Nick Lenaghan Property editor Australian Financial Review
Jul 11, 2021 – 12.53pm
Packhorse Pastoral Company, which is backed by Canberra Rich Lister Terry Snow, has closed its first capital raising and acquired its seed asset, a Queensland cattle station, as it embarks on a plan to muster a $1.5 billion cattle and carbon fund over the next five years.
The $62.5 million raising helped Packhorse lock in its first acquisition, the 8360-hectare Stuart’s Creek near Roma, in a $30 million deal, bought from private owners. The deal also puts it on the way toward its initial target in its first year of operations of $300 million in agricultural assets, with about 30 per cent of that total comprising debt.
The 8360-hectare Stuart’s Creek is running as a Hereford stud operation, near Roma in Queensland.
“It’s in an ideal area. It’s got the right rainfall, it’s got the right soils. It’s got good logistics, close to the Roma saleyards and 450 kilometres from Brisbane,” Packhorse chairman Tim Samway told The Australian Financial Review.
“It’s been conservatively grassed and well-managed for 75 years by one family. So it’s a turnkey. It’s got good infrastructure. The opportunity for us is the pasture improvement.
“That is how we think you get the returns. You buy privately, you aggregate for scale, you improve the pastures, you change the grazing methods, you increase the carrying capacity.”
Packhorse brings together some big names. The cornerstone investment from Mr Snow whose Capital Airport Group owns Canberra Airport, has galvanised the platform’s start up, sparking interest from other investors. About 40 high net worth and family office investors have come on board for the first raising. Packhorse aims to to conduct raisings, asset-by-asset, with a $160 million pipeline of potential acquisitions stretching from Coonamble in NSW to Taroom in Queensland.
Mr Samway is well-known in the funds management world as the chairman of Hyperion Asset Management, an Australian and global equities fund manager with more than $10 billion in funds under management. Also on board as Packhorse’s managing director is agribusiness veteran Geoff Murrell, who previously managed Macquarie’s beef and sheep giant Paraway Pastoral’s northern Australian properties.
Central to the Packhorse strategy is the principle of regenerative agriculture – increasing biodiversity, enriching soils, improving carbon capture. It is a thematic with growing adherence in the sector, espoused by major players such as Tiverton Agriculture.
Generate carbon credits
Stuart’s Creek will allow Packhorse to put those principles into practice, transforming the property into a rotational grazing model and introducing further grass and legume species – Rhodes, digit, gatton panic, desmanthus and others – to improve biodiversity.
Those improvements enable the return of carbon to the soil, provide the potential for the property to one day generate carbon credits.
“By making these changes we think we can double the carrying capacity. You can understand what that does to the revenue and to the valuation of the property,” Mr Samway said.
“What it does is it improves the soils and increases the ability to sequester carbon. Carbon sequestration is about coverage. It is about getting green matter across very inch of the land.”
The carbon play is in effect an add-on benefit, although potentially a very material one. Packhorse is not banking on carbon offsets to make its returns stack up from its portfolio. At current prices – Australian carbon offsets have reached $20 a tonne for the first time since the carbon price was revoked in mid-2014 – carbon credits would generate 0.5 per cent to 1 per cent on Stuart’s Creek’s internal rate of return.
A high quality cattle motel
But there are expectations that carbon prices will surge in the lead-up to the 2030 emissions reduction target. Prices for offsets in Australia lag well behind those in the European Union, where they have surged by more than 75 per cent this year. On a rough estimate, a carbon price of about $100 a tonne could deliver a 4 per cent internal rate of return on its own for grazing properties, according to Mr Samway.
Packhorse plans to improve the buffel grass pastures with introduced grasses and legumes.
While not betting on those outcomes, Packhorse will be well-prepared, taking baseline measures for soil carbon, followed by regular assays as pastures are improved.
“The reality is this is about is about running properties better, increasing their carrying capacity, increasing the biodiversity of the plant matter so we get superior cattle and people pay more for those cattle and to have them raised,” Mr Samway said.
The other major component to the Packhorse strategy is its focus on the land, rather than holding cattle itself. It’s primarily an agistment model, where Packhorse will limit its ownership of livestock.
“This is a very focused strategy,” Mr Samway said. ” No feedlots, no abattoirs, no branded beef. We are a cattle motel.
“We’ll own some stock along the way but in the long term, we are basically supplying grass in a high-quality cattle motel for other’s people’s cattle.
“A lot of businesses are exposed to the livestock. We think by taking that exposure out, you get to prioritise the land. What we want to do is prioritise the soil and the grass. When you don’t own the cattle, you don’t have that problem.”