Fertiliser supplier fades

Potassium digger African Potash (LSE: AFPO) collapsed 43% in Friday business, after furnishing the market with disappointing operational news.

African Potash advised that the severe drought hitting southern Africa has prompted a deal to supply 20,000 metric tonnes of urea to a COMESA customer to fall through. The client in question is still awaiting confirmation of order from its own customers, African Potash advised.

On top of this, particularly dry conditions in Zimbabwe has seen an agreement inked back in December with Windmill fall through, African Potash said.

In brighter news, African Potash also announced it had signed a participation agreement with Safyr Commodities — which itself has inked conditional sales agreements with leading Zambian fertiliser distributor Nyiombo Investments — for the supply of 50,000 tonnes of urea and NPK.

But investors have naturally given this news short shrift. African Potash is already on shaky ground, the company having seen pre-tax losses swell to $716,000 in July-December, up from $660,000 a year earlier.

Given the scale of unfavourable climate conditions on its revenues outlook, I believe African Potash is a risk too far at the present time.

Software play strides

Cerillion (LSE: CER) has seen its share price jump almost 8% today, after it advised the market that results for the first half of the year “are anticipated to be in line with management expectations.” The software play anticipates reporting that revenues and EBITDA will have advanced 11% (to c.£6.9m) and 21% (to £c.1.1m), respectively, between October and March, when it announces its interim results for the half year in late May.

Cerillion — which provides software for billing, charging and customer relationship management (or CRM) — announced in recent weeks the signing of a $2.4m contract with an existing customer which Cerillion describes as “a multi-service communications provider in the Americas.”

The company provides services for a broad range of customers in established and emerging economies alike, and sales continue to pick up speed. Cerillion currently boasts 75 major clients across 40 countries, and I expect cutting edge products like its Cerillion Skyline package to keep sales spiralling higher.

On the precipice?

I am not so optimistic over the growth outlook of Vedanta Resources (LSE: VED), however. Sure, the share price may have added an extra 33% during the past month as commodity  prices have rallied. But as I have previously cautioned, the fundamental picture for the resources markets remains less than encouraging.

Vedanta Resources continues to hike production across its main markets to offset the impact of lower resources values. Indeed, the business churned out record amounts of copper cathodes, aluminium, electricity and silver during January-March, mirroring similar measures by many of the world’s major commodity producers.

But a drastic slowdown in Chinese economic growth raises serious questions over where exactly all of this excess material will end up.

Given this backdrop, I believe recently-revived commodity prices are in danger of experiencing a severe reversal, putting the share values of chargers like Vedanta Resources in equal peril.

The post Should You Buy Vedanta Resources plc, African Potash Ltd & Cerillion PLC Today? appeared first on The Twelfth Magpie.

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What’s SpaceandPeople (LSE: SAL) all about then? It does promotional space at more than 750 shopping centres, city centres, retail parks and the like — offering things like promotional kiosks and other marketing services. And it’s just released full year results for 2015.

With the termination of one of the firm’s agreements, UK operations fell back a little as expected, and gross revenue dropped from £31.6m in 2014 to £26.5m. But pre-tax profit before exceptionals stayed approximately the same at £1m, and with no non-recurring costs the company reported a basic EPS rise of 82% to 4.26p. The dividend  was lifted 10% to 2.2p per share, to yield 3.5%, and there was net cash of £0.7m on the books.

The shares have been up and down a little all morning, and at the time of writing I’m seeing a 2.5% rise to 61.5p, so what are the prospects for the future? Well, there’s a 54% rise in EPS forecast for the current year, with the dividend expected to grow to yield 4.3%. And that puts the shares on a forward P/E of just 10.

Chairman Charles G Hammond told us “We believe that SpaceandPeople is creating a solid platform for growth and a sustainable future“, and though it’s a very small company with a market cap of only £11.65m and comes with the commensurate risk, I’d be cautiously optimistic.

Egyptian healthcare bargain?

Integrated Diagnostics Holdings (LSE: IDHC) is an altogether bigger company, with a market cap of close to £500m, though that’s a little down from its value at flotation in May 2015. Priced in US dollars, the shares dropped as low as $3.85 in February this year, but since then we’ve seen a 34% recovery to today’s $5.15 — with  no change so far on the day full year results were released.

The Jersey-registered company bills itself as “Egypt’s largest fully integrated private-sector provider of medical diagnostics services“, and saw revenues grow 18% to 1,015 Egyptian Pounds (approximately £80m), with adjusted net profit up 18.4% and earnings per share up 9% — and the firm declared a dividend of six US cents per share for a modest yield of 1.2%.

Should you buy? Well, the combination of an AIM listing, an overseas registration, and operating in Egypt will add risk for sure. But that’s offset by forecasts of 47% EPS growth this year and 25% next, which would drop the P/E to 13 by the end of 2017 — and dividends are predicted to yield 3.7% by then.

Potash potential

Potash is in the news of late with Sirius Minerals‘ York Potash project looking increasingly promising, and today we have interim results from African Potash (LSE: AFPO). It’s another tiddler, with a market cap of £14m, and is registered in Guernsey this time. As I write, the shares are down 14% to just 1.45p, but that still represents a quadrupling over the past 12 months — so how did the results go?

The company realised its first revenue from the fertilizer trade in December, of $59,000, and has a trading agreement in place with the Common Market for Eastern and Southern Africa. But there’s obviously some way to go yet before they see any profit, with a pre-tax loss of $716,000 reported, together with a cash balance as of 31 December of $509,000.

I think it’s fairly obvious that means a fair bit more cash (and the corresponding dilution) will be needed in the coming few years to fund the company’s development — and in January this year we’ve already seen a $1.18m share placing. There’s potential here, but it’s too risky for me.

The post Should You Buy SpaceandPeople Plc, Integrated Diagnostics Holdings PLC And African Potash Ltd After Today’s Results? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Total revenue from today’s dispatch amounts to $10.16m, with a sale price of $508 per MT being achieved, and African Potash will be paid on the basis of a 30 day back to back Letter of Credit. Encouragingly, the margins achieved on the sale are in-line with previous guidance and, with it being the company’s first ever trade, it indicates that its strategy of generating immediate, positive cash flow through which to finance future growth has got off to a pleasing start.

Clearly, there is a long way to go before African Potash reaches its full potential and, while today’s news is undoubtedly a step in the right direction, its goal of building a vertically integrated platform for the mining, production and distribution of fertiliser in Africa is unlikely to be delivered without future challenges.

Therefore, while less risk averse investors may be interested in the stock, it remains a very small business which has just inked its first ever deal. Therefore, it is relatively high risk and, with a number of cheap and highly profitable mining companies on offer at the present time, many investors may choose to look elsewhere in the sector for long term growth.

One such mining company which has significant appeal is precious metals miner Polymetal (LSE: POLY). It trades on a price to earnings (P/E) ratio of just 13.3 and, with its bottom line due to rise by 5% this year, could be a relatively stable mining play.

Certainly, the price of gold could come under pressure as US interest rates rise, since the price of the precious metal has historically been inversely related to interest rates. However, with Polymetal due to report a return to profitability for 2015 after two consecutive years of losses, investor sentiment could improve and push its share price upwards.

Furthermore, with Polymetal yielding 3.1% from a dividend which is due to be covered 2.5 times by profit this year, it appears to be a relatively enticing income play, too.

Similarly, buying a slice of Vedanta (LSE: VED) also seems to be a sound move for the long term. Like Polymetal, it is expected to move back into profitability in the current financial year and, looking ahead to next year, is forecast to increase its pretax profit from £217m to almost £550m.

This rapid rate of growth could positively catalyse investor sentiment and, with Vedanta trading on a price to book (P/B) ratio of only 0.13 (using its most recent interim results net asset figure), there appears to be considerable upward rerating potential on offer.

As with any resources company, Vedanta is highly dependent upon commodity prices. But, while it is therefore relatively risky, its valuation indicates that now could be a good time to buy for the long term.

The post African Potash Ltd, Vedanta Resources plc & Polymetal International PLC: 3 ‘Must-Have’ Mining Stocks? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

While things could realistically get worse before they get better for mining companies, that could mean buying companies that offer size, scale and profitability could be a shrewd move for investors. That’s because the larger mining companies may have the most appealing risk/reward ratios in terms of offering low prices and upward rerating potential, as well as a track record of profitability and relative financial soundness.

Going For Gold

Fresnillo (LSE: FRES) is among the largest silver producers in the world and Randgold Resources (LSE: RRS) has the same status among gold producers. With their share prices having fallen by 62% and 28%, respectively, since the start of 2013, it’s clear that they’re trading at a low ebb. That’s no surprise after their huge falls in profitability, with Fresnillo’s earnings per share (EPS) declining by 93% in the last three years and Randgold Resources’ EPS being 47% down in just two years.

While these EPS figures are hugely disappointing, both companies have been able to stay in profit throughout the price falls in gold and silver. And looking ahead to the next two years, they’re expected to post excellent growth numbers. For example, Fresnillo’s bottom line is forecast to rise by 158% this year and by a further 84% next year. This puts it on a price-to-earnings-growth (PEG) ratio of just 0.4, which indicates a share price recovery is on the cards. And, with Randgold’s earnings expected to rise by 22% next year, its PEG ratio of 1.1 is also highly appealing.

In The Slow Lane

Clearly, not all mining companies have the size, scale and production capabilities of Fresnillo and Randgold, which makes them a less appealing investment for now. Take African Potash (LSE: AFPO) and Beowulf Mining (LSE: BEM) that are a fraction of the size of their two sector peers. Many investors may be bullish on their long term prospects after their share prices have collapsed by 40% and 47%, respectively, since the start of 2013. Yet their appeal for most investors may prove to be limited.

That’s not necessarily because those long term prospects are disappointing, or that their strategies or management teams are poor. It’s merely a reflection of the current state of the mining sector that there are large-cap miners trading at exceptionally low prices and that offer the potential for growing profitability over the short-to-medium term. Furthermore, those large-cap firms offer greater diversity and financial strength than their smaller peers and, as such, appear to offer a more favourable risk/reward opportunity for the long term.

The post Why I’d Buy Fresnillo plc And Randgold Resources Limited Over African Potash Ltd And Beowulf Mining plc appeared first on The Twelfth Magpie.

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Will KAZ Minerals (LSE: KAZ), Vedanta Resources (LSE: VED), Jubilee Platinum (LSE: JLP), Lonmin (LSE: LMI) and African Potash (LSE: AFPO) be able to survive?

Loss-making production  

At the end of August, Kaz’s shares jumped by a fifth after announcing the results, which beat expectations.

Since the release of these results, however, a lot has changed. Alongside the half-year results, Kaz revealed that its full-year copper production cost guidance would be in the region of 260 to 280 cents per pound. But at the end of August, the price of copper crashed to 220 cents per pound, indicating that Kaz is losing money on every pound of copper produced. 

Essential merger

According to City, it’s essential that Vedanta completes its merger with Cairn India for the company to be able to withstand the weakness in global commodity prices.

It’s so important that Vedanta completes its merger with Cairn India that credit ratings agency, Standard & Poor’s has placed Vedanta on credit watch, ahead of a possible downgrade if the merger doesn’t go ahead. 

Vedanta’s management expects the deal to complete during the fourth quarter of 2015. So, investors will have to wait for further clarity on Vedanta’s outlook. Still, management has stated that the company’s 9.4% is here to stay for the time being. 

Long way to go

Jubilee Platinum has surged 160% in the last six months weeks but has fallen by more than 30% since the beginning of August. News regarding asset sales, financing deals and the company’s pipeline of projects have all boosted the investment case for Jubilee, although the company has a long way to go before it can stand on its own two feet. 

Moreover, it is unclear how the 30% fall in the price of platinum over the past six months will affect the company.

And as the price of platinum slumps, Lonmin’s financial performance is only going for bad to worse. Lonmin is expected to post as pre-tax loss of £90m this year followed by a further £20m loss next year. Further, management is struggling to refinance the group’s debt.

Lonmin may look like a bargain, as it currently trades at a price to book value of just 0.06, but it should be avoided.

Difficult to call

It’s difficult to call African Potash’s outlook. With a market cap. of only £21.5m the company is off the radar of most investors but that hasn’t stopped the stock rising more than 600% over the past three months. 

Most of these gains have been driven by the news that African Potash has inked several supply deals for the supply of fertiliser. At the end of last week the company announced that it had agreed on a price of $500 per metric tonne in respect of 50,000 MT fertiliser product to be sold under a supply agreement signed at the end of August. Also, a trade finance facility of up to $50m is currently being arranged for African Potash. 

So unlike Vedanta, Lonmin and Kaz, African Potash looks to have a bright future ahead of it, as management push through the company’s business plan. 

The post Are These Companies Heading To Zero? Vedanta Resources plc, Lonmin Plc, African Potash Ltd, KAZ Minerals PLC & Jubilee Platinum PLC appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Price target 7.4p?

African Potash was up 20% today in early trade, hitting a 52-week high of 3.63p. The rise was spurred by a fresh trading update, according to which agreement was reached with third parties “to establish a sale price of $500 per metric tonne in respect of 50,000MT fertiliser product to be sold pursuant to the memorandum of understanding announced on 24 August 2015.“

Moreover, a trade finance facility of up to $50m “is currently being arranged” through its banking advisor Loita Capital Partners, which removes some uncertainty on its short-term funding requirements. If you think that it’s all too good to be true, consider that its stock could double to over 7p (based on its current price-to-tangible book value). As I noted earlier this month, though, you should hold AFPO only as part of a properly diversified portfolio. 

Paying up for what exactly? 

It’s easy to forget that Drax traded around 650p a share only 12 months ago, but it’s impossible to ignore that its current valuation of 244p a share — only 7p higher than its 52-week low — is simply the result of the government’s new policy that removes the climate change levy (CCL) exemption for renewable electricity.

Its funding requirements are relatively sound yet I am not convinced that its current valuation, based on trading multiples for cash flows and earnings, offers a particularly appealing entry point right now, not even following today’s trading update concerning its withdrawal from the White Rose CCS project.

There are stronger income investments in the market. However, I am not talking about Gulf Keystone Petroleum, which, though, has proven to be much more resilient than I thought in recent weeks.  

The Value Of Money 

Drawing a parallel between the real life and finance, GKP reminds me of a kid that will always need a helping hand to get out of his troubles. It might not be his fault, but one way or another a parent must put hand in his pocket at some point to bail him out — it could end up in a similar way for GKP shareholders. 

GKP was unlucky in recent months because its debtors were not willing to pay their bills when they came due, but that is a risk that anybody runs when dealing in countries whose leaders can simply make up their minds without having to provide any proper explanation to the international community. Well, much bigger countries than Kurdistan have done so in the past, and nobody blinked. 

GKP is at mercy of its debtors, and I doubt any future update will lead me to think that its stock price can double to 55p from its current level over the next 12 months. In fact, the cash that it is still owed will have to be collected instead from shareholders in a new equity funding round, in my opinion. 

The post Are African Potash Ltd, Drax Group Plc & Gulf Keystone Petroleum Limited Set To Double? appeared first on The Twelfth Magpie.

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

African Adventure

It isn’t hard to see the sudden surge of interest in African Potash. It traded at 0.3p at the start of August. Today, it has soared to a dizzying, 10-bagging, 3p. This is the kind of penny share that traders dream of but usually only notice when it was too late. Hindsight is great but it never made anybody rich.

The earth shook for AFPO investors in August after it announced a trading agreement with Comesa, a free trade union of 20 African countries, to supply 500,000 tonnes of fertiliser a year. Securing the distribution deal was a great leap forwards, as reflected in the share price. Since then it has signed two new deals: a memorandum of understanding to supply a Zambian fertiliser group with over 50,000 metric tonnes of fertiliser, followed by another 50,000 tonnes for an unnamed Malawian fertiliser company. This has helped the company shrug off ugly and probably untrue rumours of a discounted share placing.

Ifs And Buts

The problem with sudden soaraway stocks is that there is always a “but” or an “if”. First, the but: African Potash hasn’t actually mined any potash yet. Second, the “if”. Its distribution plans are great news but only if it actually locates some potash. Early soundings at its Lac Dinga project suggest significant deposits, but there is further exploration to be done. Talk of creating a vertical platform for the mining, production and distribution of fertiliser looks a little far-fetched given the uncertain reality on (or rather, under) the ground.

Recent distribution deals should help African Potash raise the funds it needs to develop Lac Dinga, and the cash from that – if it flows – will help pursue the wider strategy. There is a long way to go, and from the heady height of 3p, there is some way to fall also.

Mineral Men

The sheer uncertainty of the stock makes home-grown miner Sirius Minerals look like a solid vanilla investment by comparison, but it certainly isn’t. Like AFPO, Sirius is low on cash. But the recent green light to develop its North Yorks mine should empower chief executive Chris Fraser in his search for the estimated £2bn required to develop the mine and export facilities at nearby Teeside, which would be a tricky enough without the added responsibility of protecting the integrity of the national park.

SXX is up 122% over six months but the share price is now flatlining as investors size up to the scale of the task ahead. Having secured planning permission, and struck a series of polyhalite supply agreements with major agri-business customers, I would be surprised if the Potash project doesn’t ultimately come through. But investors should brace themselves for delays, shocks, budget overruns and shredded nerves for some years to come.

It is impossible to say which is the better bet, given that both are a shot in the dark. Maybe split your investment and play a game of racing demons, but only if you fancy a potashtic gamble.

The post Should You Invest In The Potashtic Two: African Potash Ltd And Sirius Minerals PLC? appeared first on The Twelfth Magpie.

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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Up 195%

African Potash has surged 195% in the last four weeks, having risen from 1.09p per share to its current valuation of 3.25p. Recent news about its pipeline of projects comes alongside new production and distribution deals, which are surely encouraging, and helped its stock move up to a 52-week high of 3.56p earlier this year. Yet African Potash remains a highly speculative bet based on its funding needs. My advice would be to hold its shares only as part of a diversified portfolio, or to wait a bit longer.

Up 60%

The value of oil and gas explorer Pantheon has risen over 60% in the last month. Its latest drilling update pushed up the stock from 23p to 28p, which is close to its 52-week high. I am not comfortable investing in a business at this stage of maturity, but management is doing a great job in managing expectations. My quick take? Keep an eye on guidance for its capital requirements and funding needs before investing in it. Until then, look elsewhere for value. 

Down 20% 

Ophir, a more mature oil business with a market cap of over half a billion pounds, has lost 20% of value in the last month of trade. Analysts aren’t particularly bullish, given that its earnings profile is uncertain but significant funding needs could weigh on its performance. Dilution risk, in particular, could become a real concern, although its balance sheet is sound at present. Its stock currently trades around a 52-week low of 80.8p. I could easily speculate that a rebound is long overdue, but Ophir has also lost the backing of one of its key shareholders — Kulczyk Entities — this year, which isn’t ideal in this environment, really. So, I’d give it a pass. 

Down 15%

LGO Energy is not a company I dislike, and if I were to place a speculative short-term bet in the oil space, I’d be tempted to snap up its stock in the wake of a -15% performance over the last month. Its stock currently trades at 1.29p, which is close to the low end of its 52-week range (1.15p-6.95p) — but that’s not the main reason why it could be an attractive bet. Its latest drilling update was only mildly encouraging, true, but then LGO boasts a diverse funding base and has proved that its shareholders and lenders are willing to back its plans — and I would be, too.

Down 10%

Cairn is probably the safest bet of all, and that’s not only because its share price has been relatively resilient in the last month of trade. Based on its balance sheet and fundamentals, there’s reason to believe that its shares could deliver capital gains of between 50% and 100% into 2017, although much depends, of course, on how this business cycle plays out and whether oil prices will trade any higher over the short term. I am bullish, so Cairn is an obvious buy for me at its current price of 139p, which is only 3p away from its 52-week low. 

The post Are African Potash Ltd & Pantheon Resources Plc Any Safer Than Ophir Energy Plc, LGO Energy PLC & Cairn Energy PLC? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

That’s not bad, but it’s dwarfed by the 226% profit seen so far this year by shareholders in the Yorkshire firm’s smaller rival, African Potash (LSE: AFPO).

For small-cap investors, does African Potash offer a more profitable outlook than Sirius Minerals?

The case against Sirius

Sirius now has the planning permission it needs to build a large potash mine in the North York Moors National Park. That’s the good news.

On the other hand, Sirius is pretty much out of cash. Chris Fraser, the firm’s chief executive, is now working hard to raise the estimated £2bn that will be needed to fund building the mine.

Mr Fraser has said that he expects to raise the money through debt, to avoid shareholder dilution, but this could be a double-edged sword. The interests of lenders always rank above those of shareholders, so if Sirius does manage to borrow this money, but then fails to make as much money as quickly as it is expected to, shareholders could suffer poor returns.

There’s also a real risk that Sirius will encounter delays or cost overruns during the build process. This is a fairly common occurrence with large mining projects.

In my view, Sirius shares are likely to drift lower over the next year or so.

What about African Potash?

Making big profits from small commodity stocks is all about timing. These are rarely ‘buy and forget’ shares.

African Potash is still at a fairly early stage in its development, and the firm has recently stirred things up by signing a number of potash fertiliser supply agreements under which it will import up to 250,000 million tonnes of fertiliser a year into Africa. Alongside this, appraisal and development of the Lac Dinga potash project will continue.

This approach has two key advantages. African Potash’s move to become a trading firm means it can generate some revenue to cover its corporate overheads and some of the costs of its ongoing appraisal of the Lac Dinga prospect. This should reduce shareholder dilution.

Alongside this, investors can enjoy the potential for a major re-rating if Lac Dinga lives up to expectations and proves to be a major potash resource.

I suspect that the firm’s newish chairman, Chris Cleverly, who was appointed in March. In his first set of results, Mr Cleverly promised to use his experience to crystallise value for shareholders. I’m encouraged by the progress made so far.

A word of caution

Despite this, it’s worth pointing out that African Potash remains a risky play. I estimate that the firm is unlikely to have more than £1m in cash and, as yet, it has no revenue. The shares also trade at 2.1 times their last reported book value, so there isn’t much asset backing to support the share price.

African Potash shares have been drifting lower after hitting a 52-week high of 3.7p earlier this month. If I were interested in investing, I’d be tempted to wait a little longer and see where the shares settled before hitting the buy button.

The post Should You Sell Sirius Minerals PLC & Buy African Potash Ltd? appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

After hitting an all-time low of 0.29p at the end of July, African Potash shares have since risen tenfold following a sudden deluge of positive news releases from the company.

Indeed, at the beginning of August African Potash revealed that it had struck a deal with the Common Market for Eastern and Southern Africa and the Mask Africa Crowd Farm Fund Ltd, which seems to have been the catalyst for the recent rally.

And it’s easy to see why, as the agreement was signed with a view to creating a production and distribution platform for fertiliser in Eastern and Southern Africa. African Potash will be at the core of this process. 

Deals, deals, deals 

Since the initial agreement with the Common Market for Eastern and Southern Africa was signed, African Potash has gone on to ink separate deals with three separate parties for the supply of fertiliser. The largest of these deals was announced only a few days ago and saw African Potash sign a memorandum of understanding with an unnamed Zimbabwean fertiliser supply company to provide 150,000 metric tonnes of fertiliser per year.

Under the terms of the deal with the Common Market for Eastern and Southern Africa, African Potash has the capacity to supply a total of 500,000 metric tonnes of fertiliser per year to multiple customers. Management has already secured deals to supply 250,000 metric tonnes of fertiliser per year across three deals.  

So, African Potash has impressed the market with its proactive stance. However, the company is still in its early stages, and as of yet, African Potash doesn’t have any product to sell to customers.

Exploration stage 

African Potash holds a 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 702.5 sq km Lac Dinga Project Area, located in the Republic of Congo.

The company’s strategy is to create a vertically integrated platform for the mining, production and distribution of fertiliser across sub-Saharan Africa. The Lac Dinga Project is at the core of this strategy. Initial exploration results have shown that Lac Dinga could be a significant commercial deposit.

But Lac Dinga is still at the exploration stage. What’s more, African Potash lacks the cash to carry out the other part of its business plan, the acquisition of firms with assets related to the fertiliser industry across sub-Saharan Africa. 

Cash is king

African Potash needs to start generating cash before the company can move forward with its development plans.

Recent share placings have raised just over £1m and management is trying to reduce expenditure where possible, but the development of Lac Dinga won’t be cheap. Moreover, based on historic figures, African Potash is burning through £1m a year just keeping the lights on. 

The post Can African Potash Ltd Return To 8p? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.