RNS Number : 2618P
Obtala Resources Limited
17 February 2016
17 February 2016
Obtala Resources Limited
("Obtala", the "Group" or the "Company")
Investment and Offtake Arrangements
· US$3m investment in the forestry division
· Investment by three independent, international timber investors
· Basic Materials Ltd, an investor, have entered into a sales and marketing arrangement for Asia (including Russia) and the Middle East
· Approx. $1.2m received to date; balance due by 30 June 2016
· Investment represents material progress for forestry business
Obtala Resources Limited (AIM:OBT), the African focused agricultural and timber company, is pleased to announce that it has entered into separate agreements with three independent, international timber focused investors to secure an investment of approximately US$3m for its forestry division in return for minority equity interests and certain off-take rights over specified forest concessions in Mozambique (the "Transaction").
The Company has secured a total investment of c.$3 million, of which c.$1.2 million has been received with the balance due by 30 June 2016. The Company plans to invest as follows:
· Build two kilns on-site to improve timber quality and recovery rates;
· Develop a new sales and distribution centre in Maputo, the capital of Mozambique, to service new export markets and enhance the domestic sales service;
· General working capital; and
· The formation of a Social and Community Development Fund focusing on providing labour, health and education programmes in Mozambique.
The proceeds of the investment will be paid directly to Obtala Resources plc and the Board of the Company will determine the use of proceeds that best develops the business plan.
The forestry business is currently owned by Argento Continental Corporation ("Argento"), a wholly owned subsidiary of the Company's 75% owned subsidiary, Montara Continental Corporation. (Seychelles) ("Montara").
To effect the investment, 3 Special Purpose Vehicles (or SPVs) are being used namely, i) Meradell Inc ii) Meradell (1) Limited and iii) Meradell (2) Limited. These companies will manage the administration and economic rights of each investor and their respective offtake arrangements. The Company, through its subsidiary Argento, will continue to hold the legal rights and obligations of the concessions. Each investor will enjoy economic rights for a certain amount of hectares commensurate with their investment.
Global Timber Investment Ltd, a company based in Hong Kong, will invest a total of $900,000 with US$600,000 payable on 1 March 2016 and the remaining $300,000 to be paid by 1 June 2016. Global Timber Investment Ltd will receive 15% of the issued share capital of Meradell (1) and the economic rights of up to 3,000 hectares (equivalent to 15% of the total concession area).
George Miller, a private investor based in the US, will invest CAD$1,610,000 immediately. The investor will receive 12.5% of the issued share capital of Meradell (2) Limited and the economic rights of up to 6,250 hectares (equivalent to 12.5% of the total concession area).
Basic Materials Ltd, a company with offices in Hong Kong and Russia, will invest a total of $900,000, with $600,000 payable on 30 April 2016 and the remaining $300,000 to be paid by 30 June 2016. Basic Materials Ltd will receive 17.5% of the issued share capital of Meradell Inc, and the economic rights of up to 3,500 hectares (equivalent to 17.5% of the total concession area). Furthermore, Basic Materials Ltd have entered into a sales and marketing agreement to supply timber to Asia (including Russia) and the Middle East.
Argento, the wholly owned subsidiary of Montara will be the operating, controlling and balancing shareholder in all the subsidiaries above.
Offtake sales agreement
The Company has entered into binding commercial agreements with regard to timber sold via the offtake arrangements. The Company will supply timber through a new wholly owned Mozambican registered trading company, Meradell Trading 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.
Meradell Trading will pay each SPV a fixed return of 5% per annum of the aggregate investment payable bi-annually. Also, Meradell Trading will pay 5% of its profits into a fund to support social programmes to benefit local Mozambique communities in which the concessions operate. The formation of a Social and Community Development Fund financed from the timber revenues will focus on providing labour, health and education programmes in Mozambique. This Fund will ensure that we are a socially positive impact company within the host countries and communities in which we operate.
Listing of forestry division
As a result of this Transaction we are reviewing our commitment to listing the forestry business as reported in the RNS on 15 October 2015. 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.
Kevin Milne, Deputy Chairman of Obtala commented today; "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.
We now look forward to bringing forward revenues through access to new international export markets that were not previously open to us. More specifically, Basic Materials Ltd, an off taker and investor, which is based in Hong Kong, Shanghai and Russia, affords a route to these valuable markets. Whilst, the creation of the distribution centre in Maputo will provide direct access to local consumers on both a wholesale and retail basis.
Finally, 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. "
Kevin Milne - Deputy Chairman
+44 (0)20 7099 1940
ZAI Corporate Finance Limited (Nomad)
+44 (0)20 7060 2220
Brandon Hill Capital (Broker)
+44 (0)20 3463 5000
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