Potash producer seeks local funds

29-03-2018
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Business Day
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South African investors are going to play a big role in financing a 2-million-tonnes-a-year potash mine in Congo Republic as Australia’s Kore Potash nears the end of a bankable feasibility study into the project that could cost between $1.8bn and $2bn.

Kore is listing on the JSE on Thursday, bringing local institutions a unique opportunity to invest in a pure-play fertiliser business at the bottom of the potash price cycle.

The initial public offering will raise R156m towards completing the study, due in July 2018. The listing will be a secondary listing, with Kore also listing on London’s Alternative Investment Market, giving it a third listing including its presence on the Sydney bourse.

London and SA will be key to raising $600m or more of equity towards the project, said Kore chairman David Hathorn, the former CEO of FTSE 100-listed Mondi Group, a paper and packaging company.

He said he used the contacts built up during his tenure of dual-listed Mondi to secure meetings with potential investors in the UK and SA. "There’s been a lot of interest from SA," he said.

The bulk of the capital, $1.2bn, will be raised largely in France and SA through export credit groups in both countries, with the French government providing a letter for comfort for up to $700m to build the mine, 35km of conveyor belts to the coast and a processing plant in the country, he said.

The prefeasibility study of the project put the cost at $1.86bn. Hathorn declined to speculate what the final capital cost would be in the more refined study due in July.

Unlike other companies that failed in Congo — Exxaro being a prime example with its Mayoko iron ore project — Kore has secured a mining convention that is already in force. While the convention has yet to be ratified by parliament — something Hathorn believes is a mere formality in coming weeks — the document has been signed by the country’s president, clearing the way for the construction and operation of the mine.

The twin-shaft, highly mechanised bord-and-pillar mine will be built near the bottom of the price cycle with the forecast for steadily rising prices of potash, which Kore will largely export to Brazil at a cost of $100 per tonne. Prices are forecast to rise to $400 a tonne or more in coming years, he said.

The demand side of the market that Kore will supply consumes about 65-million tonnes a year, with Russia and Canada the major suppliers of potash.

In the next two years, some 9-million tonnes of ageing production capacity will be closed, contributing to the price increase in a market dominated by just a few suppliers, Hathorn said. The mine will extract 6-million tonnes of ore a year, which will be sent by three sets of conveyor belts to the coast for processing into 2-million tonnes of saleable product.

The size of the deposit as well as neighbouring tenements owned by Kore indicate a potential to triple output in coming years, said CEO Sean Bennett, who is not staying on to manage the company.