Kore Potash (KP2) – Size Matters to Investors Says Turnaround Expert

Kore Potash PLC
  • AIM/ASX: KP2
  • Shares Outstanding: 859M
  • Share price GB£0.01 (03.07.2020)
  • Market Cap: GB£10M

Interview with Brad Sampson, CEO of Kore Potash (AIM/ASX: KP2).

Kore Potash is a potash developer with assets in the Republic of Congo. The company’s focus is on bringing its ‘world-class’ potash projects into production. Kore Potash’s Sintoukola district is a globally significant potash basin in the Republic of the Congo. This is for 2 reasons. The first is the extremely high-grade. The deposits are also at shallow depth. The second is scale.

Moreover, this new potash basin is positioned strategically in close proximity to the growing African and South American potash markets. Africa appears to be becoming the next focal point for fertiliser demand and food production and is by far the fastest-growing potash market. However, investors should note that progress may not be rapid because it is developing from scratch.

Let’s start by exploring the potash space. The main use for potash is as an agricultural fertiliser, providing a source of potassium to crops. This is a fundamentally important long-term application and is a strong base driver to turn potash’s demand narrative on. In the global agricultural space, there is a train of thought that is gaining momentum, and it regards environmental efficiency. The rapidly growing global population needs more and more food, and the potash macro story features a global ambition to satiate humanity’s hunger whilst making more efficient use of dwindling arable land via increased yields. Science has not currently plugged this gap, short of providing GMOs to increase yields without fertilisers. Potash is a natural, environmentally friendly solution. The long-term demand thematic ensures that potash is a more stable commodity than many because even in the most unstable of markets, food is a constant consumer good necessity. However, stability isn’t always desirable. It totally depends on what sort of investor you are. While it may not possess the glitz and glamour of gold or the pizzazz of battery metals, potash can make investors money if they pick the right company.

The potash market is around 65Mt pa in size. COVID-19 and the trading stand-off between the US and China has caused the market to take a slight hit. The market is only growing by 2-3% pa. Some investors will view this as stable; some will view it as stagnant, especially considering the sort of growth seen in the gold sector right now. Nobody can claim that 2-3% growth is an exciting figure, and investors will question why to choose this investment class over others. Some investors might argue that we don’t really need another potash company, but buyers are always going to appreciate the additional competition; the quality and total cost at which it produces confirms its potential to compete. The real question is do investors care? Sampson says that multiplier majors have moved into the potash space and acquired big projects for a reason. He believes that despite Kore’s status as a minnow, the company has managed to acquire perhaps the most exciting land package around.

Let’s delve into those assets. There are 3 projects, all in the Republic of Congo, all within the Sintoukola district. The DX Sylvinite project is the highest grade undeveloped potash deposit globally. A PFS was released on 13th May 2020, outlining some impressive economics. The life-of-mine operating cost is just US$87/t Muriate of Potash (MoP) FOB. The operational process is inherently simple and involves single well selective dissolution mining, churning out 400ktpa MoP production over an 18-year lifespan. Kore Potash can forge an accelerated pathway to production in with just a 21-month construction period. Moreover, the project’s strong infrastructure overlaps with the other 2 projects.

First, Kola, Kore Potash’s largest project, is a tier-1 potash asset that is anticipated to be one of the lowest-cost potash producers on the planet. It has a Measured and Indicated Mineral Resource of 508 Mt grading 35.4% KCl, and the industry’s lowest operating cost: US$102/t MoP CFR delivered to Brazil. However, it will require a 4-year construction period and a sizeable US$2.1Bn initial CAPEX.

Secondly, Dougou is a large, thick carnallite deposit with a Measured & Indicated Mineral Resource of 1.1Bn tonnes grading 20.6% KCl. This is an good portfolio of projects in a reasonable mining jurisdiction. This company IS NOT in the DRC, though it is next door.

Sampson expects a fast-tracked DFS for DX in 8 to 12-months time. A front-end engineering and design phase would follow, concluding in construction within 15-months. Sampson is adamant that as he de-risks the projects further, the completely share price should start to rise. We’re yet to see investors take much interest in the potash space, so investors may want to err on the side of caution. He’s going to have to find a way to excite the market as a whole, which is easier said than done when it comes to potash; there is no shortage of supply in the market, and no-one wants a price war.

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Once the cash is flowing at DX, this could enhance Kore Potash’s optionality. The company currently has US$4.7M in the bank and will be heading to the market shortly to push the development of DX over the line. In an ideal world, Sampson will try to avoid dilution. Kore Potash is considering all options. The company is pursuing strategic partners. Sampson claims he “knows” there is significant interest in the company’s portfolio. The current shareholder base appears to be supportive.

Sampson claims that the share registrar doesn’t have a significant overhang. He states that the majority of investors are providing committed support. Kore shareholders own 60-70% of the company. More than US$150M has been spent developing these projects already. Sampson last bought shares himself roughly 6-months ago. The company has raised US$13.5M over the last 2-years. Market cap today in £17.5M. The company has a lot to do before investors start to look their way.

What did you make of Brad Sampson and Kore Potash?

Company Website: https://korepotash.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

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