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CAF.V – Canaf Group Inc. Due Diligence Report
Common Shares: 47,426,195
Insider Holdings: 15,391,328 or 32.5% as per www.Sedi.ca
Financials (All in US Dollars – Should Be Converted into CDN Dollars for accurate value)
Trade Receivables: $1,298,566
Tax Receivable: $5,904
Prepaid Expenses: $28,526
Property, Plant & Equipment: $1,197,093
Total Assets: $3,519,269 ($4,700,511 CAD as of March 20th 2017)
Trade Payables: $1,130,333
Income Tax: $939
Current Portion of bank loan: $225,758
Total Bank Loan: $403,126
Deferred Tax: $91,918
Total Liabilities: $1,852,074 ($2,473,722 CAD as of March 20th 2017)
Asset/Debt Ratio: 1.9:1
Revenue over the last 4 quarters
Date – Sales - Profit(Loss)
Q1 2017 - $2,991,706 – Net Income of $197,691
Q4 2016 - $1,796,330 – Net Income of $136,764
Q3 2016 - $1,126,582 – Net Income of $19,945
Q2 2016 - $757,843 – Net Loss of ($41,382)
From MD&A: The summary above demonstrates a return of the Corporation to three consecutive quarters of increasing revenue and net profit. The increase in sales has been generated by an increase in Quantum’s product demand, which has been caused by not only a reduction of availability of coke, and coke related products within South Africa, but also due to a slight return to confidence in the local steel and manganese markets. Despite the Corporation feeling that there remains room for more confidence to return to these markets, the outlook for the remainder of the year remains relatively strong.
The Corporation is very pleased to confirm strong results for the 3-month period end January 31, 2017, as forecasted. The results demonstrate the continued strong turnaround of the Corporation’s South African business, Quantum.
Revenue for the 3-month period increased to $2,991,706; an increase of 193% in comparison to the same quarter last fiscal year, and up 67% from the previous quarter ended January 31, 2017. The Company expects sustained levels of revenue during Q2 2017, as demand for Quantum’s product remains strong in South Africa.
During the quarter, the Corporation recorded a net income of $197,691 (C$259,579), in comparison to a net loss of $294,482 for the same quarter the previous year. Adjusted EBITDA rose to $569,300 (C$747,517) for the quarter.
The Corporation is currently in discussions with major customers to secure new long-term contracts for a period of 2 years, which will provide security of sales, and enable the business to further invest in cost saving modifications for the operation.
The recent results further confirm the Corporation’s strong position as a carbon reductant supplier in South Africa. Quantum is one of a few suppliers of a low volatile reductant, a situation, which has allowed the entity to emerge as a key player in the country.
The outlook and profitability for the coming year remains dependent on demand for the Corporation’s calcine product, which the Corporation believes looks far more promising than the previous fiscal year-end 2016. The Corporation intends to continue to generate positive free cash flow during the fiscal year-end 2017 and will focus on increasing shareholders’ value, as well as investment to improve the efficiency of its older facilities, or investment into related business opportunities in South Africa.
In August 2006, Canaf, then known as Uganda Gold Mining, announced the termination of any further investment into its Kilembe Copper-Cobalt Project in Uganda. Since 2007, the Corporation has been involved in a legal dispute with Kilembe Mines Limited, (“KML”). In January 2013, the High Court of Uganda referred the case back to arbitration for settlement. On May 29, 2013, a preliminary meeting was held between the Corporation, KML and the arbitrator.
The Corporation can confirm that further meetings were scheduled for August 2013, after filings of amended statements of defence and claims had been submitted. Since the initial meeting however the Government has awarded a deal to a Chinese Consortium to manage and operate KML. The Corporation’s appointed Ugandan Advocates have notified the board that the Arbitrator has stepped down for personal reasons. The Company’s Uganda Advocates and the Government’s Solicitor General have agreed to a new Arbitrator, Retired Justice James Ogoola. The parties held a preliminary meeting with the Arbitrator who requested them to provide him with their fee estimate for the conduct of the Arbitration. The estimate has since been provided to the Arbitrator who is yet to confirm whether or not he is agreeable to it.
In the meantime the Company appointed SRK Consultants to prepare a brief document to quantify the ‘lost opportunity’ value of the termination of the Kilembe Project. During the current financial year the Company will utilize this document to assist in the submission of a revised claim against KML. The Company has received no new information since 2014, and the Company remains unable to give an indication of either the quantum or any likely date by which a settlement will or will not be reached. The original claim, before costs, is for a money sum of US$10,370,368 as at January 24, 2007.