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Obtala Focused on Increasing Active Forestry Concessions from Two to Five

Obtala Focused on Increasing Active Forestry Concessions from Two to Five [27.03.17] Obtala has been working on plans for six out of the group’s 10 forestry concessions in Northern Mozambique, while on the agriculture side in…

Obtala Focused on Increasing Active Forestry Concessions from Two to Five

[27.03.17] Obtala has been working on plans for six out of the group’s 10 forestry concessions in Northern Mozambique, while on the agriculture side in Tanzania plans are afoot to invest in orange orchards.

Having recently raised funds Obtala Limited (LON:OBT) is now focused on delivering the infrastructure required to underpin generation of strong positive cash flow.

On the forestry side, work has been done on preparation of management plans for six out of the group’s 10 forestry concessions in Northern Mozambique.

“Our immediate target is to increase the two concessions, which were operational by year end 2016, to five active concessions,” Obtala said in a first quarter update.

The site of Obtala’s new central sawmill in Nampula has been identified and arrangements for the land usage should be finalised in April.

Obtala said it has observed a year-on-year price increase for fully registered and traceable logs in the local market of around 15% in US dollar terms, reflecting a scarcity in availability of certain species, most specifically Kiatt.

This could be a result of the sharp fall in value of the Mozambique Metical during 2016 making Mozambican timber more attractive to foreign buyers, or simply demand outstripping supply after the strict government-imposed clampdown on illegal logging, or a combination of both, Obtala suggested.

“Regardless of the cause, the price trend for our harvestable asset is moving in our favour, and in our view is likely to continue to do so, which reinforces our ambition to become the largest producer of sawn timber in Mozambique,” Obtala said.

On the Agriculture side of the business, having extensively studied crop choices, Obtala’s medium-term plan to drive revenues is to develop large scale, high value orchards in Tanzania.

Properly managed, orchards deliver high yields as they approach maturity after six or seven years.

Return on investment is among the highest offered in the sector with underlying earnings (EBIT) typically above 50%, but, of course, there is that six or seven year wait for the orchards to mature, during which time they are soaking up cash, rather than producing it.

The Obtala board is strongly of the view that developing orchards now will provide significant returns to shareholders over time, but mindful of the need to produce some jam (or marmalade) today while waiting for the jam tomorrow to arrive, the plan is to implement a 'hybrid' agricultural model with cash crops, or 'annuals' that will provide the positive cash-flow required to fund the expansion of orchards.

Obtala expects to plant 80 hectares of high value annuals – mostly melon but also butternut and onion - in 2017, in addition to 30 hectares of feed maize.

The key factor inhibiting growth beyond this expansion in 2017 is lack of availability of cold storage and pack house facilities. Obtala revealed its existing facilities will be operating at maximum capacity at harvest time from June to November this year.

A new pack house is scheduled to be completed in time for the 2018 harvest.

Source: Proactive Investors