GSR is partnering with a highly experienced agro value added project management and marketing company based in West Africa to develop a peanut oil mill in Nigeria. The joint venture - Patriot Nigeria Oil Mills (PNOM), will build and operate a peanut processing facility handling about 200,000 tons of raw peanuts annually- providing the highest standards of peanut oil and related peanut by-products to local, regional and international markets. Multiple product lines have been identified as financially viable which includes the sales of crude peanut oil to refiners and oil processors, direct sales of refined peanut oil, peanut meal for livestock use and free fatty acids for soap manufacturing. The mill will facilitate the rapid growth of around 20 GSR village corporations by guaranteeing the purchase of their peanut crops - over $70 Million of raw peanuts at current market prices. This will immediately assure about 20,000 farmers an annual income of as much as $3500 per year (which is almost double the current PCI in that area). By adopting GSR’s advanced amrut mitthi soil rejuvenation techniques, diversifying crops and by developing vertical integration through building packaging plants for retail sales of peanut products and a distribution network, this amount can increase significantly far beyond this initial amount. A wide variety of small scale industries, aimed at satisfying needs in the local market, will be funded from profits. By financing this secondary development based on the initial success of the low risk milling operation, GSR will be able to fuel sustained local economic growth and profitability at very low risk.
The Nigerian government has invited the joint venture to help integrate the country’s three million ton per year peanut crop, and has provided it with an in-depth business development analysis that highlights the compelling business opportunity. GSR’s own assessment, explained in detail in its business plan, has lead the company to conclude that this project has significant profit potential. With a capital expenditure of $22 million and a cash flow requirement of $21 million (covering three months of operating expenses) , PNOM projects an annual profit of over $20 million in Year One increasing to $36 million by Year Three. The 5 year IRR is estimated at 68%. The potential to expand this industry later on is obviously very great, and this GSR JV will be ideally situated to take advantage of this opportunity. There are many companies – both international big players and local companies that would like to jump in to this business, but there are certainly challenges in this process.
Integrating agro value added projects with fast track village development
GSR is uniquely situated to take advantage of Nigeria’s untapped agro based economic potential due to:
• Experience – GSR’s partner’s extensive experience in edible oil production and marketing.
• Distribution connections - production from the proposed facility is pre-sold prior to the plant’s construction due to the company’s close broker relationships with large scale buyers. Buyers have committed to purchase as much oil as GSR can process.
• Government connections - PNOM enjoys close ties to Nigeria’s government and business leaders. The Nigerian government is offering GSR a 20 year tax free status, 75% backing on all investment funds and 100% repatriation of profits.
• Local market disarray-Nigeria and West Africa currently import large quantities of refined oil for domestic use due to an underdeveloped supply and processing chain.
• Small farmer empowerment– GSR’s connection with this mill project will result in enthusiastic support from local farmers
The project will require $43 million in total funding. PNOM is in discussions with the Export Import Bank of India to provide $22 million covering the cost of equipment (manufactured in India) under a 10 year 2.5% loan with 1 year grace period. The remaining $21 million will cover 3 month operating costs. As PNOM, through previously arranged commitments, will be able to sell its products immediately at the end of every month and receive payment within days, three months expenses would be sufficient to satisfy obligations and expand the business steadily. PNOM team’s extensive experience in the edible oil mill operations has developed close working relationships with the peanut brokers in Nigeria and with government officials further enhances the businesses success potential. Complete details and financial projection are available in the business plan.