Obtala raising £4.5m for acquisition and expansion

Resources group Obtala announced details of an acquisition, new expansion capital and a fundraising on Tuesday, reporting that the subscription would raise £4.5m before expenses at a price of 12.5p per new ordinary share.

The AIM-traded company said it intended that the proceeds of the subscription would be used to fund a proposed acquisition, and the expansion of its existing forestry business.

It said the issue price represented a discount of approximately 3.8% to the closing mid-market price of 13p per ordinary share, with the new ordinary shares representing approximately 12% of the total number of ordinary shares in issue.

Obtala, through its forestry subsidiary Argento, said it had entered into a memorandum of understanding with Nouvelle Scierie Moderne de Sassandra and Mr Sidani Yahia Younes, under which Argento agreed to provide working capital loans to NSMS, and Mr Sidani agreed to sell 100% of NSMS's share capital if served written notice by Argento before 1 April.

The loans would total CFA450m ($0.85m), the board said.

Completion of the proposed acquisition would be subject to due diligence and agreeing the terms of the sale and purchase documentation, with the price agreed in the MoU for the acquisition being CFA657m, less the amount of timber purchased by Argento in the period 16 December until 31 March;

Obtala said Mr Sidani is a 45-year forestry veteran, and if completion takes place he had agreed to enter into discussions with Argento to agree terms under which he would be employed by Argento for three years following completion.

The proceeds of the subscription would also be used to fund expansion of the WoodBois businesses, including $1.75m to double harvesting capacity in Gabon through investment in roads and machinery, $1.5m for supplier prepayments, and $0.75m for drying kilns.

Additional funds were to be used for further supplier prepayments, capital expenditure in Mozambique and general working capital purposes.

“We have spent over six months since the acquisition of WoodBois identifying and prioritising the investments required to scale the business,” said Obtala chairman Miles Pelham.

“The opportunity for expansion in both timber trading and production was clear to us during the due diligence process, and we have now had the chance to validate the impact of additional funds on both divisions through the purchase of two new bulldozers that have been operational in our forest in Gabon and a €1m increase in WoodBois' overdraft facility, which was secured on completion of the acquisition in June.”

Pelham said that had given the board confidence that funds from the current equity raise, and the expected imminent arrival of additional trade finance, would have a “significant” impact within 2018.

“In NSMS we have an opportunity to grow what has been one of our most profitable areas of business and the potential to acquire a business that is already well known to our team, with the prospect of future expansion in West Africa.”

As at 1009 GMT, shares in Obtala were down 3.85% at 12.5p.