LONDON (Alliance News) - Obtala Resources PLC on Thursday announced plans to spin off its timber business in Mozambique into a separate entity which will list on London's AIM market in early 2016.
Obtala shares were up 1.8% to 7.0 pence per share on Thursday morning.
The vertically integrated agribusiness, timber and retail company said it plans to list the separated company in the first quarter of 2016 and said it made the decision after evaluating a number of options for the division. Obtala didn't say how much of the Mozambique business it intends to float.
Back in September, the company said it had decided not to take on a strategic partner for the timber business.
The board said it believes spinning off the timber business of is "in the best interest of Obtala shareholders...in order for the significant inherent value to be recognised and to attract investors focused on the forestry sector."
An independent company valued the forestry business in June 2014 showed the timber business had a net present value of USD161.0 million, based on the business having 11 concessions covering 279,965 hectares.
The company is, subject to local government approval, completing the acquisition of 50-year leases for two new timber concessions totalling 35,000 hectares in Mozambique to bring the total forestry area to 314,965 hectares, suggesting the value of the business is now higher.
Obtala said it will continue to invest in operational growth and drying facilities for higher quality, higher margin timber in the short term whilst expanding its harvesting operations across all of its forests in Mozambique. It also plans to evaluate the opportunity for the timber business to generate other income from plantation forestry, it said.
Obtala said the separate listed entity will make the value of the division more visible and improve the ability to source experienced management to the company. The company said it is interviewing potential candidates to fill seats at the proposed spin off company.
It also believes there is demand for investors who only want exposure to the forestry sector.
"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 the first quarter of 2016. The board is reviewing the proposal of distributing shares in specie at an amount/ratio to be finalised at the time of listing," it said.
The main target at the forestry business is to increase production based on its goals laid out in 2014, when it said the division's operating costs would total USD72.0 million and capital expenditure would be USD15.0 million over a 10 year period. Sales over that 10 year period were estimated at around USD395.0 million.
Of that capital expenditure budget, the first year is expected to total around USD300,000.
It is also in talks with a "international timber company" about the potential to begin exporting timber out of Africa. The forestry division is currently targeting the construction industry in Mozambique but believes new products such as traditional decking, decking tiles, doors, window and door frames and increased production will allow it to expand out of Africa.
Back in March, Obtala signed heads of agreement with South Africa's Kishugu International Holdings Ltd to allow Obtala to enter the South American timber market. It also signed another deal with Kishugu for a similar arrangement in Mozambique.
"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," it said.
To increase production and broaden its product range, Obtala will need to invest in new machinery to grow its capacity and plans to establish two additional harvesting campaigns so harvesting can take place across all of its concessions simultaneously, rather than staff moving from one forest to another - making the operation more efficient.
"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," it said.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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