Australian bioidiesel company buys development of palm oil plantations

Saw this on the tape today.
I expect more of this vertical integration, although I have no idea if this deal will work or not. I see this as just an option buy (the cost of that option is not mentioned). As an option buy, it is not clear how it could affect EBITDA in the near term. I expect there is little to no effect other than losses as the plantations are developed.

STERLING BIOFUELS ACQUIRES 70% OF UTE POWER
Australia’s Sterling Biofuels (ASX: SBI) has acquired a 70% stake in UTE Power, a Malaysian company that has development rights for oil palm plantation.
UTE Power has the right to develop 10,600 acres of land owned by a Malaysian state government body into an oil palm plantation. The development rights are for a period of 60 years with an option to renew for another 30 years.

This acquisition will ensure a regular supply of feedstock to Sterling’s biofuel plants and also protect the company from future spikes in the price of its palm-based feedstock.

Under the acquisition terms, Sterling will be responsible for funding the development of the proposed oil palm plantation. As such, it will pay only a nominal upfront payment for the acquisition of its interest in UTE.

Sterling will have control of UTE management and a first right of refusal over any future plantation development rights that the initial promoters may source.

The cost of developing the oil palm plantation is estimated to be AUD 15m (USD 12.6m) over 5 years. Sterling does not expect to raise equity capital to fund this initiative.

Since Malaysian rules on foreign equity ownership restrict Sterling’s ownership of UTE to 70%, Sterling will have to apply for Malaysian regulatory approval to acquire a further 15% of UTE from the initial promoters. This option to purchase additional equity in the plantation development is exercisable over the next four years at an agreed price.