TFS eyes sandalwood plant

Brad ThompsonThe West Australian

Indian sandalwood producer TFS has raised the prospect of building a processing plant near Kununurra and joint ventures with cattle companies as it expands its footprint in northern Australia.

TFS chairman Frank Wilson said investment in processing close to sandalwood plantations in the north was "on the drawing board".

"It is an obvious thing that we will do, but we haven't got to the stage of pressing the button," he said after TFS announced it was buying out its US-based pharmaceutical partners in a deal worth a minimum of $US23.4 million ($30 million).

Mr Wilson said TFS could build a plant in WA and one in the Northern Territory, or just one plant to service the north. TFS would retain its Mt Romance facility near Albany to process WA sandalwood.

Mt Romance currently processes plantation-grown Indian sandalwood and WA sandalwood.

Mr Wilson said TFS would consider joint ventures with cattle producers as it looked to add to plantations already covering 10,000ha.

"We wouldn't go into the cattle business but we would look at joint ventures where we use the land suitable for sandalwood and they use the land suitable for cattle," he said.

The acquisition of ViroXis and Santalis, made up of $US1.5 in cash and $US21.9 million in TFS shares, is an attempt to vertically integrate the TFS operations.

ViroXis and Santalis have spent several years working with TFS on using its Indian sandalwood oil to develop dermatology products. The deal will allow TFS to reap royalty and licensing fees from any products taken up by manufacturers.

Nestle-owned Galderma launched acne product Benzac this year under a licence agreement with Santalis. Galderma has an oil supply deal with TFS.

The scrip component of the purchase will involve the issuing of about 15.3 million TFS shares at a price of $1.85.

TFS expects to issue about 12.6 million shares next month and the rest by July 2016.

The deal includes earn-out provisions which over time could reach $US221.5 million. The provisions are based on operational, commercial and income milestones for dermatology products.

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