Gaining traction looks good, page-25

Hi Guys,

I hear what you're saying TEBF and it is a valid point. I'd make a couple of counterpoints however;

Firstly, unlike a sector which I am very familiar with - gold miners - TFC has a very dominant position within the supply side. Even though output is going to increase materially in the years ahead this is largely due to TFC's ramp up vs a plethora of competitors emerging (80% control by 2030). Thus, TFC is in the enviable position of being a price setter and not a price taker, unlike the gold miners.

An important element to this is that they have established a very good moat around their business in terms of:

- Duration: i.e. 15-16 years from planting to harvest
- IP: In the early years their mortality rates were much higher than they are now
- Genetic seed bank: Through the selective breeding programme TFC are planting superior quality trees

These elements will assist TFC maintaining its market dominant position in the years ahead, and you would assume allow them to have a material influence over the global Sandalwood price through long term contractual relationships (e.g. Young Living's 5 year deal @ US$4,500kg with 2.5% rachet each year).

My second point is that there is a commodity called Scandium. Scandium is used as an alloy which provides excellent attributes when combined with Aluminium for, say, aero space products. The issue is that there has not been a reliable and high volume enough supply of Scandium for Aluminium producers/ end manufacturers to consider using it in volume despite the benefits of doing this ... you see where I am going with this?

TFC, by providing a sustainable, legal supply of Sandalwood oil that meets pharmaceutical grades and ISO standards in sufficient quantity and with all the traceability required for large brands such as Nestle, Lush, Young Living etc could increase the use of Sandalwood oils in many health and pharma products - the issue, I believe is not the price but the supply. Evidence, I believe comes from TFC announcing that they have largely forward sold their harvests til 2021.

The fact that they are validating Sandalwood in no less than 4 Phase II or Phase III clinical studies suggests that it could have a wide range of applications within the pharma industry IF supply was available and met a prescribed quality standard.

On top of this, traditional markets of India and China will, over time, remain robust for traditional and religious uses. With both countries having a sustained increase in per capita GDP prices should be well supported into the future.

However, I think that TFC's business model of moving into the very high end uses of sandalwood oil and controlling the IP and branding will ensure that:

(a) TFC will remain a price setter, not a price taker like gold miners, and
(b) Will ensure sustainable, traceable, high quality sandalwood oil in volume that will then allow big pharma and health companies to incorporate it more widely into their product ranges due to supply chain certainty.

This is just IMO of course and I could be way off base ... after all there are nearly 10% short sold shares out there.

Cheers
John