Business Update & Directorate Changes

RNS Number : 5579C

Obtala Resources Limited

29 June 2016

 

29 June 2016

Obtala Resources Limited

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

(AIM: OBT)

Business Update & Directorate Changes

Obtala Resources Limited (AIM:OBT), the African focused agricultural and forestry company, is pleased to provide the following business update.

The first half of this year has seen significant and continued progress in simplifying our business model to become a highly focused African agricultural and forestry platform. Today I am pleased to provide an update on the key changes and updates on all areas of the Group following a recent management site visit to Mozambique and Tanzania.

Forestry

We have now established a strong asset platform of c.314,000 hectares of natural woodland in Mozambique, which is host to over 20 species of high quality hardwood. The objective for 2016 and beyond will be to develop our export capabilities and capitalise on the market dynamic of increasing global demand for high quality timber products, whilst supply is becoming more constrained as sustainable harvesting practices cannot meet either current or predicted demand for these timber varieties.

At the beginning of the year we signed a Joint Venture agreement with an Asia based trading company who have been actively marketing our timber and have received initial orders for trial containers of mixed wood types. We are currently working towards these trial orders which if successful should result in more substantive future orders, which we anticipate to outstrip current production capacity. To facilitate and expedite the export process we have engaged the service of a logistics manager who has over 40 years' experience in shipping and exporting, with previous positions held in Mozambique. Additionally we are seeing an increase in domestic demand for timbers and have received orders for wooden railway sleepers as part of the national infrastructure upgrade program in Mozambique.

On site we have electrified the camp having installed transformers to the main national grid and the main cutting facilities continue to see equipment upgrades and new investment. We have completed two drying sheds, each with a capacity of 200m³ and are planning the construction of a further three such sheds to meet the quantity and quality demands from our Asia based JV partner. To improve material handling and loading efficiencies, we recently purchased two front-end loaders, as well as numerous tractors, trucks and four new sawmills.

We anticipate that timber demand will outstrip our current production capacities and as such further investment in plant will be needed. The marketing of the investment structure that was first announced in February 2016 continues. Further investment capital, which will be completed at asset level, will help increase the on-site production capacity, and reduce logistics costs to port by purchasing our own container transporters.

We have also renegotiated our initial investment structures giving us the ability to repurchase minority holdings and give us greater access to future onward forestry revenue streams once production is online. We have entered into agreements with all three existing investors as below:

1.     Meradell Inc - From July 2018 the investor has the right to put the investment back to Obtala for the nominal US$900,000 amount invested, payable in cash or the then equivalent value of Obtala shares at Obtala's choosing.  From August 2018 the Company similarly has the right to call back the investment on the same terms.

2.     Meradell (1) - From June 2017 the investor has the right to put the investment back to Obtala for the US$900,000 nominal amount invested or in exchange for 10m Obtala shares at the investor's choosing.  From January 2018 Obtala has right to call back the investment for the nominal amount invested, payable in either cash or the then equivalent value of Obtala shares at Obtala's choosing.

3.     Meradell (2) - From August 2018 the investor has the right to put the investment back to Obtala for the approximately equivalent US$1,200,000 nominal amount invested, payable in either cash or the then equivalent value of Obtala shares at Obtala's choosing.

The Company is currently in negotiations with a Non-Governmental Organization ("NGO") in Mozambique to form a working partnership for achieving Forestry Stewardship Council ("FSC") certification and to develop community projects.

Agriculture

The initial crop of mixed sweet melon and butternut grew well but prolonged rains in April and May meant that the exterior quality was not considered to be a sufficiently high standard for our first exports and the harvested produce was instead sold into the domestic market. This was a necessary decision, made with our off-take partners, in the best interests of securing long-term customers. The recent weather patterns have affected many of the main crop growing centres globally.

During the growing season we appointed a new Farm Manager with over 25 years farming experience throughout Africa to lead the on-site management and daily operations. The impact was immediate and under the new management we are undertaking a complete reassessment of the crops in terms of margins, field practices and yield potential to identify areas for improvement and improved profitability. We have and will continue to modify and improve our farming practices. In total we intend to plant 68 hectares this summer with harvesting expected in the last week of August and we look forward to our first exports of high quality produce.

During the first six months of the year a new fresh produce pack-house was completed on-site with all necessary consumables, such as packaging and labelling materials purchased and stored on site. The Export Processing Zone has been activated with the support of local government and will ensure that the cold chain integrity is maintained from the farm to the customer with customs clearance being completed at the pack house.

The previous farm manager has been re-assigned to oversee the new "Mama Jo's Fresh" domestic sales and distribution business we are establishing in Dar es Salaam. To provide additional management we have recruited a Tanzanian marketing manager. To increase farm sales revenue we are creating outlets to sell non-export quality produce complemented by additional produce from the farm and contracted farmers. This is expected to provide additional revenue with profits being reinvested back into the farms to help off-set export and farm operational costs. We are in the process of securing the supply chain and have rented a depot in northern Dar es Salaam with three small outlets which are being branded as "Mama Jo's Fresh". The target market is the mass population of low- to middle- income earners with the intention to provide quality fresh produce at prices comparable or slightly lower than the central market prices. Another two outlets are being sourced to have sufficient outlets for proof of concept. Based on positive data we will roll out the concept and acquire more depots and outlets across the city of over 5 million people. The costs of this venture are minimal, and exit costs should it not meet our expectations are manageable, but the avenue to sell mass produce locally is extremely attractive for our non-export quality produce.

African Home Stores

The Group continues the re-structuring of the non-core LCS business with cost reduction and cost management controls taking effect. We have significantly reduced fixed overhead costs and have re-trained the purchasing and sales team to focus on selling the new selective range of goods. However trading conditions have been difficult in a generally depressed local business environment, impacted by a depreciated currency which is pegged to South African Rand and retrenchments from the local and regional mining industry. Nevertheless, we believe that our revised operating model may be able to grow and expand even in these conditions.

Board / Executive Management Changes

As the company advances, in-country management has been strengthened with key appointments and a continued focus on both cost management and good corporate governance. We have looked at corporate structure and operational focus and are making certain changes to focus on execution and operational excellence whilst maintaining appropriate levels of corporate governance.

With immediate effect Paul Tiernan Dolan will join the company as CEO. Paul, aged 52, is a highly experienced, detail orientated, international business leader who will bring a sharp execution and deliverable focus. He has over 25 years financial markets experience in global financial markets in senior positions at Nomura, ING and BZW based in London, Hong Kong and Tokyo.

Simon Rollason will continue in his role as Managing Director.  His deep operational experience in both African and resources sectors will ensure that effective local operational leadership is acquired and focused upon.

Warren Edmund Deats, aged 37, will join the company as COO and oversee our African operations from his base in Dar es Salaam, Tanzania.  Warren has 15 years of investment banking experience in Africa, Europe and Asia, and has extensive contacts throughout the continent.  His management skills are complimented by 5 years' experience developing a successful Citrus and Pomegranate farm in South Africa.  Warren will join Obtala this summer after completing his tenure at Barclays and relocating to Tanzania.

With the appointment of Paul Dolan into the newly created CEO role Kevin Milne becomes a Non-Executive Director and we will no longer maintain a Deputy Chairman position. Following these changes, the Board of Directors now comprises:  myself as Chairman, Paul Dolan CEO, Simon Rollason MD, Philippe Cohen FD and Francesco Scolaro, Kevin Milne and Jean du Lac as Non-Executive Directors, and Warren Deats as COO once his tenure at Barclays is completed.

We have also made the following key operational management appointments to strengthen our on-site capabilities in Africa:

·      Mr. Claus Wellov - Head of Forestry Logistics

·      Mr. Graham Impey - Head of Agriculture

·      Miss. Sophie Hunter - Head of Sales, Marketing and Distribution

Claus Wellov has over 40 years' experience in shipping and logistics, having worked for most of the major shipping companies. During his time he has worked extensively in Africa, with a solid background of operating in Mozambique.

Graham Impey has been farming for nearly 30 years having worked in a number of African countries, and has a strong background in export orientated horticulture and pack-house management.

Sophie Hunter has a strong accounting background having begun her career working for a bulge bracket accountancy firm. She currently manages Sale and Distribution for a South African agricultural operation and brings with her deep industry knowledge and contacts.

Share Platforms

In May this year we moved trading of our shares onto the London Stock Exchange SETSqx trading platform which provides greater visibility and potential liquidity, especially outside the UK, for the benefit of all shareholders. The ability of investors to use their electronic platforms of choice will allow them to more easily trade our shares and avail themselves of many more order types.

Website Overhaul

In anticipation of our name change we have secured the web address of www.obtala.com and will be launching a new website towards the end of the summer/early autumn. In the meantime we have updated the website with pictures of the recent management visit to oversee operations.

Miles Pelham, Chairman of Obtala commented, "This summer marks an important and critical phase for the company. Over the last eight years much has been done to build the Agriculture and Forestry platforms and now we must execute upon this to enhance shareholder value.  Execution risk remains our greatest challenge and the recent strengthening of executive and operational management puts us in a strong position as we work to rapidly increase production capacity and capabilities.

I believe we are making good progress towards realistic goals. There have been headwinds during the last quarter but the business has been resilient and I look forward to creating momentum in produce and orders as we get our first trial orders away in early Q3.

I welcome Paul Dolan and Warren Deats, and our new managers into the fold and thank the existing directors for all they have done, and are committed to doing going forwards. I am excited by the prospect that is before us and I look forward to communicating progress to shareholders in due course." 

Obtala Resources Miles Pelham - Chairman Paul Dolan - CEO www.obtalaresources.com	[phone]
ZAI Corporate Finance Limited (Nomad)                 Ray Zimmerman/Peter Trevelyan-Clark/Jamie Spotswood	[phone]
Brandon Hill Capital  (Broker)      Jonathan Evans	[phone]

Other Information 

Directorships and partnerships currently held or previously held in the last five years by Paul Dolan are as follows:

Current: Dolan Sports Management Limited, Expro Academies Limited, Greenchase Investments LLP, Greenchase Limited

Previous: Data Centre HQ Limited, Nomura International (Hong Kong) Limited (Joint Head of Equities, Asia Pacific)

Paul Dolan holds 13,300,000 ordinary shares in the Company. Other than the above, there is no further information required to be disclosed under Rule 17 or Schedule Two, paragraph (g) of the AIM Rules for Companies.

Directorships and partnerships currently held or previously held in the last five years by Warren Deats are as follows:

Current: Pomegranates Direct (PTY) Limited (the successor business to The Pomona Trust) , HJC Group (PTY) Limited

Previous: The Property Studio (PTY) limited

Other than the above, there is no further information required to be disclosed under Rule 17 or Schedule Two, paragraph (g) of the AIM Rules for Companies.

 

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