Obtala Resources Limited Proposed listing of the forestry division (2967C)

TIDMOBT

RNS Number : 2967C

Obtala Resources Limited

15 October 2015

15 October 2015

Obtala Resources Limited

("Obtala", the "Group" or the "Company")

(AIM: OBT)

Proposed listing of the forestry division

Obtala Resources Limited (AIM:OBT), the vertically integrated agribusiness, timber and retail company, is pleased to provide the following update with respect to its timber assets in Mozambique.

The Board of Obtala has commenced a process to list the forestry division in a separately quoted company to be listed on the AIM market during the first quarter of 2016. The Board has reviewed a number of opportunities for the forestry division and believe it is in the best interest of Obtala shareholders to "spin out" the forestry division in order for the significant inherent value to be recognised and to attract investors focused on the forestry sector.

The Company has commissioned Honour Capital, a specialist forestry advisory and management Company, to undertake a valuation review of the new blocks. Honour Capital prepared a valuation report in June 2014 which attributed a NPV to the timber business of US$161 million at a 12% discount based on a 10 year cash flow model. The 2014 valuation was based on 11 concessions with a total land area of 279,965 hectares.

The Company is, subject to local Government approval, completing the acquisition of 50 year leases for two new timber concessions totaling 35,000 hectares in Mozambique to bring the total forestry area to 314,965 hectares. The new blocks are situated adjacent to our main operational centre and, together with the existing holdings, provide a critical mass in terms of approved annual permitted cut.

Timber Markets

Global demand for high quality timber is increasing whilst supply is constrained as sustainable harvesting practices in the world's major timber producing centres cannot meet the current or predicted demand. The concessions owned by the Company give access to a large and environmentally sustainable supply of over 20 different types of hard wood and are well placed to supply a wide range of markets both domestically and internationally in addition to those which we currently supply.

Business Plan

Investment through the re-structuring will allow for the delivery of the following short-term objectives:

-- Continued investment in operational growth and efficiency to achieve the 2014 valuation production levels.

-- Investment in drying facilities for higher quality, higher margin timber.

-- Expansion of harvesting across all held forests in Mozambique.

-- Enhance the management team.

-- Increase marketing.

-- Evaluate opportunities for development of other income from plantation forestry.

Reasons for Listing on AIM

The Board believes the separately listed entity will improve:

   --     Visibility on the value of the division, 
   --     Improve ability to add specialist management to drive the business plan, 
   --     Raise awareness of the assets within the forestry sector and capital markets, and 

-- Ability to raise funds from highly specialist investors that may want to invest in forestry only.

The Board is now working with its advisers to complete the AIM listing process and capital raise with the intention to list the new company in Q1 2016. The Board is reviewing the proposal of distributing shares in specie at an amount/ratio to be finalised at the time of listing.

Board of Directors

The Company is currently interviewing potential candidates who will add value through dedicated expertise.

Reorganisation of the Group

The timber portfolio has steadily grown over the past few years with selective concession acquisition to provide a critical mass of harvestable timber on an annual basis. The quality of timber concessions which have been independently audited and indicate standing stocks which can supply high quality hardwood timber for many years to come with concessions granted for an initial 50 year period, renewable thereafter.

The main strategy will be to achieve the production goals as outlined in the 2014 valuation report. To achieve this additional equipment and personnel are required. The current operation consists of a main field camp using a labour based, motor-manual harvesting and extraction system which feeds a series of small scale mobile sawmills. Various satellite camps are set up as the harvesting teams move around the concession, these camps contain the mobile sawmills. The field camp is supported by an administrative office and sales depot in Nampula.

The 2014 valuation was derived by considering 10 year operational costs ($72million), production levels, CAPEX requirements ($15million) and sale values ($395million) attributable to the company's operations across all its concessions. The CAPEX requirement is scheduled over 10 years, with year 1 capex estimated at US$300,000, subsequent expenditure is expected to be paid out of sales revenues.

The Company has recently concentrated on supplying cut timber into the local Mozambican market targeting the construction industry. A number of discussions have been held with an international timber company with a view to exporting timber out of Africa. The opportunity to increase operational productivity and improve the on-site capability to produce value-added end products such as traditional decking, decking tiles, doors, window and door frames exists and will form part of the forward looking strategy. The supply of these products will provide additional value uplift to the revenues generated from the concessions and will provide for additional employment and training for the local population. To increase sales the Company is seeking premises in Maputo to create a retail/wholesale route to market for its products. The Company is currently assessing the market for low to medium cost timber housing which can service the needs of a number of sectors both locally and internationally.

To increase production and grow sales as envisaged in the independent valuation determined by Honour Capital in 2014, the Group will need to:

1. Invest in additional capital machinery and internal company development to grow existing operational capacity.

2. Establish two additional harvesting campaigns so that harvesting can take place within all the concessions simultaneously.

3. Develop good links to a range of local markets so that the company can execute its production plan efficiently with such measures as harvesting a range of timbers in one pass.

The company will establish its enlarged operational, management and marketing systems based on sales into local markets before it launches into servicing high specification markets, whether they are export markets or not.

Kevin Milne, Executive Deputy Chairman of Obtala commented, "Over the last 5 years we have successfully created one of the largest sustainable natural forestry concession holders and operators in Northern Mozambique. This has been a great achievement and an extremely valuable asset has been developed. The Board has reviewed how best to crystallise and maximise the inherent value of this business for the Company and our shareholders. Placing these assets in a newly formed and listed entity with its own board will allow for the required focus on the execution of the growth plans, the expansion and further development of its supply chain and create a highly attractive and relevant opportunity for new investors."

 
Obtala Resources 
 Kevin Milne - Executive Deputy Chairman 
 Simon Rollason - Managing Director 
 www.obtalaresources.com                   [phone] 
ZAI Corporate Finance Limited (Nomad) 
 Ray Zimmerman 
  Richard Morrison                         [phone] 
Brandon Hill Capital (Broker) 
 Jonathan Evans                            [phone] 
Square 1 Consulting (Public Relations) 
 David Bick 
  Mark Longson                             [phone] 
 

This information is provided by RNS

The company news service from the London Stock Exchange

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October 15, 2015 02:00 ET (06:00 GMT)