INTERVIEW-First Resources targets growth, stock soars

*Invest $500 mln over 5 yrs into palm plantations, production
*Expects crude palm oil above $1,000 per tonne until 2009
*Biodiesel plant launch delayed to end '08 vs planned Q2 start

By Daryl Loo and Charmian Kok

SINGAPORE, July 4 (Reuters) - Palm oil maker First Resources on Friday announced a $500 million investment plan to raise production and buy plantation land amid an ongoing palm oil boom, driving its shares up sharply.

The five-year investment drive comes as palm oil producers are reaping the benefits of surging prices that reflect increasing demand for food and for biofuels.

The Singapore-listed company has about 180,000 hectares (444,800 acres) of plantations concentrated in Indonesia's Riau province, and is looking to purchase at least 50,000 hectares within the next 18 months in Kalimantan or Irian Jaya.

"We expect world consumption of palm oil to grow by 5 percent next year, and we think palm crude oil prices will stay firm at above $1,000 per tonne," First Resources Chief Executive Ciliandra Fangiono told Reuters in an interview.

News of the spending plan ended a four-day losing streak in its shares and sent the stock nearly 7 percent higher to close at S$1.12 after heavy buying in late afternoon trading.

Crude palm oil, mainly used to make edible products such as margarine and cooking oil, have risen about 37 percent to 3,600 ringgit ($1,103) per tonne in the past year, according to Malaysian benchmark prices .

First Resources, which listed its shares on the Singapore Exchange last December, in May reported an eight-fold jump in first-quarter net profit to 311 billion rupiah ($34 million), reflecting high crude palm oil prices, which doubled revenues to 734 billion rupiah.

The firm is planting on 87,500 hectares of its existing land, and wants to add 10,000 hectares of planted land every year, Fangiono said. But land acquisitions will likely come outside its base in Riau.

"Opportunities for growth in Riau are fast running out as most of the available land has already been planted on, so we have to look outside," he said, adding that competition for land in the country has caused prices to triple to as much as $600 per hectare in the last five years.

The company aims to buy plots of at least 50,000 hectares size to justify building facilities such as mills and cut transportation costs. Fangiono said First Resources, whose key crude palm oil customers include Singapore's top commodities firm Wilmar , will fund its expansion mainly through existing cash, at $185 million as of end-March, and excess cash flow from sales.

First Resource's debt-to-equity ratio is at 5.87 percent, providing room for debt financing if needed, he said, adding that the firm had no intention to sell new shares to investors.

BIODIESEL DELAY

First Resources' new biodiesel plant, initially slated for launch in the second quarter of this year, will instead start production by year-end due to a delay in obtaining a permit that allows tax breaks for importing capital equipment, Fangiono said.

These permits have since been approved and the plant will be able to produce 250,000 tonnes of biodiesel per year, he said, adding that the firm will ramp up production when the price of biodiesel is above that of crude palm oil.

"The strategy for us is to max out the capacity that we have when it's profitable, but to revert back to selling crude palm oil when it's not."

First Resources is feeling the impact of surging fertiliser cost, which it expects to overtake wage costs as its single-biggest expense, taking up as much as 50 percent of total costs by next year.

He estimates that price of potash, one of the main fertilisers used in palm plantations, has more than tripled to $1,000 per tonne in the last twelve months, but does not expect prices to continuing their surge next year.

"What we've seen in the past 12 months, I don't think will be repeated in 2009 because there's going to be demand disruption if small holders are discouraged from fertilising. And that will be disastrous for agriculture output." More immediate is the effect of an increased tax imposed by Indonesia on palm oil exports, raised to 20 percent from 15 percent for exports above $1,200 per tonne in July.

"This means that for each tonne we export at $1,200, $240 is deducted for tax. This has a very significant impact, but this is imposed across the board so it affects all Indonesian planters."

(Editing by Jan Dahinten) ((daryl.loo@thomsonreuters.com ; +65 6403 5669; Reuters Messaging: daryl.loo.reuters.com@reuters.net)) ($1=9205 Rupiah) ($1=3.263 Malaysian Ringgit)