DekelOil takes early option in Pearlside cashew processing project

West Africa-focussed agricultural company DekelOil Public has entered into a new, revised option agreement to acquire an initial 43.8% interest in the share capital of Pearlside Holdings from Trustland Management, it announced on Monday.

The AIM-traded firm said Pearlside's wholly owned subsidiary, Capro, was currently developing a large-scale 10,000 tonnes per annum (tpa) raw cashew nut processing project at Tiebissou in Côte d'Ivoire, which would be expandable to 30,000 tpa and was now expected to start production in late 2019 or early 2020.

It said the acquisition was at a “significantly reduced” valuation to the terms of the original option to acquire up to 58.5% of the issued share capital of Pearlside, which was announced on 26 June, and reflected the fact that the project was not yet operational.

The new option also permitted the acquisition of up to a total of 64.3% - not 58.5% as set out in the original option agreement - of the issued share capital of Pearlside.

DekelOil said the acquisition was to be settled by the issue of 52,612,613 new ordinary shares at a price of 4.5p each - a 46.3% premium to the closing price of 3.075p per DekelOil share on 20 December.

It said that implied a current valuation of €6m for the entire issued share capital of Pearlside, and represented a “significant discount” to the minimum €18m valuation assigned to Pearlside under the terms of the original option agreement announced in June.

An independent report prepared by PKF Littlejohn opined that the current valuation assigned to Pearlside “appears reasonable and on an arm's length basis”, the DekelOil board highlighted.

It said the option, similarly to the original option, permitted the exercise of options granted pursuant to it for a limited period following the publication of Pearlside's audited annual accounts for the year ending 31 December 2020.

DekelOil said it had elected to bring forward the acquisition following the “significant progress” made at Tiebissou since the original option was signed.

As a result, the directors said they believed the development phase of the Tiebissou Project had been “materially” de-risked.

Progress included the appointment of a senior management team at Capro, comprising executives who reportedly played a “key role” in the successful construction and commissioning of DekelOil's palm oil project in Ayenouan, as well as confirmation of a 13-year tax exemption for the project, and the execution of key contracts relating to the cashew processing plant and infrastructure works and the final financing package for the plant.

“The early acquisition of a 43.8% interest in Tiebissou is a significant event for DekelOil and one which we believe will generate long term value for shareholders,” said DekelOil executive chairman Lincoln Moore.

“This is a reflection of both the substantially lower valuation we have secured compared to the original option agreement, but also the significant premium at which the new consideration shares in DekelOil have been issued.

“The share price premium is an endorsement of our vision to build a multi-project, multi-commodity agriculture company, the strategy we have in place to achieve this and our management team which, as it successfully demonstrated at our palm oil project in Ayenouan, has the credentials to deliver.”

Moore said that, due to the progress made at Tiebissou since the firm announced the original option in June, the board as “pleased” to have agreed the earlier partial exercise.

“We are also delighted to have secured the option to acquire a further 20.5% interest, in addition to this early acquisition of a 43.8% interest in Tiebissou, representing an aggregate interest of up to 64.3% in the project, as opposed to an interest of up to 58.5% under the original option agreement.

“We are confident that the €6m valuation assigned to the project today represents value for shareholders and I look forward to providing further updates on our progress, as we focus on bringing our second project into production in late 2019.”