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The Big Picture - Obtala Resources sowing the seeds for growth in Africa

Obtala Resources is now firmly establishing itself as an agricultural processing company in Africa - a market ripe for development.
The Big Picture - Obtala Resources sowing the seeds for growth in Africa

Obtala Resources (LON:OBT) is now firmly establishing itself as an agricultural processing company in Africa - a market ripe for development.

Its hard work seems to be paying off as a cursory glance at the share chart for the last year shows. 

The stock has more than doubled as milestones were passed, growth opportunities seized and new goals targeted.

The main focus in the last 12 months has been the group's two food processing businesses. One is in Tanzania in East Africa, while the other is a cannery in Lesotho.

It also has a rapidly growing timber business in Mozambique, adding to the potential growth mix.

Confidence in this asset has been bolstered, as revealed on Monday, by an independent valuation, which showed a potential sales value over 10 years of US$395mln.   

However, the most significant catalyst, which has prompted the company to seek further opportunities within the agri-sector has been the Morogoro tomato farm in Tanzania, for which it first outlined plans in February last year and, which is run by its Montara subsidiary.

On Morogoro, managing director Simon Rollason told Proactive: "We started out with dried tomatoes and have more recently identified the excellent potential to process and sell other dried fruits that are abundant within the region, specifically, mango, pineapple and bananas. 

"The location of the Morogoro project is ideal being situated adjacent to major infrastructure and only 180km from the export port facilities in Dar es Salaam."

He added that Obtala was currently mulling building a canning facility at Morogoro which would allow for a considerable increase in production volumes.

In an operational update three months ago, Obtala revealed a wash plant and drying unit were now operational on the farm and it had received sale invoices for US$226,250.

In addition, 20,000 mango tree saplings have been purchased and drying trials conducted on other fruits, such as bananas.

It also announced plans to leap further down the production chain - with the launch of its own branded range of glass bottled tomato ketchup, chilli and spicy sauces for the Northern European and Northern American catering market – a launch, which has now occurred.

Rollason said: "We now have the Mama Jo’s sauces being delivered into the UK and the sales team have secured a number of orders for the sauces. This represents an exciting opportunity and we anticipate that additional products will be added to the current sauce range late in the year."

Meanwhile, in Lesotho, the firm has a 70% stake in the country's only fruit and vegetable cannery, where work has already begun on developing the local agricultural sector that can deliver product into the cannery, to supplement the tomatoes already being grown in Tanzania.

The close link between growing and then distributing food is at the heart of Obtala's strategy to be vertically integrated and because the firm manages activity across the whole growing, canning and distribution process, it keeps costs down.

African countries are developing at a breathtaking pace and food production is a big part of that.

In March this year, Kofi Annan, former UN Secretary General, noted the potential but also the need for strong leadership to make sure the continent delivers.

"If African leaders create the right financial and market incentives, enable access to innovation, and engage the private sector, Africans will be able to feed not just themselves, but export food to other parts of the world, he said.

And it's not just food where Obtala is tapping into big growth prospects. Its Mozambique forestry business is blossoming and it recently announced a second railway sleeper order from a global mining giant.

"The company’s timber business has been built up over the past few years organically with revenues generated from past orders/contracts allowing us to make the required capital expenditure and build up of the portfolio of concession assets," said Rollason.

"There are a number of infrastructure development projects underway in Mozambique. Our main area of activity falls within the Nacala Development Corridor which is focussing on the upgrading of the infrastructure, particular the railways lines which will enable raw material and goods, such as coal to be transported to the deep water port at Nacala. 

"We are supplying timber railway sleepers which are used on junctions, crossing points and annual maintenance, with the demand and required volume for these products remaining strong."

According to the African Development Bank, Mozambique's economy remained one of the most dynamic on the continent last year, with a 7% rate of real gross domestic product (GDP) growth, in spite of the major flooding which occurred during the first quarter. 

"The main drivers of growth are foreign direct investment (FDI), focused mostly on the extractive sector, and increasing public expenditure. The fastest growing sectors in 2013 were the extractive sector, propelled by a boost in coal exports, and the financial sector fuelled by credit expansion and increased income, mostly centred on urban areas," it said.

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