Seafarms’ “Project Sea Dragon” could be dead, trading of securities suspended

Perth, Australia-based Seafarms Group’s plans for a large-scale land-based black tiger shrimp aquaculture project, which the company dubbed “Project Sea Dragon,” could be over for good, as Seafarms Group Limited (SFG) has decided to withdraw funding. 

In an announcement issued through the Australian Stock Exchange (ASX), the company requested a trading halt on 14 February, before announcing later that same day the directors of Project Sea Dragon have placed the project into voluntary administration. The company also announced the board of SFG “ha[s] resolved that it is no longer in the best interests of the company to continue to fund Project Sea Dragon.”

Project Sea Dragon called for the AUD 1.45 billion (USD 1 billion, EUR 942 million) development of 10,000 hectares of ponds in Legune Station, near Kununurra in Western Australia. The facility would have been capable of growing more than 150,000 metric tons of black tiger shrimp per year, according to the company.

The announcement of SFG withdrawing funding comes just over a week after Seafarms CEO Rod Dyer said the company “remained focused on the development of a new business case for Project Sea Dragon.”

“With respect to the future of Project Sea Dragon, as stated in our announcement of 30 November 2022 the assessment of key risks to Project Sea Dragon in 2022 found there was no technical reason why it should not continue,” Dyer said.

SFG Board Chair Ian Trahar committed himself further to the project on 11 January, when he acquired additional shares in the company, taking his total holdings to 29.19 percent following “positive outcomes of the recent assessment of key risks,” in reference to the November assessment. 

“The assessment of the key challenges to Project Sea Dragon found that there is no technical reason why the project should not proceed,” Trahar said in a release.

That review was subsequent to an earlier and much less-optimistic review by prior SFG CEO and executive chairman, Mick McMahon, and its prior CFO, Ian Brannan, who in April 2022 said the project could not proceed “in its current form.”

“In any event, the project review recommends against proceeding with PSD in its current form – it will not generate acceptable financial returns, the existing scope cannot be completed for targeted costs or achieve target completion dates, and the project currently involves unacceptable risk,” the review by McMahon and Brannan said.

McMahon and Brannan recommended the company instead focus on a pilot farming project, as sufficient funding for the larger project was not available.

The company’s board of directors apparently disagreed with McMahon’s assessment of the project. After the review was shared with the company in April 2022, McMahon resigned from his position on 6 May. An announcement by Seafarms posted to the ASX in November 2022 revealed that McMahon was removed from his position by a major shareholder, though the shareholder was not named. The board later appointed Dyer to the position of CEO in May 2022. 

The company hit another financial snag in early February, when an adjudication decision by the Royal Institution of Chartered Surveyors forced Project Sea Dragon to pay AUD 13.9 million (USD 9.6 million, EUR 9 million) to Canstruct, the company SFG selected to build the first phase of the shrimp farm. Construction of the first phase was paused in December 2021, and later canceled entirely in April 2022.

The settlement was for a higher amount than SFG anticipated, as Dyer said the company only provisioned AUD 8.7 million (USD 6 million, EUR 5.6 million) for the settlement.

“We believe the determination to be excessive and are now considering our next steps on this matter, including legal redress,” Dyer said. “Once that legal advice is received and considered, the company will provide the market with a further update.”

Even in the face of the higher than expected costs, Dyer remained committed to the future of Project Sea Dragon.

“We remain focused on the development of a new business case for Project Sea Dragon,” he said in the announcement of the settlement.

However, less than two weeks later, the company announced SFG was placing Project Sea Dragon into administration and voluntarily suspending trading of its securities due to the “significant risks that SFG securities would be trading in an uninformed market.”

“The reason for the suspension is to allow the progress of the Project Sea Dragon voluntary administration in a manner that will ensure trading of SFG securities does not occur in an uninformed market,” the company said.

The future of the company is still uncertain, as the company said that it has “no control over the actions of the administrator.”

“SFG has no way of knowing whether creditors will vote for any proposed deed of company arrangement or for liquidation of Project Sea Dragon,” SFG said. It added that one two potential decisions have “vastly different outcomes” for the company and its financial position. 

According to the ASX announcement, the administration commenced on 13 February, and is expected to end on 17 April, 2023.  

Photo courtesy of Project Sea Dragon