Forestry group Obtala Ltd (LON:OBT) is to team up with FundInvest, an investment company, to combat illegal logging and promote timber processing in Mozambique.
FundInvest was established by the Ministry of Land, Environment and Rural Development (MITADER) and under the terms of a non-binding memorandum of understanding, will set up a joint venture (JV) with Obtala in which it will own 51%.
The JV will own and operate a timber harvesting, purchasing, processing, export and distribution business in Mozambique.
The newly-formed company will have a mandate to purchase logs ( primarily from small concession holders who would otherwise be tempted to illegally export their timber), deliver and process timber at sawmills within Mozambique, and to the resulting wood products to international markets.
Obtala does not plan to invest directly into the joint venture company but will be responsible for arranging preferential rate financing from socially and environmentally aware funders and government entities; it will also make its sawmill in Nampula available for processing the joint venture's timber at market competitive prices.
Obtala and FundInvest will work jointly to sell the joint venture's processed timber.
“Our view has always been that a sustainable business model must be built around extracting the highest dollar value recovery from each and every log we take from the forest rather than simply exporting raw unprocessed logs,” said Miles Pelham, the chairman of Obtala.
“FundInvest clearly share that vision and are eager to form a joint venture company that will rapidly advance to higher value-added processing such as MDF, HDF, and veneer. It is a strong signal from the government that they intend to support legal operators and is perfect timing for us as our new sawmill comes online this quarter," he added.
Shares in Obtala were up 10.1% in afternoon trading at 15.69p.