Obtala upbeat about future of timber pricing

Sustainable agriculture and forestry firm Obtala posted its third quarter business update on Friday, confirming it was in discussion with “several parties” to provide tranches of $25m in trade finance to support growth in its timber trading division profits, with one letter of intent signed to date.

The AIM-traded company said 15,000 cubic metres of logs were harvested in the period, and 4,500 cubic metres of export grade timber was produced.

It said engineers were continuing their work towards the completion of a veneer factory in Gabon, with a view to starting production in 2018.

The construction of a new 100 cubic metre daily capacity sawmill in Mozambique was also on track for completion at the end of 2017, the board said.0

Obtala said the final WoodBois purchase price was estimated to be $12.2m, after a $2.6m working capital adjustment to its second $3m cash tranche moved the payment down to $0.4m.

During the period, a melon harvest was also processed at the company’s upgraded refrigerated packhouse, with the first exports through Mombasa, Kenya said to be “extremely encouraging”.

Additionally, forestry and agriculture boards were installed to focus decision-making and to broaden the “universe of potential stakeholders” with increased independence.

“The time spent during the past three months working alongside the WoodBois team, who have decades of forestry trading experience, has cemented our view that we are on the cusp of a super cycle in timber and agriculture pricing,” said Obtala chairman Miles Pelham.

“I was already aware of the strong demand in China for these resources, but having studied WoodBois' diverse customer base and investment opportunities I am ever more aware of the impact with which population growth, and in particular growth in the global middle class, is creating demand for food and housing that is simply not being matched on the supply side.

“This is seen not only in Asia, but with our customers in Africa, the Middle East, and South America.”

Pelham said the company had spent the past quarter putting in place the structure it believed was required to ensure it could best manage both businesses moving forward, as well as “invest wisely” the capital would need to be directed towards sustainable forestry and agriculture businesses in Africa, given what it saw as “abnormal risk return trade-offs” emerging from the supply-demand imbalance.

“Our immediate financing focus for the next quarter will be securing a substantial trade finance facility for our timber trading division, which has a near immaculate default record, and yet has historically been restricted access to capital.

“In an environment of low interest rates with investors hunting for yield, there is an outsized opportunity to fund our trading business to many multiples of current revenue and profit levels that I am sure we will begin to capture in the coming months.”