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Kore Potash: THE INVESTMENT CASE

Kore Potash has a big project, big plans, and even bigger backers

Kore Potash has access to deep pockets when it comes to development plans for its Kola project in the Republic of Congo
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The decision of Kore Potash Limited (ASX:K2P) to seek a London listing, announced earlier this month, could mark a significant turning point for London’s mining sector.

Kore itself has been around in Australia for a while, and its market capitalisation of A$130 mln speaks to some extent of the potential value of the potash assets it has in the ground in the Republic of Congo.

But what’s really noteworthy is the confidence with which chief executive Sean Bennett speaks of the potential capex number that will be required to bring the company’s Kola project into production.

According to a previously completed prefeasibility it’s likely to run to around US$1.8bn, and Bennett is confident of finding the support, especially with cornerstone investors like SQM and SGRF backing the company. What’s more, Bennett is also confident that Kore can reduce this capex number.

The only other mid-tier company in London talking up a project with development costs like that is Sirius Minerals (LON:SXX), and that’s exceptional in that its Yorkshire-based project makes it a local favourite in a country that is usually starved of home-grown mining investment opportunities.

Not since the heady days of the mining boom of the last decade has a company listed in London without production on the back of a project with such high potential capex and with the confidence and the backing that makes it likely that it will pull it off.

But Kore is a singular company with a singular project. Over the past few years it was derailed slightly by the distraction of a serious takeover bid from one of its own major shareholders which eventually fell through. While that was happening, the board became divided and has now been restructured.

And in the meantime, the worst vagaries of the mining bear market have now finally blown over, and the markets are open for business once more.

Bennett joined in 2015 alongside chairman David Hathorn, the highly respected ex-chief executive of Mondi, and between them they’ve steered Kore back into calmer waters, ditching the old name for the company – Elemental – along the way. The new name is a hybrid of the chemical symbol for potash, “K” and “ore”, of which Kore has plenty of both.

At the last count, the measured, indicated and inferred resource added up to over 5bn tonnes of potash across its projects, with grades running as high as 60% KCl.

But there’s more to it than that.

“You’ve got to have a structural competitive advantage,” says Bennett.

“And the best one is cost. You need to make money where others are breaking even. Our projected opex is approximately US$100 per tonne. We’re at the lowest end of the cost curve. Why? – it’s very shallow by comparison to most potash mines and very high grade, at an average of 35% KCl, where other mines operate at sub 30%.”

What’s more, Kola is only 36 kilometres from the coast and it will have its own dedicated jetty.

“Add all that together and you’ve got a real structural advantage,” continues Bennett.

There remains, of course, the question of political risk. But Republic of Congo hasn’t been nearly as volatile in recent years as its immediate neighbour to the east, the Democratic Republic of Congo.

Indeed, oil companies have been operating successfully in the Republic for thirty years or more, and Kore itself has a sovereign wealth fund as a shareholder.

Still, Bennett concedes that perception of African risk remains a factor.

“That’s part of the reason for coming to London,” he says. “The UK has a bi-lateral treaty with the Congo. And that offers an additional layer of protection.”

And with that issue covered off, we’re brought neatly back to the question of funding.

Major shareholders SGRF and SQM each hold 18.2%, and each is a major financial institution of international clout.

“We’re a junior company with two massive investors behind us - they have the financial clout to finance the project individually if they chose,” says Bennett.

“SQM are huge fans of this project and they looked at approximatelytwenty to thirty potash projects around the world and they chose us. It’s a major reason why we believe we’ll get the capex done. We’ve started our financing discussions already and are really excited that a global powerhouse like Rothschilds are working with us on raising the debt.”

There may also be a contribution from the French export credit agency in providing long-term low-cost debt, especially given the French Consortium, led by Vinci and Technip, that are working on the DFS and providing the fixed price EPC.

All of which also adds further layers of reassurance in the form of the individual due diligence each institution and financial backer undertakes before getting involved.

And, from here on in things could start to move pretty fast. The London listing is expected to complete by the end of the year.

At the same time, work on a definitive feasibility study is ongoing, following a recent US$50 mln raise, one of the largest junior fund raises in the world last year. The study should be completed during the second quarter of next year, with an engineering, procurement and construction contract in place during the following quarter.

And if there was renewed bidding interest from the Chinese, or someone else, along the way, then Bennett would obviously consider it, if it was in the best interests of shareholders. But it’s not something he’s soliciting.

Production is the real goal. It’s been a long road and there is a lot still to do, but the end is now in sight.

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