Two farming entrepreneurs say they plan to offer off-farm investors share parcels of $500,000 each in a $40 million package of three dairy farms.
Rick Monk, who runs Mt Ella Station at Murchison, and Ian Stuart, chief executive of Australian gold explorer Laconia Resources in Perth, plan to buy Mt Ella and run it with two smaller dairy farms at Culverden, in North Canterbury.
Outside investors will be able to own the holding company, Zelan Pastoral Ltd, which will lease the properties to Fonterra suppliers.
They hope to offer investors a minimum dividend (pre-tax) of 3 percent to 5 percent a year, but noted risks may include payments needed to offset greenhouse gas emission, volatility in milk prices and the exchange rate, and catastrophic disease outbreaks such as BSE or foot-and-mouth.
Zelan will have no staff, but Mr Monk and Mr Stuart own Five Twelve Ltd, which will manage the company and the lease contracts, for an annual fee of $80,000. They are also shareholders in Melco Investments Ltd, which currently leases Mt Ella for $1m a year, plus GST.
The two men will also have the $230,000 cost of the offer's establishment costs refunded.
They will collect shares equivalent to 2.5 percent of the total issued - worth $1m if the full $40m is taken up - when the property values rise by 5 percent, then another 2.5 percent when values have risen by 10 percent. These issues are expected in June 2011 and June 2012.
Rick and Emma Monk plan to invest $3m of the $40 million being raised by Zelan, which has a conditional contract to buy Mt Ella for $17.8m, if it raises sufficient funds by June 25 - at least $25m, according to directors.
The promoters expect $35.7m of the money raised to be paid for the farms, and said they would spend another $2.25m next year to redevelop one of the Culverden properties, Pineleigh, which will be bought for $8.6m.
It is currently owned by Waibury Group Ltd, which owns eight dairy properties and three grazing properties in Canterbury, as well as stakes in farms in the Waikato and Chile, according to details released by the promoters.
The third property will be another Waibury farm at Culverden, Willowbank, which will cost $9.3m.
The promoters say that Mt Ella's 2300 jersey cows could be boosted to 2500, and milksolids production lifted from 630,000kg to 750,000kg, with higher production possible if feed is bought in during seasons with high payouts.
Pineleigh's 327ha produces 250,000kg milksolids at present, which is expected to rise to 380,000kg once central pivot irrigation and a new milking shed are built, and to reach 410,000kg within four years.
Willowbank's 271ha is budgeted to produce 330,000kg in the 2011 season.
Based on figures predicted for the 2011 season, the farms will produce 1.2m kg milksolids, with the property prices calculated at $28.25/kg (Mt Ella), $28.18/kg (Willowbank) and, post-development $28.62/kg for Pineleigh.
The promoters said the average price/kg of milksolids for dairy farms rose from $5 in 1978 to a peak of $55/kg in 2008 but had now fallen to a range of $30 to $40 and their venture would attempt to capture capital gains by selling properties at a strategic point in the valuation cycle.
"The wider investing market has waited many decades for an opportunity to share in the rewards of the New Zealand dairy sector," said Zelan chairman, Owen Jennings, a former MP and Federated Farmers leader.
