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Synlait prepares for $260m Pokeno factory

Synlait Milk has conditionally bought a site in the Waikato town of Pokeno, where it plans to spend $260 million developing its second infant formula manufacturing factory.

The NZX-listed milk processor's acquisition is subject to Overseas Investment Office approval, and the company said it will know the commissioning date for the factory once it's got consents and approvals. The first dryer at the Pokeno site is expected to have annual capacity of 40,000 metric tonnes, matching dryer three at its Dunsandel site, near Christchurch.

The increased capacity is needed to feed growing demand for infant formula from Synlait customers including a2 Milk Co, New Hope Nutritional, Bright Dairy and Munchkin, and the company wants to attract Waikato dairy farmers to supply the new facility.

"As well as helping us to meet our forecast infant formula demand, we see Pokeno as an opportunity to balance our exposure to a single powder manufacturing site and single milk supply pool at Synlait Dunsandel in the South Island," chief executive John Penno said in a statement. With the addition of Pokeno, we will have a national portfolio of added-value capability to leverage for our future growth."

Synlait is based in Rakaia, south of Christchurch. Last November, the company said it was looking to buy land in the North Island to develop a second manufacturing site. Its Dunsandel factory in the South Island has about 200 contracted milk suppliers.

Synlait's shares have more than doubled over the past 12 months, with the milk processor buoyed by its association with milk marketing company a2. However that outlook grew cloudy when a2  announced a new supply arrangement with dominant dairy company Fonterra Cooperative Group. That deal prompted a joint release from a2 and Synlait stating the new relationship doesn't change Synlait's exclusive infant formula supply arrangements with a2.

Synlait Milk stock rose to $7.17 by mid-afternoon on the news, up 3.6 percent on its opening price. It had previously slipped 3.9 percent this year.

© BusinessDesk

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