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UPDATE - Dekeloil supplier takes shares at hefty premium

The agreement is part of a plan to increase CPO production towards the mill's 70,000 tonnes per annum capacity.
UPDATE - Dekeloil supplier takes shares at hefty premium
The smallholder will supply fresh fruit bunches

-- adds broker comment, share price --

Ivory Coast-based palm oil supplier DekelOil (LON:DKL) has agreed a six months processing deal with a smallholder to be partly paid in shares at a substantial market premium.

DekelOil said the small holder, who owns 1,000ha of mature estates, asked for half of the consideration in shares at 1.52p each against yesterday’s close of 1.1p.

The agreement is subject to a minimum stock settlement equivalent to £117,000 and a cap of £235,000.

The smallholder will supply fresh fruit bunches for processing through DekelOil’s 60t/hr crude palm oil (CPO) processing plant.

Lincoln Moore, executive director, said: "We view the smallholder's request to be partially paid in shares of DekelOil priced at a premium to the current market price as a strong endorsement of our company and its near term valuation potential."

DekelOil added the agreement was part of a plan to increase CPO production towards the mill's 70,000 tonnes per annum capacity.  CPO production was 35,770 tonnes in 2015, a 150% increase.

Cantor Fitzgerald adds that while relatively small, it was an innovative deal and points the way to sustainable relationships with the small holders upon whom the company is reliant for supply.

While the volume to be supplied was not disclosed, based on the cap Cantor suggests it was €630,000 or roughly 10% of 6 month’s feedstock cost.

Building stronger relationships with its suppliers will help to guarantee long term sustainably feedstock supplies for the mill.

Cantor has a 2p target price, with the principal risk it sees as  further weakness in the CPO price.

However the likely impact of El Nino on production in Malaysia and Indonesia suggest that pricing is more likely to firm into 2016.

Shares rose 9% to 1.2p.

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