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Obtala Resources looks to move into Brazilian timber market

Last updated: 14:09 12 Mar 2015 GMT, First published: 15:09 12 Mar 2015 GMT

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Timber land management business Kishugu International Holdings has been chosen as Obtala's (LON:OBT) partner for its forestry projects in Mozambique.

Obtala announced at the end of last year it was looking for an experienced partner to work with it on increasing production its forestry concessions, and it has landed a heavy hitter as its collaborator.

Kishugu is a forest fire management and timber land management business with operations in South Africa and Chile that brought in US$60mln in revenue in the year to the end of March 2014.

Kishugu also has other producing operations in Mozambique and Australia, plus it is developing new opportunities in Brazil, Argentina, Uruguay, Tanzania, Angola, Indonesia and Malaysia.

The company manages millions of hectares of wild lands and forest plantations, and is the sort of experienced operator Obtala needs in Mozambique, and possibly beyond, because the two companies intend to set up a joint venture to pitch for a new Brazilian forest management project contract that is expected to be awarded to the successful bidder in the third quarter of this year.

The Brazilian contract is for an initial five-year period with forecast revenues of US$3mln a year; to put that into perspective, Obtala reported revenues of US$2.0mln in the first half of 2014.

If the JV gets the contract Obtala will pump US$500,000 into the project in return for a 50% stake.

That probably explains why the shares were trading down by just over a penny at 9.56p in afternoon trading, but the group is not short of cash, having ended the first half of 2014 with net cash of US$2.4mln, since when it has announced it will receive £1.95mln through the exercise of call options over Paragon Diamonds shares held by Obtala.

Obtala said the JV extends its exposure to global timber markets while reducing its reliance on Mozambique.
Francesco Scolaro, chairman of Obtala, said Kishugu is a strong partner with tremendous timber experience.

"We look forward to working with Kishugu to tap into and realise the earnings potential and value of our forestry assets," Scolaro said.

"We are a company exhibiting revenue growth in areas that are considered countercyclical. Along with strong cash generation we have an extensive portfolio of assets that we expect will hold their underlying value and further appreciate with higher levels of production and sales."

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