Big picture - Why invest in African Potash Ltd
African Potash Ltd Snapshot
The Company was established to acquire and develop potash assets, which the Board believes could generate material value for shareholders. Potash is primarily used as a source of potassium fertiliser. A combination of rising demographics and growing affluence in the developing world has led to a structural shift higher in global demand for agricultural produce. Accommodating the increase in demand for foodstuffs will require a greater use of fertilisers, which in turn creates an opportunity for a pan-African, London listed vehicle, focussed on potash ore.
In February 2013, African Potash formally acquired an indirect 70% interest in La Societe des Potasses et des Mines S.A., which holds the exclusive right to conduct mining research activities for potash salts over the Lac Dinga Project in the Republic of Congo. The Lac Dinga Project is African Potash’s maiden asset and main target for exploration.
In addition to proving up the value potential of the Lac Dinga Project, the Board will continue to seek to identify other projects in order to establish a solid portfolio of highly prospective potash assets. The Directors have well established business contacts and connections in sub-Saharan Africa and intend to utilise these to identify prospective acquisition and/or investment targets with scope for growth. The Board has a defined investment strategy centred on evaluating potential opportunities in accordance with stringent investment criteria and on an individual merit basis.
The Company’s investment objective is to create value for shareholders through the development and growth of acquired potash assets and/or businesses. The Board believes an opportunity exists to consolidate African potash assets and so create a sizeable, London listed, pan-African company focussed on this commodity. In view of the favourable demand/supply dynamics, the Directors believe the outlook for global potash prices is very positive and have accordingly established a vehicle to achieve these objectives.
African Potash, in line with its investment strategy, is evaluating a number of prospective projects which the Board believes have the potential to fulfil the Board’s stringent investment criteria.
Potash is the common name for various potassium-bearing materials and compounds. The term is widely applied to naturally occurring potassium salts, as well as the commercial products derived from them. The majority of the world’s potassium reserves were deposited when ancient inland oceans evaporated, crystallising potassium salts into beds of potash ore. The resultant deposits are a naturally-occurring mixture of potassium chloride and sodium chloride (better known as common table salt).
Potassium is the seventh most abundant element in the Earth’s crust and is the third major plant and crop nutrient after nitrogen and phosphorus. Its primary use is as a soil fertilizer (which represents about 90 per cent. of current use) but potassium has a diverse range of uses and can be found in ceramics, pharmaceuticals and detergents. Potash improves the water retention, yield, nutrient value, taste, colour and texture of crops and is commonly applied to a wide range of fruits and vegetables, as well as rice, wheat, corn and other grains, sugar, soybeans, palm oil and cotton, all of which benefit from the nutrient’s quality enhancing properties.
A deficiency in potassium makes plants less resistant to disease and pests and this can impact the size, shelf life and taste of the crop. Continuous growing and harvesting of crops also removes potassium, nitrogen and phosphate from soil, all of which need to be added back in consistent ratios to maintain the fertility of the soil. Historically, it was standard practice in the agricultural industry to leave land fallow for a number of years so that the soil could be replenished. However, as demand for food has risen, in line with global population growth, leaving fields fallow is becoming less practical. Higher demand for food is having to be satisfied by obtaining higher yields from existing acreage, which in turn requires the increased use of fertilizers such as potash to maintain the balance of nutrients found in soil. Crucially, potassium’s role cannot be replicated by other nutrients and currently there is no commercially viable alternative to potash as a source of potassium fertilizer.
Most existing potash mines are deep shaft mines that can be as much as 4,400 feet below ground. Other deposits were formed in horizontal layers as sedimentary rock and are mined as strip mines. Potash can be extracted by employing one of four mining techniques: underground, solution mining, open pit or solar evaporation. The method used depends on the characteristics of the specific deposit such as depth, geometry and mineralisation. The majority of potash is recovered from buried deposits using conventional, mechanised mining methods. Solution mining involves injecting underground seams bearing the potash with a brine solution which dissolves the potash from the seams. The solution is then brought to the surface for processing where potassium chloride is separated from the mixture to produce a granular potassium fertilizer.
Lake Dinga Project
African Potash’s first exploration project is the 702.5 sq km Lake Dinga Project Area (‘Lake Dinga’ or the ‘Project’), extending 57 km NW-SE in the Kouilou region, in the Republic of Congo.
Lac Dinga is located in a highly prospective area; the Project is adjacent to the Dougou Potash Deposit, part of the Sintoukola Potash Permit, held by Elemental Minerals Limited (ASX/TSX: ELM) and the Makola licence of Evergreen Resources Holdings (BVI) Ltd. The Dougou Potash Deposit has a JORC compliant Measured and Indicated mineral resource of 1.1Bt grading 20.6% KCl.
A drilling campaign was undertaken in Q3 2014 and results received from assays confirmed the presence of multiple potash seams.
The analytical results for the two completed exploration drill holes (LDDH_001 and LDDH_002) on conceptual targets identified from seismic data confirmed the presence of potash mineralisation over significant thicknesses with individual sample grades of up to 25% KCl (~15.8% K2O). The results confirmed laterally extensive potash mineralisation which is characteristic of the Congolese coastal basin and further underpins the project's potential to host significant potash deposits. About 250km2 of the licence area is interpreted to be underlain by salt-bearing strata which occurs at depths of about 300m to 420m below surface and mineralogical studies confirm that the potash seams are partially converted to sylvite mineralisation.
In addition to proving up the value potential of Lac Dinga, the Board will continue to seek to identify other projects in order to establish a solid portfolio of highly prospective potash assets in sub-Saharan Africa.
Mining Potash & Global Reserves
The majority of potash mines are deep shaft that can be as much as 4,400 feet below ground. Strip mines are used on deposits formed in horizontal layers as sedimentary rock. Extraction is achieved by employing one of four techniques: underground, solution mining, open pit or solar evaporation. The actual method used depends on the characteristics of the deposit such as depth, geometry and mineralisation. The majority of potash is recovered from buried deposits using conventional, mechanised mining equipment. Solution mining is employed to extract reserves deeper than 1,200m and involves injecting underground seams bearing the potash with a brine solution to separate the potash from the seams. The potash bearing solution is then brought to the surface for processing where potassium chloride is separated from the mixture to produce a natural fertilizer.
Potash is commercially mined in a number of countries around the world. Canada and Russia are, by some distance, the top two producing nations, accounting for 49 per cent. of world production in 2010. Of the two, Canada has the largest reserves with 46 per cent. of the global total, while Russia has 34 per cent. Global reserves are estimated at 9,500 million tonnes. In Africa, large potash deposits have been found in Congo (Brazzaville) and Ethiopia.
Prices & Consumption
The main potash miners of Canada, Russia and Belarus have each formed consortia that negotiate fixed term contracts with major customers. In Canada, the Canadian Potash Exporters (Canpotex), which is jointly owned by three Canadian fertilizer producers, exports and markets potash produced in the province of Saskatchewan. The Belarussian Potash Co is another consortium performing a similar function for Russian and Belarussian producers. The price agreed by the consortia and the customers acts as a benchmark for global spot prices.
Mr Chris Cleverly
Mr Cleverly was called to the Bar in 1990, and subsequently founded Trafalgar Chambers establishing himself as the youngest head of chambers in the last century. In addition to his legal work, Mr Cleverly is also the Chief Executive Officer of the Made in Africa Foundation, a UK non-profit organisation established to assist the development of the African continent by providing first-stage funding for the feasibility studies and business development of large-scale infrastructure projects based in the region. He is also a regular presenter on TV and radio, and a contributor to newspapers and magazines on subjects regarding Africa and African development.
Rt Hon Lord Peter Hain
Lord Hain was a Cabinet Minister for seven years and a government minister for five years, holding a number of positions including Foreign Minister, Europe Minister and Energy Minister. During this time, he gained significant experience in diplomacy, negotiation and conflict resolution. He is due to become a Member of the House of Lords in October 2015. Lord Hain has also held various directorships including positions with Amara Mining PLC, Developing Markets Associates Ltd, ADR Group Accredited Civil & Commercial Mediator and IDM Africa Business School. He is heavily involved in charitable organisations and is Ambassador to the Desmond Tutu Foundation, which aims to build peace in fractured communities, Chairman of Donald Woods Foundation, which does ground-breaking health and schools work in one of South Africa's poorest areas and a Trustee of the Listen Charity, fundraising for anti-poverty projects.
Mr Elias Pungong
With a distinguished career spanning 25-years, Mr Pungong has advised governments, multinationals and private sector institutions across Africa on strategy, operation, and general management issues. In his current role as Senior Partner and Oil & Gas Leader for Africa at Ernst & Young (EY), he leads the firm's transaction advisory and assurance work within the energy practice. Prior to EY, he spent 14 years at PricewaterhouseCoopers (PwC) where he was a member of PwC's Africa Leadership team, and Managing Partner for the firm's Sub-Saharan Africa Francophone team, leading the firm's expansion efforts across Francophone Africa. In his other activities and functions, Mr. Pungong currently serves as Honorary British Consul to the Littoral Region in Cameroon. A Fellow at the Institute of Chartered Accountants of England and Wales, Mr. Pungong, was also selected as one of the prestigious Young Global Leaders by the Davos World Economic Forum in 2009, earned an MA degree with first class honors in Mathematical Statistics from Oxford University, and received advanced executive training at the Harvard Kennedy School and the Yale School of Management in global leadership, management and organisational leadership.
Rt Hon Mark Simmonds
Mr Simmonds is a Conservative Party politician in the United Kingdom who served as the Member of Parliament for Boston and Skegness in Lincolnshire, from 2001-2015. Most recently he held the ministerial position of Foreign and Commonwealth Minister for Africa and as such he has a deep knowledge of the business and political landscape across the continent. During his parliamentary career Mr Simmonds also held a number of shadow ministerial roles, including for Health, International Development, Foreign and Commonwealth Affairs, and Education. He is also the Non-Executive Deputy Chairman of Commonwealth Enterprise and Investment Council, which focusses on promoting trade and investment by facilitating engagement between Government and the private sector throughout the Commonwealth.
Mr Declan O'Brien
Mr O'Brien has over 20 years senior management experience within the financial sector, particularly relating to the African commodity space. He is currently Chief Executive Officer ('CEO') of Barak Fund Management, an African commodity focused investment fund which provides bespoke trade finance and working capital solutions to businesses. Prior to this, he was Global Head of Business Development at Skybound Capital, a fund management business focused on Africa and China. Other previous responsibilities include CEO of Royal Eagle Investments (Pty) Ltd, an independent management consultancy business, and Head of sales at BNP Paribas Cadiz Securities, a South African-based specialist equity derivatives broking and research company. In his role as Chief Commercial Officer / Head of Sales at Global Trader, a South African based online trading platform, Mr O'Brien was instrumental in the sale of the company. He holds a Diploma in Financial Management, is a JSE Registered Securities Trader and holds a certificate from the South African Institute of Financial Markets' in the Registered Persons Examinations (RPE).
Dr. Simon Dorling
Dr. Dorling, is an Exploration and Structural Geologist with over 19 years of industry experience and is a Principal Consultant with CSA Global Pty Ltd (‘CSA’). Dr Dorling and CSA were the leading technical consultants for ASX listed Elemental Minerals Limited, which owns 93% of the Sintoukola Potash Project (‘Sintoukola’), located contiguously to African Potash’s Lake Dinga and as the Competent Person, Dr. Dorling developed Sintoukola from a conceptual target to bankable feasibility study stage. He is a Qualified Person and is also a member of the Australian Institute of Geoscientists (MAIG).
Financial Summary: Index AIM ALL as at 25 January 2016
Stock Code AFPO
Sector General Mining
Financial year end 30 June
Total issued share capital 825,263,358 Ordinary Shares
Total voting capital 825,263,358 Ordinary Shares
Percentage issued share capital not in public hands 4.22%
There are no restrictions on the transfer of AIM securities