Mr. Bill Dry reports

FERONIA INC. REPORTS 2012 RESULTS

Feronia Inc. has released its audited financial results for the year ended Dec. 31, 2012. All amounts in this release are expressed in United States dollars unless otherwise indicated.

2012 highlights

• Revenue of $7.1-million (2011: $7.4-million) from the sale of 6,993 tonnes of crude palm oil (CPO) at an average price of $906 per tonne (2011: 6,737 tonnes at $984 per tonne);
• Replanted 3,924 hectares of oil palm (2011: 2,110 hectares);
• Produced 7,044 tonnes of CPO (2011: 7,981) from 38,596 tonnes of fruit (2011: 46,632 tonnes);
• Fresh fruit bunch (FFB) yield of 6.1 tonnes per hectare (2011: 4.92 tonnes per hectare on a like-for-like basis excluding Yaligimba);
• Increase in oil extraction rate (OER) to 18.25 per cent (2011: 17.11 per cent);
• Average CPO free fatty acid (FFA) content of 2.35 per cent (2011: 3.90 per cent);
• 1,579 kilometres of operational roads (2011: 1,022 kilometres);
• Management training program reintroduced;
• Construction of Yaligimba CPO mill progressed;
• Rice drying and processing facility completed;
• Net loss attributable to Feronia of $5.9-million or four cents per share, compared with a loss of $5.7-million or four cents per share in 2011;
• Closed two tranches of brokered private placement for aggregate gross proceeds of $7.7-million (Canadian).

Subsequent events

• Rice planted in October, 2012, demonstrating commercial yields;
• First sales of own grown rice made in first quarter 2013 to local customers;
• Appointment of new managing director of palm oil division;
• Completed non-brokered private placement in March, 2013, led by strategic investor African Agriculture Fund for aggregate gross proceeds of $14.5-million (Canadian), including approximately $2.4-million (Canadian) from existing qualifying shareholders of the company.

Bill Dry, chief executive officer of Feronia, commented: "Much has been achieved during the year across our business. In palm oil, our replanting program continues apace with almost 4,000 hectares planted during the year. This is a key value driver for Feronia and was, we believe, the largest such program in Africa in 2012. Replanting over 600,000 trees is no small undertaking and achieving this is a testament to the hard work and dedication of our staff. Furthermore, we have already replanted 422 hectares in the first two weeks of the planting season in March, 2013, and have confidence our 2013 target of 5,000 hectares is achievable.

"Our arable business has also made good progress with the completion of our rice drying and processing facilities meaning we have been able to commence processing and selling our own crop into the local market. This is hugely pleasing as the level of demand we are experiencing and the prices we are achieving support our earlier assumptions. We intend to continue planting trial crops during 2013 to further test commercial viability and scalability."

Operational summary and key metrics by division

Recent developments in the oil palm operations

As at Dec. 31, 2012, Plantations et Huileries du Congo (PHC), being the main operating unit of Feronia, had concessions of 107,892 hectares located in the provinces of Equateur and Orientale in the Democratic Republic of Congo. In 2012, PHC accounted for 100 per cent of Feronia's revenues.

As at Dec. 31, 2012, the assets and operations of PHC consisted of the following:

• 10,213 hectares of producing palms (6,310 hectares of producing palms excluding 3,903 hectares of producing palms at the Yaligimba plantation that are not currently being harvested);
• 7,774 hectares of immature oil palms;
• 49,078 hectares of surveyed plantable reserves;
• Two oil palm mills, one which produces crude palm oil (CPO) only and the other which produces both CPO and palm kernel oil (PKO);
• A work force of 3,541 employees including 38 managers;
• Supporting infrastructure of 1,579 kilometres of currently operational roads, 3,875 houses for employees and managers, 60 schools, four hospitals, six dispensaries, and 13 health centres;
• Three oil palm nurseries totalling 48.5 hectares and containing an aggregate of 998,637 palm seedlings, sufficient to plant at least 4,993 hectares;
• The Yaligimba seed research station, one of Africa's pre-eminent oil palm seed research and breeding operations.

As previously noted, in the first quarter of 2012 the company ceased transporting fruit by barge from Yaligimba to the palm oil mill at Lokutu due to escalating costs and the deterioration in quality resulting from transportation. The total number of producing hectares consequently decreased by 38.2 per cent to 6,310 hectares and the total tonnage of fruit production decreased by 17.2 per cent year on year. On a like-for-like basis, excluding Yaligimba, fruit production decreased by 9.93 per cent and 6.75 per cent for the three and 12 months ended Dec. 31, 2012, respectively, compared with the corresponding periods in 2011.

This reduction is primarily a result of the following factors:

1. A reduction of producing hectares at Boteka and Lokutu from 8,410 hectares to 6,310 hectares following the company's previously disclosed reclassification of palms aged four to 25 years as mature and producing, the clearance of palms older than 25 years for replanting, and the cessation of harvesting fruit from palms older than 25 years which have lower fruit yields, lower extraction ratios and require more time to harvest; resulting in an improvement in FFB yield per hectare;
2. Adoption of best practice harvesting procedures including fruit quality checks, in-field supervision, training and field transport improvements to ensure only sufficiently ripe fruit is harvested; resulting in an improvement in CPO extraction rates with an extraction rate of 18.8 per cent achieved in December, 2012.

Management believes that these improved practices are in the long-term interest of better profitability but have affected gross margin in the short term.

The oil produced by the company is of a high quality with the average free fatty acid (FFA) content of oil sold at 2.35 per cent (2011: 3.90 per cent). The higher level of FFA in 2011 arose from the deterioration of fruit transported from Yaligimba to Lokutu for processing and was a key factor in the decision to cease that practice.

At Dec. 31, 2012, the company employed 3,541 staff in its palm oil operations (Dec. 31, 2011: 3,669), more than would normally be required for a palm oil business with production at Feronia's current levels. However, the company recognizes the considerable amount of knowledge and skill held within its work force and believes it is a tremendous asset. While a large proportion of the work force is currently utilized in Feronia's replanting program, a sufficient portion of the work force has the skillset to be reallocated to harvesting operations as the company's producing hectarage increases.

The company also has in place a management training program to develop management capabilities and skills across four areas -- agronomy, finance, technical (engineering) and personnel. The company believes this is essential to ensure the development of skills through the organization and is a key part of the company's succession planning.

New plantings of oil palms commenced in March, 2012, in line with rainfall patterns, with 1,138 hectares planted in the fourth quarter of 2012 and a total of 3,924 hectares of oil palms planted in 2012 (2011: 2,110 hectares), representing the replanting of approximately 627,000 trees (2011: approximately 337,000 trees). Fertilizer has been applied to palms aged between four and 15 years, with 2,469 hectares completed by the end of the fourth quarter of 2012. The size of Feronia's work force has been and will be a key factor in delivering on its objective to replant 5,000 hectares each year going forward. Replanting of oil palm in 2013 commenced in mid-March and, as at March 31, 2013, 422 hectares had been completed.

At Yaligimba, the company's contractor is well advanced on the installation of the CPO mill. Essential work still needs completing, which has been slowed by the onset of the wet season but completion is expected in the near term. Once the new palm oil mill is operational, the company will have access to an additional 3,903 hectares of producing palms. It is expected that the Yaligimba plantation will achieve operating results similar to Lokutu on a per hectare basis.

The Yaligimba palm oil mill will have an initial processing capacity of 30 tonnes per hour of FFB, with the potential to increase to 60 tonnes per hour in a phase 2 expansion. The Yaligimba palm oil mill's commissioning will mean that the company will have installed processing capacity of 55 tonnes per hour across its entire operations. It is anticipated that under the current planting program and internal forecasts for yield improvement, there will be no requirement for additional processing capacity, other than the phase 2 expansion at Yaligimba, until around 2020.

In April, 2013, Benedict Rich joined the company as managing director of PHC. Mr. Rich has extensive experience managing plantation operations in emerging markets and has also been responsible for various aspects of research and development programs in both tea and oil palm. He is ISO qualified and has a keen interest and understanding of sustainability and the environment in the palm oil industry, having helped develop the industry's environmental, social and sustainability standards.

Recent developments in the arable operations

As previously noted, the company's first commercial rice crop of 1,200 hectares was sown in October and November, 2011, but, due to various reasons including delays in the importation of appropriate equipment and poor rainfall, the crop produced only minimal yields.

In February, 2012, 305 hectares of rice were planted. Rainfall was adequate and the harvest completed in August, 2012. The harvest yielded 525 tonnes of paddy rice at 1.7 tonnes per hectare. The realized yield was negatively impacted by significant losses due to mechanical failures suffered by the company's combine harvesters.

In March, 2012, 60 hectares of edible beans were sown and, in April, 2012, a further 140 hectares as part of the company's strategy of smaller scale, proof-of-yield plantings. These crops were harvested in September, 2012, although the yields were negligible. This was due to the locally sourced seed stock proving to be of poor quality with inconsistent growth which prohibited mechanized harvesting. The company has elected to trial hybrid seeds from an international supplier for its next planting.

In June, 2012, the company commissioned a review of the arable operation by a firm of independent Brazilian agronomists, including an assessment of the in-ground rice and bean crops. The results of the review, which included a number of recommendations being considered by management, confirm the high potential for large-scale food production in the Bas Congo region of the DRC.

In October, 2012, 500 hectares of rice were planted. The company planted NERICA-4 (new rice for Africa-4), an upland rice variety suited to African soil and weather conditions. Harvest of this crop commenced in mid-February, 2013, with mechanized harvesting supplemented through local casual labour.

Results from the trial planting have been very positive with in-field yields believed to be around four tonnes of paddy rice per hectare. Mechanized harvesting achieved an average yield of 3.1 tonnes of paddy rice per hectare over the first 46 hectares harvested in February, 2013, and 2.5 tonnes per hectare from the subsequent 77 hectares harvested mechanically by the end of March, 2013. Yield per hectare declined as the harvest progressed due to in-field losses caused by the protracted harvest period and insufficient harvesting machinery to complete the harvest in the optimum time period. The company had ordered a second combine harvester to support the harvest but, due to shipping delays unrelated to the DRC, it did not arrive in time to participate in the beginning of the harvest.

In November, 2012, the company's rice mill was completed and commissioned. It is the only large-scale rice mill in the region and allows the company to process its own crop and that produced by other local small holder farmers. Earlier in the year, civil works and the drying facilities were completed. Storage of dried paddy rice is currently undertaken using a grain bag storage system which is an acceptable interim solution for storing current volumes and allows the company to continue to dry and mill crop.

In April, 2013, following quality tests and qualifying as an approved supplier to Heineken NV, the company commenced selling rice grown on its farm to Bralima, Heineken's wholly owned DRC subsidiary. Bralima has agreed to purchase 1,100 tonnes of rice during 2013. The company has also started supplying rice to supermarket chain Ets Kuku which has received an initial shipment of eight tonnes and requires 23 tonnes per month going forward. Fulfilment of both contracts will be made from existing stocks of rice accumulated from the company's trial plantings, which were harvested, dried and subsequently milled at the company's rice mill, and from current and expected future harvests. The company expects that minimal capital expenditures will be required for fulfilment of such contracts.

The company now has in place a pricing structure whereby the price charged for rice is determined by the quality of the product sold, specifically, the percentage of broken grains. The prices the company is achieving are consistent with earlier estimates and at a significant premium to global rice prices. The company anticipates selling to additional counterparties over the course of time.

Outlook

The company's strategy for its oil palm plantations business continues to be to maximize returns from existing plantings while investing in new plantings and the required processing capacity. Commissioning of the new palm oil mill at Yaligimba is expected to provide the company with immediate access to an additional 3,903 hectares of mature oil palms for the production of CPO, an increase of 62.1 per cent from the area currently accessible. Once the Yaligimba palm oil mill is completed, there are no major capital expenditures currently anticipated in the company's oil palm plantations business, excluding costs associated with the company's replanting program.

The company has made progress in establishing commercially viable rice yields at its arable operation, has established a pricing formula and is making sales to high-quality local counterparties. This furthers its confidence in the favourable dynamics of the local rice market. The company is currently evaluating how to prudently expand its arable farming operation in light of these recent positive developments.

In summary, the key objectives of the company for 2013 are as follows:

1. Finish construction and commission the palm oil mill at the Yaligimba plantation, thereby enabling the company to harvest and process fruit grown at that location;
2. Replant up to 5,000 hectares across its oil palm plantations;
3. Prudently advance its arable farming operation.

As previously disclosed by the company, on Dec. 24, 2011, the government of the DRC promulgated a new law, "Loi Portant Principes Fondamentaux Relatifs a L'Agriculture," for the stated purposes of developing and modernizing the country's agricultural sector. Feronia continues to seek clarification on the implications of this legislation from local counsel and government in the DRC. If the agriculture law is interpreted by the DRC government to apply to the existing concession rights held by the company and the agriculture law is not amended, it could have a material and substantial adverse effect on the value of its business and its share price. In such case, Feronia may be required to sell or otherwise dispose of a sufficient interest in its operating subsidiaries so as to ensure that it meets local ownership requirements. There is no assurance that such a sale or disposition would be completed at fair market value or otherwise on acceptable terms to Feronia. Please refer to the company's management discussion and analysis for the three and 12 months ended Dec. 31, 2012, available on SEDAR for a full discussion on the agriculture law.

Revenues for fourth quarter 2012 were $1,029,000, a 66-per-cent decrease on fourth quarter 2011 revenues of $3,011,000. Revenues for the year ended Dec. 31, 2012, were $7.13-million, a 4-per-cent decrease on the same period in 2011 (year ended Dec. 31, 2011: $7,449,000).

The lower level of revenue in fourth quarter 2012 when compared with fourth quarter 2011 was due to two main factors:

1. Sales of CPO being considerably higher in fourth quarter 2011 due to a reduction in stock levels at the end of 2011; sales of CPO in fourth quarter 2012 totalling 1,261 tonnes while sales in fourth quarter 2011 of 2,834 tonnes;
2. A 15.7-per-cent reduction in the average sale price per tonne of CPO in fourth quarter 2012 to $731 per tonne, compared with $867 per tonne in fourth quarter 2011 as a result of lower prevailing global prices for CPO.

Revenues for the year ended Dec. 31, 2012, were also impacted by a 7.9-per-cent reduction in the average selling price per tonne of CPO during the year to $906 per tonne, compared with $984 for 2011. This reduction reflects:

1. Lower prevailing global prices for CPO during 2012 compared with 2011;
2. 171 tonnes of lower-quality CPO sold for $650 per tonne in the first quarter of 2012; arising when fruit harvested at the Yaligimba plantation was being barged to the Lokutu plantation for processing; latency between harvesting and processing leading to an increase in the free fatty acid levels in this oil to higher than acceptable parameters; the lower quality of oil produced from fruit barged from Yaligimba to Lokutu contributing to the company's decision to suspend the barging operation at that time.

However, the company sold 6,993 tonnes of CPO in the year ended Dec. 31, 2012, a 3.8-per-cent increase on the 6,737 tonnes of CPO sold in 2011.

Selling, general and administrative costs decreased by $1,727,000 for fourth quarter 2012 and $1,852,000 for the year ended Dec. 31, 2012, when compared with the corresponding periods of 2011. These decreases are mainly due to:

• A decrease in professional fees in fourth quarter 2012 compared with fourth quarter 2011 of $348,000 being primarily lower audit and accounting fees of $142,000 and lower legal fees of $149,000; professional fees for the year ended Dec. 31, 2012, $845,000 lower than the year ended Dec. 31, 2011; audit and accounting fees $623,000 lower due primarily to additional costs in 2011 relating to the year-end audit, IFRS transition and work on the equity offering incurred during the year 2011; further reductions also occurring in legal fees of $152,000 and recruitment fees of $74,000 compared with 2011;
• A decrease in share-based payments of $171,000 in fourth quarter 2012 compared with fourth quarter 2011 and a decrease of $186,000 for the year ended 2012 compared with year ended 2011 due to the full vesting, during 2012 of options granted in September, 2010;
• A decrease in other general payments of $698,000 in fourth quarter 2012 compared with fourth quarter 2011 and a decrease of $756,000 for the year ended 2012 compared with year ended 2011 due to audit adjustments including reversal of provision on sale of property amounting to $423,000;
• Salaries and wages reduced by $507,000 during fourth quarter 2012 compared with fourth quarter 2011 due to adjustment of PHC holiday pay accrual of $220,000 and decrease of $270,000 in salaries allocated to cost of sales in fourth quarter 2012 compared with fourth quarter 2011.

Cash flows and liquidity

The cash balance at Dec. 31, 2012, was $1.26-million compared with $13,521,000 as at Dec. 31, 2011. The decrease in cash balance of $12,261,000 was a result of net loss (excluding non-cash items) of $9.9-million and capital expenditures of $13,647,000 partially offset by an increase in working capital of $3,986,000 and the issue of shares for cash of $6,964,000.

For the year ended Dec. 31, 2012, working capital movements resulted in cash inflows of $3,986,000 (cash outflows of $4,787,000 for the year ended Dec. 31, 2011), driven by decreases in inventory of $4,522,000, receivables of $1,116,000 and prepaid expenses of $3,273,000 offset by decreases in payables of $138,000.

Investing activities resulted in cash outflows of $13,647,000 for the year ended Dec. 31, 2012 (cash outflows of $9,601,000 in the year ended Dec. 31, 2011).

Cash inflows from financing activities were $6,964,000 for the year ended Dec. 31, 2012 (cash inflows of $27,566,000 in the year ended Dec. 31, 2011).

We seek Safe Harbor.