Operational Update - Q1 2016

RNS Number : 9716T

Obtala Resources Limited

04 April 2016

 

04 April 2016

Obtala Resources Limited

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

(AIM: OBT)

Operational Update - Q1 2016

Obtala Resources Limited (AIM:OBT), the African focused vertically integrated agribusiness, timber and retail company, today provides an operational update on its businesses in Africa.

Highlights:

Agribusiness

·              Initial orders received after international trade show in Berlin with strong expressions of interest for further orders

·              Q1 export focused planting programme successful with an initial 500 tonne crop ready for phased harvesting and sales in April onwards

·              Material investment in farm infrastructure, equipment and team over past 3 months

·              Work commenced on the new joint venture farm project with maiden crops planted

Timber

·              $3 million investment secured to accelerate production and distribution

·              International orders received with further major contracts anticipated

·              Q1 focus on marketing and business development ahead of the harvesting season

African Home Stores

·              Re-structuring programme completed with reduced overheads

·              Reduced creditors and store exposure with view to consolidating and rebuilding the business

Agribusiness

The Company secured trial or proof of concept orders for our products from a number of buyers in the Middle East and Europe following the Company's attendance at the Berlin "Fruit Logistica" trade show in February. The show is one of the largest international fresh fruit and vegetable events for both buyers and producers in the world. In addition to these initial orders for melons and butternut squash, which we expect to start leaving site in early April, the trade show generated strong interest in our agribusiness and in our "grow to order" programmes based on customer requirements.

The Company currently has 28 hectares (of which 8 are on the New Farm) of butternut squash and sweet melon under cultivation which will have a field yield of c20-25 tonne per hectare. The Company continues to enjoy excellent growing conditions and water supply on the farm remains strong with the 9 water wells and 3 reservoirs performing and meeting our expectations. Our location in East Africa has also meant we have avoided the severe drought conditions that have impacted on the farming economies in the countries to the south of Tanzania as a direct result of the global El Nino effect.

The focus in Q1 has been on cultivating three varieties of sweet melon, namely; cantaloupe-charentais, galia and yellow honeydew. Our internationally renowned melon seed supplier is working closely with the farm management, providing technical assistance and guidance, to ensure the best product for the farm. We are also sourcing additional seed varieties for sweet potato and habanero chilli based on interest expressed at Fruit Logistica. Both crops have already been successfully trialed on the farm. Our trading partner is attracting interest which will allow the Company to grow and market crops on a year round basis, with additional crops that can be grown to order, linking into seasonal demand.

To strengthen on site management we have recruited an experienced horticulturalist who joins as the Farm Manager. To support the export opportunity the Company is finalising the installation of a new fresh vegetable pack house on the farm, with target commissioning in the 1^st week of April. This is a $200,000 investment and has been constructed in only 3 months. The facility will allow for the product to be chilled to the required export temperatures prior to loading onto refrigerated shipping containers.

The Company is in final discussions with local authorities to activate the Export Processing Zone ("EPZ") on site. This will facilitate customs clearance and container sealing on site allowing for the cold chain to be maintained from farm to the customer. Meetings have been held with the main shipping lines and a freight forwarding agent has been engaged. Products are being marketed under the Mama Jo's label with the required export permits obtained by the freight forwarding agent for each consignment.

Domestic Sales

The Company has scaled back on the range and volume of vegetables that were being grown and sold into the local market to focus on the sweet melon and butternut requested by the trading partner. We expect to see this opportunity grow later in the year as we implement plans to establish a sales network in Dar es Salaam. Previous sales targeted the upper middle class consumers but the intention is to tap into the 4.5 million population in Dar es Salaam by providing goods for sale to independent traders.

New Farm Project

The Company has signed the shareholders agreement with the owners of the additional land covering 1,200 hectares. Previously announced on the 25^th November 2015 the area under consideration was 1,265 hectares but the Company has dropped 65 hectares which is not suitable for our intended agribusiness. Planting has started on the new project with 30 hectares being developed with infrastructure installed, out of the 250 hectares already cleared ready for development. Overhead water irrigation has been installed and planting of melon and butternut is in progress with the maiden harvest from this project expected at the beginning of April. As previously announced, the intention is to establish a banana plantation, working together with our trading partner, who is providing technical support and initial seed stock. Planning for this project is underway with a soil study and site survey in progress. Banana cultivation experts are expected on site in April and May to provide technical guidance and planning for establishing the banana plantation.

Timber

As announced on the 17 February 2016, three separate investors have agreed to acquire minority shareholding in three newly formed holding companies for a total investment of $3 million. The investment, which is non-dilutive to Obtala shareholders, will be used to accelerate in-country production, processing and distribution.

Each holding company has been allocated the production rights for specified volumes of harvested timber from a specified concession, based on one concession per holding company. Obtala, through its subsidiary companies, still owns and maintains the timber concessions, which cover a total area of 314,965 hectares. In return for this investment, the investors will receive a 5% fixed dividend on their investment, payable biannually and a pro-rata share of any income at subsidiary level.  

5% of the new Mozambique registered timber trading company's profits will be paid into a Social and Community Development Fund to support social programmes benefitting the local Mozambique communities in which the concessions operate. The fund will focus on providing labour, health and education programmes and recent meetings with the Governor's office have confirmed their desire to align themselves with our social impact approach and work with us in partnership to establish a carpentry school on site.

A sales and marketing agreement for Asia and the Middle East was concluded with Basic Materials Ltd ("BML"). BML have been marketing our timber extensively in Asia and have received initial orders for 2 containers of various timber species to China, which potentially will lead to a significant volume of exports on a monthly basis with a further order for 2 containers to Vietnam. There is also interest for 10 trial containers from Thailand from another buyer, with the customer's representatives making a site visit in April. Two further timber distributors, based in South Africa, have both agreed to take a trial container of mixed species, which again will potentially lead to significant volumes of exports on a monthly basis. Prices for the timber on order range from US$600-1000 per cubic meter, depending on the species but excluding the more expensive Blackwood. An order has been received to manufacture an additional 1,000 wooden railway sleepers.

 African Home Stores

The Company continues the restructuring of LCS with cost reduction and cost management controls taking effect. We have taken the decision to close four outlying branches to regroup and consolidate on smaller premises and are currently operating two shops, including a new half-size premises in the capital city of Maseru. The Company has reduced existing product lines and is sourcing new goods for improved margins.

We have reduced staff by 60% and re-trained the sales team to focus on selling the new selective range of goods. Improved sourcing of such goods and renegotiated distribution arrangements with IT/telecoms services providers. The inherited creditors list has been reduced by over 66%. 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 retrenchment from the local and regional, diamond and precious metal mining industry however we believe that our revised operating model may be able to grow and expand even in these conditions.

Simon Rollason, Managing Director of Obtala, commented, "It is very pleasing, after all the hard work of developing our business platforms to see them move into operational production. The platform for consistent growth in sales across the group has now been established and our focus and direction is with our partners to deliver attractive returns immediately, whilst monitoring costs. We are highly encouraged about our first shipment of farm produce to the UAE in April. The Company has invested heavily in the farms and the product range, with the launch of the new Mama Jo's packaging and working closely with our partners CMF to achieve prompt sales. Marketing efforts over the last two quarters, following the securing of all required permits and certifications, is showing very positive results and gaining good market traction. The Q1 2016 period has been very much focused on business development ahead of harvesting in April on both the timber and the agribusiness as both businesses move from project phase to operational with new investors coming in and sales and distribution well underway with very encouraging early results. The sales pipeline is growing and the forthcoming months present themselves as an exciting period for the progress and expansion of our agriculture and timber divisions." 

Obtala Resources Kevin Milne - Deputy Chairman Simon Rollason - Managing Director www.obtalaresources.com	[phone]
ZAI Corporate Finance Limited (Nomad)          Ray Zimmerman Richard Morrison	[phone]
Brandon Hill Capital  (Broker)              Jonathan Evans Alex Walker	[phone]

 

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