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Operational Update and Cancellation of Warrants

Tue, 16th Dec 2014 07:00

RNS Number : 8306Z
Obtala Resources Limited
16 December 2014

16 December 2014

Obtala Resources Limited

("Obtala" or the "Company")


Operational Update and Cancellation of Warrants

Obtala Resources Limited (AIM:OBT), the emerging agri-processing, farming and timber company, is pleased to provide an brief update on activities relating to its projects in Africa and the conclusion of an agreement to cancel certain warrants issued in 2013.


The Company has engaged the services of Natural Resources Europe Limited ("NRE"), a private independent consultancy, to provide assistance in seeking out suitable partners who can provide third party harvesting and processing expertise for increased production capacity and expanded marketing for the concessions in East Africa. This strategic approach follows on from the valuation report announced on the 18 June 2014 and will provide a platform from which value realisation can start to be achieved in 2015. To date five companies have signed Non-Disclosure Agreements with two letters of intent received from interested parties.

A site visit is planned for early 2015 with the interested parties with an agreement to be concluded thereafter. Part of the programme being developed by NRE is a "Plant-to-Cut" project, which would run in parallel to the hardwood harvesting and processing programme. This will give diversification to the existing natural forest portfolio and provide an important, sustainable long term revenue stream. This will involve both the Company and the selected operator establishing a timber plantation on a portion of the existing concession portfolio.

Plantation establishment is a long term process, taking anything from 15 years to 30 years depending on the species grown. Establishing a teak processing facility (sawmill) would provide employment and economic development in the region and would be looked on favourably by the international community as well as Mozambique authorities. Teak is a valuable timber that is in high demand from India, China and Europe. Relatively unprocessed timber holds a high value with current market values for good quality certified plantation teak at around US$ 900/950 per m on a FOB basis delivered to the local port.

Establishment costs are likely to be in the region of $3,000/hectare over the first 5 years, thereafter around $400/hectare. The crops would be thinned 3 times, 5 years apart. The first is un-commercial, the following two would be commercial (poles and logs) and would generate a surplus. Final harvesting would yield around 350 m to 400 m per hectare, 60% would be higher value log, 20% would be second grade logs and 20% would be low value timber. A 1,000 hectare plantation would have in the order of 1.6 million trees which after 5 years would have a standing stock value in excess of $300 million (based on unofficial estimates from the consultants), exclusive of the previously reported June 2014 valuation on the existing hardwood potential.


Extensive work is being completed on the processing facility to ensure that it is complaint for food health and safety certification which is underway. It is anticipated that certification will be awarded in Q1-2015 with drying and processing of dried fruits continuing once the upgrade work is complete. The Company has started delivering into the fresh produce market (French beans, onions, assorted peppers and chillies, tomatoes, etc) in Tanzania and has recruited a Marketing and Sales Manager to facilitate sales direct to the end users, such as hotels, tourist camps, shipping lines and retail outlets. Global GAP certification for the farm operations is expected to be complete in Q1 2015. Plans for a cannery on site continue with an evaluation of the infrastructure, power and water requirements with a decision on timing to be made in 2015 once the appraisal is complete.

Lesotho - Cannery

A number of significant upgrades are being completed on the facility in Maseru, funded by our partner the Lesotho National Development Corporation. Work is expected to be completed imminently and BRC certification completed in Q1 2015, opening access to a wider range of target customers, including the retail sector. A number of product samples have been sent out to prospective buyers and a number of local farmers are now planting crops for production in early 2015.

African Home Stores

Daily sales at the recently purchased retail chain in Lesotho (announcement of 30 October 2014) are doing well ahead of the Christmas period. Since assuming control the Company has put into place improved stock control and inventory monitoring, accounting procedures tightened up as a new accounting software programme is integrated into the business, together with a number of successful sales and promotions. Planning is in place to open up another two African Home Stores branches in Lesotho and a further unit in Bloemfontein, South Africa in Q1 2015. Once the new branches have opened the Company will continue with its goal of opening new shops in other African countries, initially where we already have an operational presence.

Mama Jo's

An additional supplier of high quality, fully certified sauce and fruit products has been identified and orders will be placed in early 2015 to increase the product range. Current supplies of the spicy sauce range are being sold into a number of small restaurant chains and specialist food shops. Dried fruits from Tanzania are being packaged into small retail sized re-sealable bags which we have designed, printed and sales of these products have now started in the outlets in Lesotho.

Cancellation of Warrants

The Company has agreed to buy back two tranches of warrants issued as part of a placing in early 2013 (announcement made on 20 February, 08 April and 21 May 2013). The warrants have an exercise price of £0.0769 and £0.0844 for a total of 8,754,208 ordinary shares once exercised. The company has agreed to pay the warrant holder £335,000 in two tranches. The first payment made on the 16 December with the second payment will be made two month afterwards. The warrant certificates will then be cancelled thus avoiding any dilution to existing shareholders and any negative impact on the current share price.

Paragon Diamonds

As per the announcement of 20 November 2014 the Company has received full settlement for the first tranche of the call option shares from Titanium Capital Investments limited. Payment and transfer of the second tranche of 36,000,000 shares will be made by the 1 March 2015.

Chairman's comment

Simon Rollason, Managing Director, commented: "As a Board we are pleased to provide this update to our shareholders. We have remained focused on our objective of creating a vertically integrated business opportunity in what has been a challenging year for small cap companies, and are now well placed to see substantial growth in 2015. The developments on the timber concessions will provide for increased levels of production and marketing and underpin the inherent value that this considerable portfolio can achieve. The "Plant-to-Cut" project will further enhance the timber valuation and in the future will comprise an important part of the business. We are hopefully that once internationally recognised certification is awarded on the different project market opportunities will expand significantly boosting the underlying value of the various businesses we have created."

Obtala Resources

Francesco Scolaro - Chairman Simon Rollason - Managing Director

+44 (0) 20 7099 1940

ZAI Corporate Finance Limited (Nomad)

+44 (0)20 7060 2220

Ray Zimmerman

Richard Morrison

Irina Lomova

Fox-Davies Capital (Broker)

+44 (0)20 3463 5000

Jonathan Evans

Square 1 Consulting (Public Relations)

+44 (0)20 7929 5599

David Bick

Mark Longson

Natural Resources Europe Limited ("NRE")

NRE was established in August 2012 to bring together the collective experience and knowledge of over 60 years working in forestry, farming, commodities and logistics primarily in Africa, but also globally. This has included working with some the World's largest companies in this sector. Covering areas such as Canada, USA, Russia, Brazil, East and West Africa. NRE has developed a thorough understanding of the process, and logistics inherent in delivering forest products to the market, in a timely and cost effective manner. This has included working with people establishing plantations, for commercial forestry operations, whilst understanding the changing landscape of sustainability and regulation that is enforcing the introduction of the best working practices to ensure forestry plays its part in protecting our environment.

This information is provided by RNS
The company news service from the London Stock Exchange
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