17th Feb 2016 09:13
LONDON (Alliance News) - Obtala Resources Ltd on Wednesday said it has secured a USD3.0 million investment into its forestry division, giving its cash balance a boost and allowing it to expand its operations, but the company said it will also delay the planned stock-market listing of the forestry business.
Obtala is working towards building an integrated trading platform with an emphasis on agriculture, food production and processing, with direct market access through owned retail and wholesale outlets - described by the company as a "farm to fork" model.
The company's timber operations lie in Mozambique, and Obtala holds one of the largest concession areas in the northern part of the country harvesting timber from 270,000 hectares located over three areas.
On Wednesday, Obtala said three independent investors have agreed to inject a combined USD3.0 million into its forestry division in return for minority equity interests in the company's forest concessions in Mozambique. The investors also will receive certain off-take rights under the deal.
"This investment allows us to materially progress our forestry business in Mozambique. It ensures that Obtala retains a strong balance sheet without the requirement to issue equity or relinquish material interests in the forestry business which we value highly," said Deputy Chairman Kevin Milne.
Obtala said it has secured USD1.2 million of the investment cash so far, with the remaining balance expected to be paid before the end of the first half of 2016.
Obtala has a 75% stake in the forestry business and will create three individual special purpose vehicles to manage the administration and economic rights of each investor and their respective offtake arrangements.
Each investor will enjoy economic rights for a certain amount of hectares commensurate with their investment.
Importantly, the holding company by which Obtala holds its stake in the business, will continue to hold the legal rights and obligations of the concessions.
The three investors are Global Timber Investment Ltd, Basic Minerals Ltd and a private investor named George Miller.
Global Timber, a company based in Hong Kong, is investing USD900,000 into the division in return for a 15% stake in the special purpose vehicle and the economic rights covering "up to" 3,000 hectares.
Global Timber will pay USD600,000 at the start of March, with the other USD300,000 due at the start of June.
Basic Minerals, a company based in Hong Kong and Russia, also will invest USD900,000 in return for a 17.5% stake in the special purpose vehicle and the economic rights of up to 3,500 hectares.
Basic Minerals will pay an initial USD600,000 at the end of April and the other USD300,000 at the end of June.
The last investment is being made by George Miller, a private US investor who has agreed to plough USD1.6 million into the forestry division, paying that sum in full immediately. In return, Miller will receive a 12.5% stake in the special purpose vehicle and the economic rights of up to 6,250 hectares.
"This investment will ensure we can invest in the labour, health and education programmes in Mozambique and ensure we can contribute socially in our host country. We look forward to advising shareholders on the roll out and delivery of the business plan," said Milne.
The proceeds from the investment will be used to build two kilns at its operations to improve the timber quality and the recovery rates. It also plans to develop a new sales and distribution centre in Maputo, the capital of Mozambique, to serve new export markets and enhance its domestic offering.
The proceeds will also be used as working capital and to form a development fund aimed at providing labour, health and education programmes in the country.
Furthermore, Basic Materials have entered into a sales and marketing agreement to supply timber to Asia, including Russia, and the Middle East, said Obtala.
"We now look forward to bringing forward revenues through access to new international export markets that were not previously open to us," said Milne.
Obtala said it has entered into binding commercial agreements to supply timber from its Mozambican assets to the specific trading entities with each investor. The price and quantity of timber will be determined according to specification that are required from each sales order.
That timber will be supplied through a new trading company called Meradell Trading.
"As a result of this transaction we are reviewing our commitment to listing the forestry business," Obtala said. "We continue to assess and evaluate this strategic option in light of the current transaction but anticipate that this is a longer-term objective than initially envisaged."
"Our immediate priority is to progress our business plans on both the forestry and agriculture businesses and to ensure that shareholders and stakeholders in the company are rewarded," the company added.
Obtala shares were down 9.3% to 6.12 pence per share on Wednesday.
By Joshua Warner; [email protected]; @JoshAlliance
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