Fishing for wealth

It’s been a big week at South Australia aquaculture outfit Clean Seas Tuna. The company, which is trying to establish an artificial breeding and commercial farming operation for Southern Bluefin Tuna, announced on January 19 that its broodstock had started successfully spawning, with the resultant fingerlings (very young fish) expected to be transferred to sea cages in March.

The news – another milestone in Clean Seas’ journey towards commercial fish farming – sent the company’s stock up 12.5% on the day, with 17 million shares (about 56 times the average daily turnover over the past 12 months) changing hands.

That slice of good news will no doubt have thrilled Clean Seas executive chairman, Hagen Stehr, an old-school tuna fisherman from Port Lincoln who has become obsessed with his artificial breeding dream.

While Clean Seas is essentially a technology company, Stehr is hardly your typical boffin. A few years ago I was lucky enough to travel to Port Lincoln for a story and spent the best part of two days getting a guided tour of his operations.

He is without doubt the most interesting rich entrepreneur I have ever met. A former member of the German merchant navy and the French Foreign Legion, Stehr jumped ship in Port Lincoln in 1960, fell in love with a local girl (his wife Anna) and joined the local fishing industry.

He’s loud, brash, generous and never stops talking – one minute he would be telling us about the wild west-like antics that used to occur on the tuna boats, the next minute he’d be explaining the process by which fish are delivered from Port Lincoln to the fish markets of Tokyo.

But Stehr’s passion for the Clean Seas breeding dream, and his willingness to spend millions backing the company, is impressive.

His basic argument is that with fish stocks declining and food security an ever-growing problem, artificially breeding SBT is the only way to ensure supply can meet demand. And he’s hoping his theory will help make him very, very rich.

Stehr is one of two Port Lincoln fishermen on BRW’s Rich 200 with fellow tuna baron Sam Sarin. The pair, along with fisherman-turned-thoroughbred-breeder Tony Santic, helped make Port Lincoln the richest town in Australia on a per capita basis.

But aside from Clean Seas’ success, it’s been a tough period for the town and the tuna barons.

Tuna prices have remained sluggish for the past 12 months, thanks in part to diminished demand from key market of Japan, where consumers appear to have pulled back because of the global financial crisis.

In November, the annual fishing quota for SBT was slashed by 24% for 2010 and 2011. Then, just to top off a tough year, bushfires destroyed several homes in the town just before Christmas.

The cut to the quota, ordered by the global Commission for the Conservation of Southern Bluefin Tuna, was by far the biggest blow, according to Brian Jeffries, chief executive of the Australian Southern Bluefin Tuna Industry Association.

Fishing operations – including Sarin’s Australian Fishing Enterprises and Stehr’s company Stehr Group – had readied boats, aircraft, staff and other infrastructure in expectation that the quota would not be cut. Then, just one month before the fishing season was to start, came the news that the sector dreaded.

“The timing was the biggest problem,” Jeffries says. “There was an initial period of retrenchments and there will be more in 2010, although the main retrenchments will occur in supporting industries.”

All told, it is estimated the sector supports 4,500 jobs in South Australia.

The quota cuts are also likely to have sliced a touch more off the fortunes of Sarin (who was revised down by BRW last year from $565 million to $258 million) and Stehr (who dropped from $271 million to $168 million).

According to official government data, Sarin holds around 40% of Australia’s SBT quota, or about 2,170 tonnes. Stehr Group holds just over 700 tonnes, while Tony Santic’s company Tony’s Tuna holds just over 1,200 tonnes.

About two years ago, tuna prices were so strong that a tonne of tuna quota was valued at about AUS$180,000. Today, the level of uncertainty in the industry means it’s extremely difficult to get a valuation.

A professional valuer, who regularly values quotas for banks and other finance companies, says he’s all but given up trying to put a price on the quotas.

“No-one is selling, and certainly no-one is interested in buying,” he says.

When pushed, he gives a rough estimate of $110,000 a tonne, which values Sarin’s quota at over $230 million, Santic’s at $132 million and Stehr’s quota at a bit over $77 million (his stake in Clean Seas is worth around $50 million).

While these estimates are clearly rough, they do indicate a sharp fall from less than three years ago.

But there is some hope on the horizon. Jeffries expects tuna prices could double later in 2010, as a stockpile of tuna sitting in Japanese freezer rooms runs out and cuts to the quotas of Northern Bluefin Tuna fisherman in the Mediterranean Sea start to push up demand for SBT. The strong Australian dollar is also helping to reduce feed prices.

The restructuring done by the Port Lincoln fisherman when the SBT quota cut was announced should ensure better profits as the year progresses.

“They’ve tailored their business to their operations to that lower costs base which will leave them well-placed when prices do recover,” Jeffries says.

If Northern Bluefin Tuna supply remains constrained and the SBT quota is restored for the 2012 season, the barons of Port Lincoln should be in for a few good years.

But after that, their greatest threat could come from within – specifically, from Hagen Stehr’s Clean Seas group.

Clean Seas goal is to produce 10,000 tonnes of commercially farmed SBT – that’s double Australia’s existing quota – by 2015.

If he’s successful – and there is still much water to go under the bridge – then Clean Seas is likely to be worth much more than its current market capitalisation of $117 million.

But while Stehr might get rich, how this sudden surge in supply might affect his fellow tuna barons – and their fortunes – is unclear. It’s likely prices would come under pressure, although the sushi purists of Japan may still favour fresh fish over farmed.

Whatever happens, it appears the stormy seas faced by Port Lincoln’s tuna barons in the last 12 months are unlikely to abate for some time yet.