliser (Potassium Sulph Sundry Income & Sales

AJ Bush (Manufactures) Pty Ltd Biodiesel Project

Summary Trading Results (Income) - Years 1 - 9

BEST / WORST CASE SCENARIOS

Key Variable BEST CASE WORST CASE BASE MODEL

Overdraft Interest Rate p.a. per annum 4.00% 18.00% 8.00%Company Tax rate: (est. long term rate) 20.00% 49.00% 35.00%Total Capital Cost incl land $17,500,000 $22,500,000 $20,000,000Plant capacity (Inputs) tonnes per annum 60,000 60,000 60,000GRANT (Fed Gov't subsidy) per litre $0.16 $0.16 $0.16Tallow (average cost) per tonne $300.00 $525.00 $457.65Waste Cooking Oil (WCO) per tonne $300.00 $400.00 $350.00BioDiesel conversion per Kg Raw Material Input 102.0000% 98.0000% 100.00%Glycerine conversion per Kg Raw Material Input 11.5000% 9.5000% 10.20%Fertiliser conversion per Kg Raw Material Input 3.0000% 1.5000% 2.20%BioDiesel Fuel Per litre (wholesale price) $0.90 $0.65 $0.72Crude Glycerine Per Kilogram $1.00 $0.60 $0.70Fertiliser (Potassium Sulphate) Per Tonne $125.00 $75.00 $100.00

Gross Profit p.a. at full production $38,046,745 $5,243,546 $15,016,196Net Income (Cash Flow) Year 9 $28,903,778 $693,408 $8,887,356Net Profit p.a. (Year 9) Before Interest & Tax (EBIT) $35,079,032 $2,320,564 $12,158,817Net Profit After Interest Before Tax (Year 9) $35,079,032 ($352,062) $12,158,817Net Profit After Interest & Tax (Year 9) $28,063,226 ($352,062) $7,903,231IRR (Nine Year) 288.85% -28.04% 76.65%



($10)

$0

$10

$20

$30

$40

-100%

0%

100%

200%

300%

400%

Mill

ion

s

Pro

fit

/ In

com

e L

ev

el

IRR

(N

ine

Ye

ar)

BEST CASE WORST CASE BASE MODEL

Gross Profit p.a. at full production Net Income (Cash Flow) Year 9 Net Profit p.a. (Year 9) Before Interest & Tax (

Net Profit After Interest Before Tax (Year 9) Net Profit After Interest & Tax (Year 9) IRR (Nine Year)

AJ Bush (Manufactures) Pty Ltd Biodiesel ProjectBest / Worst Case Scenarios

IMPACT OF FEDERAL GOVERNMENT SUBSIDY

Profitability (if Federal Government subsidy removed) indicates that the project remains viable, as shown in the following table:

$0.16 Government Subsidy In

Place

$0.16 Government

Subsidy Removed

Gross Profit p.a. at full production $15,016,196 $15,016,196

Net Income (Cash Flow) Year 9 $8,887,356 $8,887,356Net Profit p.a. (Year 9) Before Interest & Tax (EBIT) $12,158,817 $12,158,817Net Profit After Interest Before Tax (Year 9) $12,158,817 $12,158,817Net Profit After Interest & Tax (Year 9) $7,903,231 $7,903,231IRR (Nine Year) 76.65% 37.66%Cash at Bank (Year 9) $57,974,424 $47,184,3319 Year OPERATING PROFIT AFTER INTEREST & TAX $52,964,248 $51,726,155

The major impact of the Federal Government subsidy is two-fold:



1. Whilst the subsidy has no long term impact on profitability, the subsidy reduces initial capital funding requirement by the amount of the subsidy ($9,552,000) plus interest costs during the start up period.

2. The subsidy considerably reduces the financial risk attached to the Project; accordingly, the Internal Rate of Return is greatly enhanced by its inclusion in the Project as shown in the table above.

SENSITIVITY ANALYSIS / BREAK EVEN ANALYSIS

Key Sensitivities

There are five key sensitivities that essentially drive the Financial model as follows (the first four are rated “extreme” factors in terms of sensitivity):

1. Plant capacity (Inputs) – The base model assumes a plant capacity of 60,000 tonnes p.a.. Whilst “break even” is not reached until 19,824 tonnes p.a., obviously the higher the output that can be reached for the same capital cost the greater return will be enjoyed

2. Raw Material Costs - Tallow has been calculated with a forecast of an average acquisition price (including tallow derived from AJ Bush) @ $457.65/ t, with a “Break even” amount of $666.31 / t. The cost of tallow, as a primary input, is critical to the viability of the Project, and has an extreme and highly significant impact on overall profitability.

3. It is also apparent that the Conversion process (which measures Plant Efficiency) – especially for Biodiesel which converts at 100.00% - is achieved, since the “break even” point is only 75.77%. This underscores the need for performance guarantees by the vendor, ensuring that the process technology selected is capable of the level of efficiency indicated.

4. Not surprisingly, the Price Received for Biodiesel (base model is calculated at $0.72 / litre) is also a critical factor in determining viability. With a “break even” point of $0.54, this is not considered too high risk but nevertheless emphasises that the price received with have a significant impact on plant profitability.

5. The base case Total Capital Cost is $20,000,000 (including the cost of land at $zero). Whilst this has a significant impact, particularly on interest paid during the initial establishment years, the IRR break even point is not reached until $62,320,000.

The following points further describe some of the key sensitivities of the project. � Cost of primary feedstock and additional make-up quantities:

A well-known basic sensitivity of established bio-diesel plants that has determined their success, is the price for obtaining feedstocks within the overall financial model. Since a significant portion of the feedstock required is being



produced from the same company, this will situate AJ Bush (Manufactures) Pty Ltd to an advantage. The price and quality of remaining feedstock product required will however have a significant impact on the profit margin and bio-diesel quality produced. The estimates provided herein assume a price of $450.00 per tonne, with a buy-in price at up to $465.00 per tonne (i.e. additional $15.00 / t freight inwards).

� Feedstock Quality and Blends will determine Bio-diesel Quality and Consistency produced:

Bio-diesel, primarily produced by tallow (FAME – fatty acid methyl ester), as compared to that produced from rapeseed oil (RME – rapeseed methyl ester) has some concerns that need to be controlled. The FFA content and feedstock composition (i.e. polymer content) will determine the quality and consistency of the bio-diesel produced. The cloud point and CFPP, which is affected by the feedstock utilised, is an important fuel characteristic that if not low enough could restrict use within smaller engines (i.e. small fuel filters) and/or engines in colder climates (i.e. in Australian southern states during winter months). Eliminating or controlling fuel usage restrictions can only improve reliability of the bio-diesel as it is introduced within Australia.

� Flexibility to blend alternative feedstocks:

The ability to understand and blend feedstock variations from the core recipe ingredients will ensure that the two bullet points above, overall feedstock price and bio-diesel quality/consistency, are not subject to seasonal alterations or process surprises. A plant that can blend feedstock ingredients possesses the tool to blend perhaps an inferior feedstock with a more superior one, to produce an overall consistent product. In addition to this, the plant is not relying on just one particular feedstock if for whatever reason that source is temporarily postponed, ceased, or rejected.

This also translates to conversion factors for major feedstocks which have demonstrated to be key sensitivities.

� Plant Cost:

A fundamental component of the economic model is the capital required to build the plant. Both capability and cost are important factors in reaching such conclusions. Cost of capital investment has proven to be a key determinant of viability, though not as critical as the other four factors mentioned previously.

� Additional Capital expenditure requirements:

The scenario under contemplation assumes that with most of the raw material coming from A J Bush & Sons (Manufactures) Pty Ltd, further additional capital expenditure associated with, for example, the extra storage space for stock, will be minimal or nil. Similarly, there are no apparent major additional expenditure items required for effluent and environmental controls, other than



those directly attributed to the plant design itself. Any changes to these assumptions can be incorporated into the economic model and sensitivities conducted to determine impact.

� Interest:

The cost of interest is an important factor, much of this relating to timing of income / outgo in the cash flow and the obvious impact this has on interest payable. However, the scenario presented as the “base model” has determined that the interest cost of funding the Project has only a moderate impact on viability. Whilst the cost of finance is perhaps one of the most difficult issues to deal with, our estimates have taken into account historical trends, current and projected economic conditions, and rates applying for corporate business such as that applying to A J Bush & Sons (Manufactures) Pty Ltd. The rate eventually selected is 8.0% p.a.

The break even point for the Project is not reached until a rate of 67.75% applies, indicating the moderate impact only of this variable.

To ensure that utilising a selected interest rate does not overly bias results, a sensitivity analysis has been undertaken for varying rates of interest to examine the impact it has on the Project and its viability. Our approach is “classical” since it assumes all funds will be derived from a single source, and interest is charged to the account when it is in debit.

We have ignored the possibility that financing could be achieved in a package comprising both debt and equity. Although an actual interest payment is not incurred for equity capital, an opportunity cost has been allowed. Since this investment potential foregone, for the purposes of our analysis we will assumed that this equates to an equivalent interest rate charge if the equity was in the form of debt.

� Government Subsidies:

The recently announced Federal Government subsidy to ensure bio-fuels provide 2% of Australia’s transport fuel consumption by the year 2010, is an integral part of establishing viability for the Project. The proposed capital subsidy of 16 cents for each litre of new or expanded bio-fuel production capacity constructed is only payable until the 350 million litres target is reached, or until June 30 2007, whichever occurs first. We have previously commented that the significance of this is that the subsidy equates to around $10m for AJ Bush, representing a substantial portion of the likely plant cost. However, the subsidy is time-limited. Therefore, sensitivities have been conducted on the basis discontinuation of any equivalent subsidy, or exclusion of the subsidy which could occur if the time-span for development of the project was, for any reason, extended.

In this instance the Financial Model has determined that the Project, whilst not dependant upon the subsidy, certainly impacts both profitability and return on



funds. At zero levels of subsidy the base IRR lowers from 76.65% to 37.66%, however prior to Year 9 the EBIT (Earnings Before Interest & Tax) and OPAT (Operating Profit After Tax) remains unchanged.

Further comments on the impact of the subsidy is covered in the previous sub-section of this Report.

� Fixed Production Costs:

In contrast to production yields (explored above), the costs of production (other than raw material purchases) have only a minor bearing on profitability / profit margins and therefore Project viability.

� Other raw Material Costs:

As for the first point above (primary feedstock), prices for raw materials may be subject to volatility and therefore sensitivity analysis has been conducted to determine the impact on viability. Whilst prices and availability of methanol and / or ethanol have proved somewhat difficult to obtain, this is one of the least sensitive areas.

IRR Analysis

The indicated IRR (Internal Rate of Return) for this Project has been determined to be 76.65%, which indicates very strong viability given the assumptions contained herein.

The IRR represents the required return to the investor for providing the capital over time to carry out the proposed development. From an investment point of view, the acceptability of a Project is determined by comparing the internal rate of return with a required rate of return, or alternatively by comparing the IRR of various projects against one another. This relates strongly to the profit expectation taking into account the risk of the venture. One may expect material variations from one project to the next taking into account the nature and scope of the development.

Margins may be widened where extensive and costly construction works are involved over an extended period. Accordingly it is reasonable to expect a substantial margin for risk to the increased capital. This is in contrast to smaller projects where the construction works required are simpler, the Project coming to fruition relatively quickly and especially where an investor may be prepared to accept a lower margin for a quicker return.

The “discounting” process, in examining cumulative cash flow, takes into account the magnitude and timing of the project’s cash flow – the “time value of money”. The resultant IRR is the rate of interest which results from the recovery of initial outlays plus a return on the unrecovered investment balances during the life of the project.

The IRR analysis conducted also contains numerous sensitivity analysis to determine impact on return given variables such as that outlined previously. It should be noted



that this process involves many assumptions to be made including (and in particular) the period of the Project, costs of development, and market realisations for products to be sold.

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Company Tax Rate

0% 10% 20% 30% 40% 50% 60%65%

70%

75%

80%

85%

90%

$4

$6

$8

$10

$12

Base Model

Mill

ions

Company Tax Rate

IRR

(9

Year

s)

Ope

rati

ng P

rofit

Aft

er T

ax (

Year

9)

IRR (9 Years) Operating Profit After Tax (Year 9)

AJ BUSH (MANUFACTURES) PTY LTD BIODIESEL PROJECTSENSITIVITY ANALYSIS

Company Tax Rate

Company Tax Rate

Variable Variable Outcome (Year 9)

IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)

Operating Profit After Tax (Year 9)

Operating Profit After Tax (9 Year

Total)

10.00% $1,215,882 85.12% 12,158,817 82,680,630 10,942,935 73,339,15815.00% $1,823,823 83.53% 12,158,817 82,680,630 10,334,994 69,263,99720.00% $2,431,763 81.89% 12,158,817 82,680,630 9,727,053 65,188,92525.00% $3,039,704 80.20% 12,158,817 82,680,630 9,119,113 61,113,94330.00% $3,647,645 78.45% 12,158,817 82,680,630 8,511,172 57,039,051

Base Model 35.00% $4,255,586 76.65% 12,158,817 82,680,630 7,903,231 52,964,24840.00% $4,863,527 74.78% 12,158,817 82,680,630 7,295,290 48,889,53645.00% $5,471,468 72.84% 12,158,817 82,680,630 6,687,349 44,814,91450.00% $6,079,408 70.81% 12,158,817 82,680,630 6,079,408 40,740,38155.00% $6,687,349 68.70% 12,158,817 82,680,630 5,471,468 36,665,93860.00% $7,295,290 66.48% 12,158,817 82,680,630 4,863,527 32,591,586

Break Even 100.00% $12,158,817 41.94% $12,158,817 $82,680,630 ($0) ($0)

SENSITIVITY RATING

Nil Minor Moderate Significant Very Significant

Extreme



Average Depreciation Rate

0% 5% 10% 15% 20% 25%70%

72%

74%

76%

78%

80%

82%

$50

$52

$54

$56

$58

$60

Base Model

Mill

ions

Average depreciation rate

IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

9 Y

ear

Tota

l)

IRR (9 Years) Operating Profit After Tax (9 Year Total)





IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total)

0.00% $0 71.16% 12,450,039 90,804,097 8,092,525 58,218,9282.00% $343,278 72.43% 12,275,803 88,533,496 7,979,272 56,748,6664.00% $589,090 73.60% 12,175,212 86,640,510 7,913,888 55,523,7286.00% $758,052 74.69% 12,130,983 85,066,127 7,885,139 54,505,7608.00% $866,929 75.70% 12,129,223 83,760,305 7,883,995 53,661,698

Base Model 10.00% $929,306 76.65% 12,158,817 82,680,630 7,903,231 52,964,24812.00% $956,148 77.54% 12,210,929 81,791,177 7,937,104 52,390,34714.00% $956,259 78.27% 12,278,582 81,061,531 7,981,078 51,918,24816.00% $936,678 78.91% 12,356,315 80,465,965 8,031,605 51,532,26218.00% $902,992 79.50% 12,439,894 79,982,727 8,085,931 51,219,27020.00% $859,609 80.05% 12,526,076 79,593,442 8,141,949 50,967,329

Break Even 0.00% $0 71.16% $12,450,039 $90,804,097 $8,092,525 $58,218,928

SENSITIVITY RATING Cannot force break even


Extreme



Total Capital Cost

$14 $16 $18 $20 $22 $24 $2640%

60%

80%

100%

120%

140%

160%

$7,600

$7,800

$8,000

$8,200

Base Model

Millions

Tho

usa

nds

Total Capital Cost

IRR

(9

Year

s)

Ope

rati

ng P

rofit

Aft

er T

ax (

Yea

r 9)



Total Capital Cost

Total Capital Cost Variable Variable Outcome (Year 9)

IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total)

-25.00% $15,000,000 143.37% $12,529,497 $87,125,847 $8,144,173 $56,297,655-20.00% $16,000,000 122.67% $12,455,361 $86,236,804 $8,095,985 $55,641,914-15.00% $17,000,000 107.02% $12,381,225 $85,347,760 $8,047,796 $54,980,218-10.00% $18,000,000 94.75% $12,307,089 $84,458,717 $7,999,608 $54,313,453

-5.00% $19,000,000 84.84% $12,232,953 $83,569,674 $7,951,419 $53,641,503Base Model 0.00% $20,000,000 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,248

5.00% $21,000,000 69.76% $12,084,681 $81,791,587 $7,855,042 $52,281,52510.00% $22,000,000 63.86% $12,010,544 $80,902,544 $7,806,854 $51,593,20915.00% $23,000,000 58.67% $11,936,408 $80,013,500 $7,758,665 $50,895,20820.00% $24,000,000 54.13% $11,862,272 $79,124,457 $7,710,477 $50,187,68025.00% $25,000,000 50.11% $11,788,136 $78,235,413 $7,662,288 $49,467,688

Break Even 211.60% $62,320,000 0.00% $9,021,376 $45,056,315 $5,571,370 $14,864,952

SENSITIVITY RATING


Extreme



Plant Construction Period

0 2 4 6 8 10 12 1470%

80%

90%

100%

110%

120%

130%

$52

$54

$56

$58

$60

$62

Base Model

Mill

ions

Plant Construction Period (Months)

IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

9 Y

ear

Tota

l)





Variable Variable Outcome (Year 9) - Months

IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total) Plant Construction Period (Months)

Base Model 12.00 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,24811.00 80.96% $12,163,289 $83,781,763 $7,906,138 $53,715,93310.00 77.38% $12,172,053 $84,845,225 $7,911,834 $54,424,776

9.00 81.12% $12,178,245 $85,929,921 $7,915,859 $55,161,0138.00 79.32% $12,186,900 $86,994,414 $7,921,485 $55,875,8117.00 82.78% $12,193,029 $88,080,317 $7,925,469 $56,618,6936.00 87.19% $12,199,118 $89,168,482 $7,929,427 $57,360,3755.00 92.41% $12,208,790 $90,219,290 $7,935,713 $58,057,2304.00 99.32% $12,217,215 $91,283,474 $7,941,190 $58,767,6263.00 108.97% $12,221,417 $92,387,165 $7,943,921 $59,523,4922.00 120.74% $12,231,501 $93,438,591 $7,950,476 $60,214,295

Break Even 82.90 -0.69% $11,464,340 $8,014,537 $9,860,108 $1,918,352

SENSITIVITY RATING


Extreme



Plant capacity (Inputs)

20 30 40 50 60 70 80 90 1000%

20%

40%

60%

80%

100%

120%

140%

$2

$4

$6

$8

$10

$12

$14

Base Model

Thousands

Mill

ions

tonnes per annum

IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

Year

9)






IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total) tonnes per annum

-50.00% 30,000 18.34% $5,342,189 $32,327,728 $3,472,423 $18,686,799-40.00% 36,000 28.21% $6,705,515 $42,404,160 $4,358,585 $25,798,009-30.00% 42,000 38.60% $8,068,840 $52,477,044 $5,244,746 $32,718,483-20.00% 48,000 49.92% $9,432,166 $62,545,719 $6,130,908 $39,539,410-10.00% 54,000 62.52% $10,795,491 $72,614,170 $7,017,069 $46,278,584

Base Model 0.00% 60,000 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,24810.00% 66,000 88.51% $13,522,142 $92,748,356 $8,789,392 $59,581,52020.00% 72,000 96.97% $14,885,468 $102,818,379 $9,675,554 $66,152,02130.00% 78,000 105.37% $16,248,793 $112,888,401 $10,561,716 $72,719,41440.00% 84,000 113.73% $17,612,119 $122,958,423 $11,447,877 $79,284,87850.00% 90,000 122.03% $18,975,444 $133,026,454 $12,334,039 $85,845,753

Break Even -66.96% 19,824 0.00% $2,907,745 $14,358,640 $1,795,823 $4,676,534

SENSITIVITY RATING


Extreme



Grant (Federal Government Subsidy)

$0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.3530%

40%

50%

60%

70%

80%

90%

$51,500

$52,000

$52,500

$53,000

$53,500

Base Model

Tho

usan

ds

$ per Litre

IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

9 Ye

ar T

otal

)



GRANT (Fed Fov't subsidy)Note - Subsidy capped at $10m

GRANT (Fed Gov't subsidy)


IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total) $ per Litre

-100.00% $0.00 37.66% $12,158,817 $82,729,584 $7,903,231 $51,726,155-80.00% $0.03 42.63% $12,158,817 $82,719,793 $7,903,231 $52,032,020-60.00% $0.06 48.57% $12,158,817 $82,710,003 $7,903,231 $52,316,114-40.00% $0.10 55.78% $12,158,817 $82,700,212 $7,903,231 $52,562,275-20.00% $0.13 64.83% $12,158,817 $82,690,421 $7,903,231 $52,773,334

Base Model 0.00% $0.16 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,24820.00% $0.19 79.98% $12,158,817 $82,678,334 $7,903,231 $53,006,38540.00% $0.22 79.98% $12,158,817 $82,678,334 $7,903,231 $53,006,38560.00% $0.26 79.98% $12,158,817 $82,678,334 $7,903,231 $53,006,38580.00% $0.29 79.98% $12,158,817 $82,678,334 $7,903,231 $53,006,385

100.00% $0.32 79.98% $12,158,817 $82,678,334 $7,903,231 $53,006,385Break Even -100.00% $0.00 37.66% $12,158,817 $82,729,584 $7,903,231 $51,726,155



Extreme



Feedstock

40% 50% 60% 70% 80% 90% 100% 110%65%

70%

75%

80%

85%

90%

95%

$7,000

$7,500

$8,000

$8,500

$9,000

$9,500

$10,000

Base Model

Tho

usan

ds

% of Tallow to other oils

IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

Year

9)



Feedstock"Other Oils" are Waste Cooking Oil (WCO)

Feedstock Variable Variable Outcome (Year 9)

IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total) % of Tallow to other oils

15.00% 100.00% 70.37% $11,123,817 $75,044,130 $7,230,481 $47,972,46210.00% 95.00% 72.47% $11,468,817 $77,589,630 $7,454,731 $49,636,839

5.00% 90.00% 74.56% $11,813,817 $80,135,130 $7,678,981 $51,301,217Base Model 0.00% 85.00% 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,248

-5.00% 80.00% 78.73% $12,503,817 $85,226,130 $8,127,481 $54,627,208-10.00% 75.00% 80.79% $12,848,817 $87,769,711 $8,351,731 $56,288,832-15.00% 70.00% 82.85% $13,193,817 $90,313,255 $8,575,981 $57,949,757-20.00% 65.00% 84.91% $13,538,817 $92,856,800 $8,800,231 $59,610,077-25.00% 60.00% 86.96% $13,883,817 $95,400,345 $9,024,481 $61,270,398-30.00% 55.00% 88.99% $14,228,817 $97,941,318 $9,248,731 $62,928,949-35.00% 50.00% 91.02% $14,573,817 $100,482,25

5$9,472,981 $64,587,153

Break Even 15.00% 100.00% 70.37% $11,123,817 $75,044,130 $7,230,481 $47,972,462"Other Oils" are Waste Cooking Oil (WCO)



Extreme



Raw Material Costs — Tallow

$200 $300 $400 $500 $600 $700 $800-50%

0%

50%

100%

150%

200%

($5)

$0

$5

$10

$15

$20

Base Model

Mill

ion

s

$ per tonne (average)

IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

Year

9)



Raw Material CostsTallow

Raw Material Costs


IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total) Tallow

-50.00% $232.65 144.15% $23,633,817 $167,411,211 $15,361,981 $108,207,930-40.00% $277.65 130.88% $21,338,817 $150,465,095 $13,870,231 $97,173,361-30.00% $322.65 117.51% $19,043,817 $133,518,978 $12,378,481 $86,131,003-20.00% $367.65 104.04% $16,748,817 $116,572,862 $10,886,731 $75,083,925-10.00% $412.65 90.44% $14,453,817 $99,626,746 $9,394,981 $64,030,253

Base Model 0.00% $457.65 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,24810.00% $502.65 62.46% $9,863,817 $65,734,514 $6,411,481 $41,875,08020.00% $547.65 47.70% $7,568,817 $48,788,398 $4,919,731 $30,722,91330.00% $592.65 32.29% $5,273,817 $31,842,282 $3,427,981 $19,462,90740.00% $637.65 14.72% $2,978,817 $14,896,166 $1,936,231 $7,836,43250.00% $682.65 -18.28% $683,817 ($2,049,950) ($24,500) ($9,107,738)

Break Even 46.37% $666.31 -0.00% $1,516,902 $4,101,490 $1,413,522 ($757,604)$ per tonne (average)

SENSITIVITY RATING


Extreme



Raw Material Costs - Waste Cooking Oil (WCO)

$100 $200 $300 $400 $500 $60065%

70%

75%

80%

85%

90%

$6,500

$7,000

$7,500

$8,000

$8,500

$9,000

$9,500

Base Model

Tho

usan

ds

$ per tonne (average)

IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

Year

9)



Raw Material CostsWaste Cooking Oil (WCO)

Raw Material Costs


IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total) Waste Cooking Oil (WCO)

-50.00% $175.00 86.13% $13,733,817 $94,310,318 $8,926,981 $60,559,567-40.00% $210.00 84.24% $13,418,817 $91,984,380 $8,722,231 $59,041,137-30.00% $245.00 82.35% $13,103,817 $89,658,443 $8,517,481 $57,522,706-20.00% $280.00 80.46% $12,788,817 $87,332,505 $8,312,731 $56,003,465-10.00% $315.00 78.55% $12,473,817 $85,006,568 $8,107,981 $54,483,857

Base Model 0.00% $350.00 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,24810.00% $385.00 74.74% $11,843,817 $80,354,693 $7,698,481 $51,444,64020.00% $420.00 72.82% $11,528,817 $78,028,755 $7,493,731 $49,923,77830.00% $455.00 70.90% $11,213,817 $75,702,818 $7,288,981 $48,402,86940.00% $490.00 68.98% $10,898,817 $73,376,880 $7,084,231 $46,881,96150.00% $525.00 67.01% $10,583,817 $71,050,943 $6,879,481 $45,359,001

Break Even 337.82% $1,532.37 0.00% $1,517,487 $4,105,810 $1,414,532 ($751,740)$ per tonne (average)

SENSITIVITY RATING


Extreme



Conversion Factors (Plant Efficiency) - BIODIESEL

70% 80% 90% 100% 110% 120% 130%-50%

0%

50%

100%

150%

$0

$5

$10

$15

$20

Base Model

47.7650.75

53.7356.72

59.7062.69

65.6768.66

71.6474.63

Mill

ions

per Kg Raw Material Input

IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

Year

9)



Conversion Factors (Plant Efficiency)BIODIESEL (Mill.Litres Output shown)

Conversion Factors (Plant Efficiency)


IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total)

Quantities (annual @

full production)

BIODIESEL (Mill.Litres Output shown) -25.00% 75.00% -5.02% $1,631,555 $4,960,320 $1,263,995 ($1,753,837) 44,775,000-20.00% 80.00% 15.41% $3,737,007 $20,504,382 $2,429,055 $11,238,080 47,760,000-15.00% 85.00% 30.72% $5,842,460 $36,048,444 $3,797,599 $22,009,099 50,745,000-10.00% 90.00% 45.56% $7,947,912 $51,592,506 $5,166,143 $32,436,321 53,730,000

-5.00% 95.00% 60.82% $10,053,364 $67,136,568 $6,534,687 $42,740,572 56,715,000Base Model 0.00% 100.00% 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,248 59,700,000

5.00% 105.00% 93.10% $14,264,269 $98,224,844 $9,271,775 $63,155,044 62,685,00010.00% 110.00% 106.06% $16,369,721 $113,771,354 $10,640,319 $73,294,661 65,670,00015.00% 115.00% 118.91% $18,475,174 $129,317,864 $12,008,863 $83,428,611 68,655,00020.00% 120.00% 131.68% $20,580,626 $144,864,373 $13,377,407 $93,558,963 71,640,00025.00% 125.00% 144.35% $22,686,078 $160,410,883 $14,745,951 $103,681,709 74,625,000

Break Even -24.23% 75.77% 0.00% $1,955,795 $7,354,105 $1,287,630 $1,015,394 45,234,690per Kg Raw Material Input litres

SENSITIVITY RATING

Nil Minor Moderate Significant Very Significant Extreme



Conversion Factors (Plant Efficiency) — GLYCERINE

7% 8% 9% 10% 11% 12% 13%65%

70%

75%

80%

85%

$7,000

$7,500

$8,000

$8,500

$9,000

Base Model

5.205.51

5.816.12

6.436.73

7.047.34

7.65

Thou

san

ds


IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

Year

9)



Conversion Factors (Plant Efficiency)GLYCERINE (Mill.Kg Output shown)



IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total)


full production)

GLYCERINE (Mill.Kg Output shown) -25.00% 7.65% 70.26% $11,109,594 $74,933,243 $7,221,236 $47,899,652 4,590,000-20.00% 8.16% 71.55% $11,319,438 $76,482,720 $7,357,635 $48,912,840 4,896,000-15.00% 8.67% 72.83% $11,529,283 $78,032,198 $7,494,034 $49,926,029 5,202,000-10.00% 9.18% 74.10% $11,739,127 $79,581,675 $7,630,433 $50,939,217 5,508,000

-5.00% 9.69% 75.38% $11,948,972 $81,131,153 $7,766,832 $51,951,926 5,814,000Base Model 0.00% 10.20% 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,248 6,120,000

5.00% 10.71% 77.92% $12,368,661 $84,230,108 $8,039,630 $53,976,571 6,426,00010.00% 11.22% 79.19% $12,578,506 $85,779,585 $8,176,029 $54,988,894 6,732,00015.00% 11.73% 80.45% $12,788,350 $87,329,063 $8,312,428 $56,001,216 7,038,00020.00% 12.24% 81.72% $12,998,195 $88,878,540 $8,448,827 $57,013,539 7,344,00025.00% 12.75% 82.98% $13,208,040 $90,428,018 $8,585,226 $58,025,104 7,650,000

Break Even -100.00% 0.00% 50.27% $7,961,925 $51,691,079 $5,175,251 $32,641,708 0per Kg Raw Material Input

SENSITIVITY RATING Kilograms

Cannot force break even


Extreme



Conversion Factors (Plant Efficiency) — FERTILISER

1.60% 1.80% 2.00% 2.20% 2.40% 2.60% 2.80%76400%

76500%

76600%

76700%

76800%

76900%

$7,880

$7,890

$7,900

$7,910

$7,920

$7,930

Base Model

1,056

1,122

1,188

1,254

1,320

1,386

1,452

1,518

1,584

1,650

Thou

san

dth

s

Tho

usa

nds


IRR

(9

Year

s)

Op

erat

ing

Pro

fit A

fter

Tax

(Ye

ar 9

)



Conversion Factors (Plant Efficiency)FERTILISER (Tonnes Output shown)



IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total)


full production)

FERTILISER (Tonnes Output shown) -25.00% 1.65% 76.45% $12,126,488 $82,441,915 $7,882,217 $52,808,288 990-20.00% 1.76% 76.49% $12,132,953 $82,489,658 $7,886,420 $52,839,480 1,056-15.00% 1.87% 76.53% $12,139,419 $82,537,401 $7,890,623 $52,870,672 1,122-10.00% 1.98% 76.57% $12,145,885 $82,585,144 $7,894,825 $52,901,864 1,188

-5.00% 2.09% 76.61% $12,152,351 $82,632,887 $7,899,028 $52,933,056 1,254Base Model 0.00% 2.20% 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,248 1,320

5.00% 2.31% 76.69% $12,165,282 $82,728,373 $7,907,434 $52,995,440 1,38610.00% 2.42% 76.73% $12,171,748 $82,776,116 $7,911,636 $53,026,632 1,45215.00% 2.53% 76.77% $12,178,214 $82,823,859 $7,915,839 $53,057,824 1,51820.00% 2.64% 76.81% $12,184,680 $82,871,602 $7,920,042 $53,089,016 1,58425.00% 2.75% 76.84% $12,191,146 $82,919,345 $7,924,245 $53,120,208 1,650

Break Even -100.00% 0.00% 75.87% $12,029,501 $81,725,770 $7,819,175 $52,340,408 0per Kg Raw Material Input

SENSITIVITY RATING Tonnes


Extreme



Price Received - Biodiesel Fuel

$0.50 $0.55 $0.60 $0.65 $0.70 $0.75 $0.80 $0.85 $0.90 $0.950%

50%

100%

150%

$0

$5

$10

$15

$20

Base Model

Mill

ion

s

Per litre (wholesale price)

IRR

(9

Year

s)

Ope

rati

ng P

rofit

Aft

er T

ax (

Year

9)



Price ReceivedBioDiesel Fuel

Price Received


IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)


Operating Profit After Tax (9 Year Total)

BioDiesel Fuel -25.00% $0.54 1.65% $1,620,739 $4,866,110 $1,486,205 $173,108-20.00% $0.58 21.01% $3,728,355 $20,429,014 $2,423,431 $11,716,813-15.00% $0.61 36.15% $5,835,970 $35,991,918 $3,793,381 $22,232,370-10.00% $0.65 50.15% $7,943,586 $51,554,822 $5,163,331 $32,551,725

-5.00% $0.68 63.65% $10,051,201 $67,117,726 $6,533,281 $42,782,192Base Model 0.00% $0.72 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,248

5.00% $0.76 89.32% $14,266,432 $98,243,534 $9,273,181 $63,127,28810.00% $0.79 101.83% $16,374,048 $113,806,438 $10,643,131 $73,280,33815.00% $0.83 114.23% $18,481,663 $129,369,342 $12,013,081 $83,426,86320.00% $0.86 126.53% $20,589,279 $144,932,246 $13,383,031 $93,568,12925.00% $0.90 138.76% $22,696,894 $160,495,150 $14,752,981 $103,705,737

Break Even -25.24% $0.54 0.00% $1,517,677 $4,105,084 $1,414,566 ($753,675)

Per litre (wholesale price) SENSITIVITY RATING




Price Received - Crude Glycerine

$0.50 $0.60 $0.70 $0.80 $0.9065%

70%

75%

80%

85%

$7,000

$7,500

$8,000

$8,500

$9,000

Base Model

Tho

usa

nds

Per Kilogram

IRR

(9

Year

s)

Ope

rati

ng P

rofit

Aft

er T

ax (

Year

9)



Price ReceivedCrude Glycerine

Price Received


IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Crude Glycerine -25.00% $0.53 70.26% $11,109,594 $74,933,243 $7,221,236 $47,899,652-20.00% $0.56 71.55% $11,319,438 $76,482,720 $7,357,635 $48,912,840-15.00% $0.60 72.83% $11,529,283 $78,032,198 $7,494,034 $49,926,029-10.00% $0.63 74.10% $11,739,127 $79,581,675 $7,630,433 $50,939,217

-5.00% $0.67 75.38% $11,948,972 $81,131,153 $7,766,832 $51,951,926Base Model 0.00% $0.70 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,248

5.00% $0.74 77.92% $12,368,661 $84,230,108 $8,039,630 $53,976,57110.00% $0.77 79.19% $12,578,506 $85,779,585 $8,176,029 $54,988,89415.00% $0.81 80.45% $12,788,350 $87,329,063 $8,312,428 $56,001,21620.00% $0.84 81.72% $12,998,195 $88,878,540 $8,448,827 $57,013,53925.00% $0.88 82.98% $13,208,040 $90,428,018 $8,585,226 $58,025,104

Break Even -100.00% $0.00 50.27% $7,961,925 $51,691,079 $5,175,251 $32,641,708Per Kilogram





Price Received - Fertiliser (Potassium Sulphate)

60 80 100 120 14076400%

76500%

76600%

76700%

76800%

76900%

$7,880

$7,890

$7,900

$7,910

$7,920

$7,930

Base Model

Tho

usa

ndth

s

Tho

usan

ds

Per Tonne

IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

Year

9)



Price Received

Fertiliser (Potassium Sulphate)

Price Received


IRR (9 Years)

EBIT (Year 9) EBIT (9 Year Total)



Fertiliser (Potassium Sulphate) -25.00% $75.00 76.45% $12,126,488 $82,441,915 $7,882,217 $52,808,288-20.00% $80.00 76.49% $12,132,953 $82,489,658 $7,886,420 $52,839,480-15.00% $85.00 76.53% $12,139,419 $82,537,401 $7,890,623 $52,870,672-10.00% $90.00 76.57% $12,145,885 $82,585,144 $7,894,825 $52,901,864

-5.00% $95.00 76.61% $12,152,351 $82,632,887 $7,899,028 $52,933,056Base Model 0.00% $100.00 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,248

5.00% $105.00 76.69% $12,165,282 $82,728,373 $7,907,434 $52,995,44010.00% $110.00 76.73% $12,171,748 $82,776,116 $7,911,636 $53,026,63215.00% $115.00 76.77% $12,178,214 $82,823,859 $7,915,839 $53,057,82420.00% $120.00 76.81% $12,184,680 $82,871,602 $7,920,042 $53,089,01625.00% $125.00 76.84% $12,191,146 $82,919,345 $7,924,245 $53,120,208

Break Even -100.00% $0.00 75.87% $12,029,501 $81,725,770 $7,819,175 $52,340,408

Per Tonne SENSITIVITY RATING Cannot force Break even




Overdraft Interest Rate p.a.

0.00%2.00%

4.00%6.00%

8.00%10.00%

12.00%14.00%

16.00%18.00%

20.00%65%

70%

75%

80%

85%

$51,000

$51,500

$52,000

$52,500

$53,000

$53,500

$54,000

Base Model

Th

ou

sa

nd

s


IRR

(9

Year

s)

Ope

ratin

g P

rofit

Aft

er T

ax (

9 Ye

ar T

otal

)






IRR (9 Years)

EBIT (Year 9) EBIT (9 Year Total)



-8.00% 0.00% 81.35% $12,158,817 $82,680,630 $7,903,231 $53,742,410-6.00% 2.00% 80.19% $12,158,817 $82,680,630 $7,903,231 $53,559,189-4.00% 4.00% 79.02% $12,158,817 $82,680,630 $7,903,231 $53,368,602-2.00% 6.00% 77.84% $12,158,817 $82,680,630 $7,903,231 $53,170,381

Base Model 0.00% 8.00% 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,2482.00% 10.00% 75.45% $12,158,817 $82,680,630 $7,903,231 $52,749,9184.00% 12.00% 74.24% $12,158,817 $82,680,630 $7,903,231 $52,525,9226.00% 14.00% 72.92% $12,158,817 $82,680,630 $7,903,231 $52,287,9048.00% 16.00% 71.58% $12,158,817 $82,680,630 $7,903,231 $52,038,502

10.00% 18.00% 70.23% $12,158,817 $82,680,630 $7,903,231 $51,774,80312.00% 20.00% 68.86% $12,158,817 $82,680,630 $7,903,231 $51,496,805

Break Even 59.75% 67.75% 0.00% $12,158,817 $82,680,630 $8,395,144 ($749,557)

SENSITIVITY RATING


A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report DISCLAIMER & QUALIFICATION BY CONSULTANT


Plant Commissioning — Effect of "Ramp Up" Period

10 15 20 25 30 35 40 4565%

70%

75%

80%

85%

90%

$51

$52

$53

$54

$55

$56

Base Model

30-Jan-200419-Feb-2004

11-Mar-200431-Mar-2004

20-Apr-200411-May-2004

31-May-200420-Jun-2004

10-Jul-200431-Jul-2004

20-Aug-2004

Mill

ion

s

Period to full Production (weeks) from Plant Construction completion

IRR

(9

Year

s)

Op

erat

ing

Pro

fit A

fter

Tax

(9

Year

Tot

al)



Plant Commissioning (date of Full Production shown)Effect of "Ramp Up" Period

Plant Commissioning (date of Full Production shown)


IRR (9 Years)

EBIT (Year 9)

EBIT (9 Year Total)



Total)

Full Production commences

Effect of "Ramp Up" Period -50.00% 15 88.30% $12,158,817 $85,485,217 $7,903,231 $54,921,823 30-Jan-2004

-40.00% 17 86.72% $12,158,817 $85,135,282 $7,903,231 $54,677,335 19-Feb-2004

-30.00% 20 85.43% $12,158,817 $84,842,822 $7,903,231 $54,472,445 11-Mar-2004

-20.00% 23 83.88% $12,158,817 $84,484,676 $7,903,231 $54,222,557 31-Mar-2004

-10.00% 26 77.91% $12,158,817 $83,013,433 $7,903,231 $53,194,917 20-Apr-2004

Base Model 0.00% 29 76.65% $12,158,817 $82,680,630 $7,903,231 $52,964,248 11-May-2004

10.00% 32 75.42% $12,158,817 $82,348,287 $7,903,231 $52,734,533 31-May-2004

20.00% 35 74.21% $12,158,817 $82,029,101 $7,903,231 $52,512,397 20-Jun-2004

30.00% 38 72.87% $12,158,817 $81,686,193 $7,903,231 $52,272,390 10-Jul-2004

40.00% 41 71.68% $12,158,817 $81,371,018 $7,903,231 $52,052,039 31-Jul-2004

50.00% 44 70.53% $12,158,817 $81,027,637 $7,903,231 $51,811,954 20-Aug-2004

Break Even 5750.00% 1,697 0.51% $12,158,817 $10,569,920 $11,660,948 ($70,423) 25-Apr-2036

Period to full Production (weeks) from Plant Construction completion

SENSITIVITY RATING Break even data unreliable - cannot force break even for all practical purposes


Extreme

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report APPENDICES


111333... DDDIIISSSCCCLLLAAAIIIMMMEEERRR &&& QQQUUUAAALLLIIIFFFIIICCCAAATTTIIIOOONNN BBBYYY CCCOOONNNSSSUUULLLTTTAAANNNTTT It should be noted that much of the data and material presented in this Feasibility Study, including financial data, has been sourced from external records including information provided by the Client. These results have been made available to the consultant for analysis. Our report is prepared on the basis that full disclosure of all information and facts which may affect our report and / or advice has been made, and therefore the Consultant cannot accept any liability or responsibility whatsoever for the report and / or any advice contained therein unless such full disclosure has been made. In accordance with the normal practice of Global Solutions 4 Pty Ltd, I confirm that this report58 is confidential to, and solely for use of A J Bush (Manufactures) Pty Ltd, subject to its provision to the Department of State Development (as instructed). No responsibility is accepted to any third party who relies on the whole or any part of our report.

Finally, neither the whole of the report nor any part or reference thereto, may be published in any document, statement or circular nor in any communication with third parties without the prior authorisation and written approval by Global Solutions 4 Pty Ltd of the form and context in which it will appear.

GARY OWEN GARNER B.Bus., A.V.L.E.(Val.), Assoc.Dip.Val., P.Ag., Dip.Ag., A.I.M.M., M.A.A.A.C. Registered Valuer (Qld) No. 1959 On behalf of the Consulting Team

58 The majority of financial information has been prepared from information provided by either the client

or other third party providers, and whilst every care has been taken with its preparation no responsibility is accepted by Global Solutions 4 Pty Ltd or its employees for the accuracy of any data contained herein.



111444... AAAPPPPPPEEENNNDDDIIICCCEEESSS

FORECAST PLANT CONSTRUCTION SCHEDULE

Our best estimate for completion of the Plant Construction phase is October 2003, with full production by May 2004, as shown in the table below (these dates have been used in the Financial Model):

Stage Milestone Date for Completion

Plant Construction 1 A J Bush Board Review 5 Jun '02 2 Further Engineering & Economic Evaluation 3 Jul '02 3 Prepare Tender documents for O/S Vendors 24 Jul '02 4 Tender Period for selected bidders 4 Sep '02 5 Evaluate and Award Bio-diesel tender contract 7 Oct '02 6 A J Bush Commit and award contract 21 Oct '02 7 Plant Construction commences 21 Oct '02 8 Overseas Vendor engineering 4 Mar '03 9 Delivery of vendor equipment 2 Jan '03

10 Australian site engineering 2 Dec '02 11 Prepare site engineering bid documents 31 Dec '02 12 Bid period for local vendors 21 Jan '03 13 Award site work contracts 4 Feb '03 14 Site construction, earthworks and fabrication 19 Sep '03 15 Plant pre-commissioning 20 Oct '03 16 Plant commissioning 27 Oct '03 17 Bio-diesel Plant Production / handover to A J Bush 28 Oct '03 18 Plant Construction completed 28 Oct '03 19 Ramp Up Period (Production) 11 May '04 20 Full production commences 11 May '04

The above table has been integrated into the Project scheduling generally, and is shown in greater detail as an attachment to this Report.

The Consultants further comment that the schedule may be fast-tracked forward to June 2003, dependant primarily on Item 14 (above), Site construction, earthworks and fabrication.



EUROPEAN SITE VISITATION ITINERARY

Bio-diesel European Site Visitation - Objectives

The primary objectives of the overseas site visitations were as follows:

1. Vendors

� Establishing relationships � To establish Typical Primary Feedstock Composition required to comply

to most current stringent standard (DIN E 51606), � To detail exactly what is offered with the proposals, � Resolve outstanding production construction and process issues.

2. Producers

� To determine attributes that make a bio-diesel plant a successful one, � To determine key sensitivities and constraints for bio-diesel operation and

production, � To establish the most efficient plant layout format, � To inspect vendors installations, � To determine whether vendor technical support is ongoing and sufficient, � To establish if anything could be altered what would it be.

Bio-diesel Vendor Site Visits

The following vendor offices were visited:

� Energea: Vienna, Austria (by OSD) � Lurgi: Frankfurt, Germany (by OSD) � Bio Diesel Technologies: Germany (by OSD) � Biodiesel International: Graz, Austria (by AJ Bush Management)

Bio-diesel Plant Site Visits

The following sites were visited:

1. Zistersdorf, Austria (Energea)

Specifics: 40,000 t/yr, Feedstock – Waste Vegetable Oil(WVO) + (rapeseed & soya oils)

2. Oberusel (Frankfurt, Germany) - Lurgi

Discussions only – no plant site visit (Lurgi have a 60,000t/annum plant in Houston which was originally designed for beef tallow but is now processing VO and WVO. The output of the plant is not BioDiesel, but fatty acids and



glycerine for sale to the pharmaceutical sector and other soap manufacturers. Lurgi advised that minimal change is required to produce BioDiesel)

3. Bio Diesel Technologies

Small scale production plant available only – no plant site inspection. (BioDiesel Technologies existing plant is 6000t/annum, which is significantly less than the AJ Bush (Manufactures) Pty Ltd target 60,000t/annum. The plant was not inspected, as it is in Slovakia.)59

4. Malchin, Germany (BDI)

Specifics: 12000t/yr, Feedstock – Crude rape seed oil + tallow + WCO Key Aspects: tallow included as feedstock, new plant operating since October 2001

5. Niederpoellnitz, Germany (BDI): note- plant under construction, start-up scheduled for March 2002 (since delayed)

Specifics: 50,000 t/yr, Feedstock – rape seed oil/topdegummed +tallow Key Aspects: 50,000 t/yr plant, tallow as feedstock, under construction

6. Visit to the Austrian Biofuels Institute.

59 Bio-Diesel Technologies are proposing to commission a plant 40km south of Vienna shortly. They have

invited AJ Bush (Manufactures) Pty Ltd to inspect the plant post commissioning. The plant shall be operating on waste vegetable oil and rape seed. They have advised that the plant is suitable for beef tallow, providing a pre treatment plant is installed.



PRO-FORMA REQUEST FOR INFORMATION: BIODIESEL PRODUCTION FROM TALLOW & WASTE COOKING OIL

The following information was used as a basis for discussions with potential vendors:

BACKGROUND

A.J. Bush and Sons (Manufactures) Pty Ltd is an Australian company, which owns and operates two meat and poultry co-product processing (rendering) plants in Australia. One plant is in Sydney and another is outside Brisbane. These plants produce high-grade protein meals and tallows, the tallows being a potential feedstock for bio-diesel production plant.

A feasibility study is currently being conducted for a bio-diesel production facility. The Project Feasibility Team is headed by Global Solutions·4, and comprises of other consultants being OSD Project Developers, Hollingsworth Project Consultants, and Peter Stone – Chemical and Environmental Engineers. OSD are the project engineers and Peter Stone and associates are the process engineers. This study initially involves process selection, from which we shall then investigate all aspects of the plant operation and construction as well as the financial model of the process. It is the intention of AJ Bush to construct a plant to be operable within 12 months. Finance has been approved for this project. An inspection of overseas facilities is scheduled for early November 2001 to validate information received from this enquiry.

The initial bio-diesel production facility is likely to be located adjacent to the rendering plant at Beaudesert outside Brisbane. This plant location has been chosen to take advantage of, and utilise any existing infrastructure For example, steam (available at 10 bar), water, and compressed air from the rendering plant. Land restrictions for the proposed plant are not considered an issue.

A summary of the proposed plant is as follows:

• Capacity: 50,000 tpa Bio-diesel

• Feedstock: 35,000 tpa tallow, of which FFA content is normally from 2 – 5%, but can be as high as 10 – 15%. The remainder 15,000 tpa is expected to be made up from waste cooking oil (as received from restaurants and fast food outlets – “yellow grease”), and possibility to utilise oil seeds.

• Product quality: Biodiesel suitable for use in automotive and marine engines (up to 100% replacement for petroleum based diesel).

INFORMATION REQUIRED

1. Process Description including a Block Flow Diagram, listing of major plant items and a description of the process control system offered. Is process batch,



semi-continuous, or continuous? (The preference is for a continuous process, unless there are economic reasons otherwise.)

2. Technological and economic advantages over competing processes and/or suppliers

3. Yield of biodiesel and of by-products as a function of input types and qualities

4. Quality of product and by-products produced. Can your biodiesel be used 100% neat or must it be blended with petrodiesel?

5. Scope of supply and lead time required (including size of shipment, i.e. Number of sea containers if supplied as a package unit)

6. Bio-diesel quality would comply with what bio-diesel standard?

7. Marketable by-product (i.e. Glycerine) quality expectations?

8. Budget pricing for scope of supply offered

9. Estimate of extra cost for items outside of scope of supply (e.g. off sites such as feed/product storage, utility generation, civil works, installation etc. if these are outside the scope offered)

10. Utility Consumption

11. Manning requirements

12. Maintenance costs

13. Plant Layout with approximate dimensions

14. What types of process guarantees offered? E.g. quality, capacity, utility usage

15. List of reference plants (location, year commissioned, capacity, feedstock)

16. Environmental considerations including type and quantity of discharges, if any

17. Need for laboratory, pilot or plant scale trials

18. Availability of technical back-up

19. Critical factors affecting success of a project of this nature

20. Recent technological advances

21. Implications of utilising ethanol, in place of methanol, within process. This is due to the higher local cost of methanol. What quality of methanol/ethanol is required?

22. Terms and Conditions associated with use of systems and technologies.

23. Location (i.e. Internet) of promotional information of bio-diesel plants and technology.

24. Any promotional material



BIODIESEL STANDARDS A comparison of the current world standards is provided in the table below60:

Austria Czech Rep’lic France Germany Italy Sweden USA

Standard/ ON C1191 CSN 65 Journal DIN E UNI 10635 SS 155436 ASTM

Date 1-Jul-97 Sep-98 14-Sep-97 Sep-97 21-Apr-97 27-Nov-96 Jul-99

Application FAME RME VOME FAME VOME VOME FAMAE

Density 15°C g/cm3 0.85-0.89 0.87-0.89 0.87-0.90 0.875-0.90 0.86-0.90 0.87-0.90 -

Viscosity 40°C mm2/s 3.5-5.0 3.5-5.0 3.5-5.0 3.5-5.0 3.5-5.0 3.5-5.0 1.9-6.0

Distillation 95% C - - < 360 - < 360 - -

Flashpoint C > 100 > 110 > 100 > 110 > 100 > 100 > 100

CFPP C 0/-15 -5 - 0/-10/-20 - -5 -

Pourpoint C - - < -10 - < 0/< -15 - -

Sulfur % mass < 0.02 < 0.02 - < 0.01 < 0.01 < 0.001 < 0.05

CCR 100% % mass < 0.05 < 0.05 < 0.05 < 0.05

10% dist.resid. % mass < 0.3 < 0.5 -

Sulfated ash % mass < 0.02 < 0.02 - < 0.03 - - < 0.02

(Oxid) Ash % mass - - - - < 0.01 < 0.01 -

Water mg/kg - < 500 < 200 < 300 < 700 < 300 < 0.05%

Total contam. mg/kg - < 24 - < 20 - < 20 -

Cu-Corros. 3h/50°C - 1 - 1 - - < No.3

Cetane No. - > 49 > 48 > 49 > 49 - >48 >40

Neutral. No. mgKOH/g < 0.8 < 0.5 < 0.5 < 0.5 < 0.5 < 0.6 < 0.8

Methanol % mass < 0.20 - < 0.1 < 0.3 < 0.2 < 0.2 -

Ester content % mass - - > 96.5 - > 98 > 98 -

Monoglycides % mass - - < 0.8 < 0.8 < 0.8 < 0.8 -

Diglyceride % mass - - < 0.2 < 0.4 < 0.2 < 0.1 -

Triglyceride % mass - - < 0.2 < 0.4 < 0.1 < 0.1 -

Free glycerol % mass < 0.02 < 0.02 < 0.02 < 0.02 < 0.05 < 0.02 < 0.02

Total glycerol % mass < 0.24 < 0.24 < 0.25 < 0.25 - - < 0.24

Iodine No. < 120 - < 115 < 115 - < 125 -

C18:3 & high. unsat. acids % mass < 15 - - - - - -

Phosphor mg/kg < 20 < 20 < 10 < 10 < 10 < 10 -

Alcaline met. (Na, K) mg/kg - < 10 < 5 < 5 - < 10 -

RME.........Rapeseed oil Methyl Ester

FAME.......Fatty Acid Methyl Ester >.........Greater than

VOME......Vegetable Oil Methyl Ester <.........Less than

MEAT INDUSTRY CO-PRODUCTS SUMMARY STATISTICS61

60 Source: All standards information courtesy of BLT Wieselburg Austria 61 Source: December 01 co-products monitor summary - Co-products monitor, Meat & Livestock Australia

– downloaded from http://www.mla.com.au/content.cfm?sid=999



FAT CLASSIFICATION AND STANDARDS

Source: Dupps, located at http://www.dupps.com/



Fat Titer F.A.C. Color Limit

% F.F.A.

LardPork Prod.

Saleability 1/2

Choice White GreasePork Prod.

7-9 4

B White Grease None 17-19 8-10

Yellow Grease None 31-37 10-15

Yellow Grease None 37-41 20-25

Brown Grease None 41-45 25-30

Tallow (Edible) 41 1 1/2

Fancy Tallow 42-43 3-5 11/2-3

Prime Tallow 42-43 7-11 3-5

Special Tallow 42 19 10

No. 1 Tallow 42 21 12

No. 3 Tallow 41 37 15

The above classification represents generally accepted standards, although subject to some change by particular buyer specifications. Present Government regulations have affected this classification.



COMPOSITION OF RAW MATERIALS FOR INEDIBLE RENDERING


Source Tallow/greasewt%

Protein solids wt%

Moisture wt%

Packing house offal and bone

Steers 30-35 15-20 45-55

Cows 10-20 20-30 50-70

Calves 10-15 15-20 65-75

Sheep 25-30 20-25 45-55

Sheep 25-30 20-25 45-55

Hogs 25-30 10-15 55-65

Dead stock (whole animals)

Cattle 12 25 63

Calves 10 22 68

Sheep 22 25 53

Hogs 30 28 42

Butcher shop fat and bone

31 32 37

Blood none 16-18 82-84

Restaurant grease

65 10 25

Poultry offal 10 25 65

Poultry feathers none 33 67



AMERICAN FATS AND OILS ASSOCIATION SPECIFICATIONS FOR TALLOWS AND GREASES


Grades - Specifications

TITRE MIN °C

FFA max

FACmax

R&Bmax

MIU

1) Edible tallow 41.0 0.75 3 none *

2) Lard (edible) 38.0 0.50 ** none *

3) Top white tallow 41.0 2 5 0.5 1

4) All beef packer tallow 42.0 2 none 0.5 1

5) Extra fancy tallow 41.0 3 5 none 1

6) Fancy tallow 40.5 4 7 none 1

7) Bleachable fancy tallow 40.5 4 none 1.5 1

8) Prime tallow 40.5 6 13-11B none 1

9) Special tallow 40.0 10 21 none 1

10) No 2 tallow 40.0 35 none none 2

11) A tallow 36.0 15 39 none 2

12) Choice white grease 36.0 4 13-11B none 1

13) Yellow grease *** 15 39 none 2

* Moisture maximum 0.20%. Insoluble impurities maximum 0.05%

**Lovibond colour 5 1/4 inch cell - max 1.5 red. Lard peroxide value 4.0 ME/K max

***Titre minimum, when required, to be negotiated between buyer and seller on a contract basis.



FEDERAL GOVERNMENT SUBSIDY ANNOUNCEMENT

$50 MILLION BOOST FOR BIO-FUELS INDUSTRY

The Coalition today announced a comprehensive commitment to the biofuels industry to provide cleaner fuels and more than 1000 permanent jobs in regional Australia.

The Minister for Agriculture, Fisheries and Forestry, Warren Truss, said that a re-elected Coalition Government would implement a $50 million program to ensure bio-fuels provide 2% of Australia’s transport fuel consumption by the year 2010.

The announcement is part of the Coalition’s commitment to promote the use of bio-fuels, such as ethanol and biodiesel, which will have both environmental and economic benefits.

Mr Truss said that under the Government’s target, transport use of bio-fuels will increase from the current level of 40 million litres per year to 350 million litres by the year 2010.

"This equates to about 2% of the current petrol market, or 1% of the total liquid fuel market," Mr Truss said.

"As an incentive to achieve this objective, the Coalition will offer a capital subsidy of 16 cents for each litre of new or expanded bio-fuel production capacity constructed, which is estimated to be the equivalent of a subsidy of about 16% on new plant.

"The subsidy will be paid until the 350 million litres target is reached, or until June 30 2007, whichever occurs first.

The Liberal/National Parties’ bio-fuel policy will provide a consistent and integrated approach to the production, blending and distribution of bio-fuels.

"More jobs, more efficient use of waste products, and an additional income stream for industry and farmers are just some of the benefits that will flow from developing the market for bio-fuels. A large proportion of the new bio-fuel investment is expected to be in country areas.

"At least five new ethanol distilleries are expected to be established under this program. This will generate around 2300 construction jobs and 1100 permanent jobs, mostly in rural areas.



"Improved air quality in our cities and a reduction in greenhouse gas emissions will be obvious environmental benefits from this strategy. Tailpipe pollution from urban vehicles will be reduced by around 40 tonnes per year, in addition to greenhouse gas savings.

The greater use of domestically produced bio-fuels will also reduce Australia’s dependency on imported petroleum products.

"The good news about bio-fuels is that they can be easily blended with petroleum without requiring new distribution infrastructure or engine modifications.

"Bio-fuels can also replace existing petroleum additives which are currently used to enhance octane levels, such as MTBE which has been implicated in groundwater contamination.

"In more good news for the bio-fuels industry, the Coalition announced today that the current excise exemption for fuel ethanol will be retained. This will provide the industry with the security necessary for new investment to take place."

"Funding for the biofuels initiative will be provided through the $400 million Greenhouse Gas Abatement Program.

ENDS

31 October 2001



PROJECT INFORMATION BROCHURE (PREPARED BY THE CONSULTANT)

A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report ATTACHMENTS


A.J. Bush & Sons (Manufactures) Pty Ltd Feasibility Study for Bio-diesel Production Facility Final Report ATTACHMENTS


111555... AAATTTTTTAAACCCHHHMMMEEENNNTTTSSS

FORECAST PROJECT DELIVERY / PLANT CONSTRUCTION SCHEDULE

FINANCIAL MODEL — SUMMARY DATA

FINANCIAL MODEL — YEARLY CASH FLOW / PROFIT & LOSS STATEMENT SUMMARY

FINANCIAL MODEL — MONTHLY CASH FLOW / PROFIT & LOSS STATEMENTS (9 YEARS)

FINANCIAL MODEL — BALANCE SHEET SCHEDULE & FINANCIAL RATIOS

feasibility study biodiesel production · a.j. bush & sons (manufactures) pty ltd page 2...

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