In fact, one forecast is projecting that in the next 12 months the 3.2p penny share could surge to as high as 9.14p – a 186% gain!

So what does this business do? And should I be rushing to buy shares while they’re still seemingly cheap?

Imminent surge potential?

Kore Potash is a development-stage mining company. Its flagship Kola project is estimated to be one of the world’s largest undeveloped high-grade sylvinite potash deposits. And as a quick crash course, the potash mineral is a special type of salt used as fertiliser by farmers.

Once Kola enters production and ramps up to a steady state, the project’s expected to produce roughly 2.2 million tonnes a year to a total of 50 million tonnes over its entire lifespan. Based on current forecasts, that could translate into $22.5bn of lifetime gross revenues from the project.

Investors should always apply a chunky margin of safety when it comes to multi-decade spanning forecasts. But even if the project only delivers 50% of this target, it nonetheless represents a massive opportunity compared to the $2.2bn estimated development cost of the project.

This is where the aggressive analyst’s share price forecasts enter the picture.

Kore Potash currently doesn’t have a revenue stream. It’s relying on its cash reserves to move the project forward. But with the current production timeline suggesting commercial production is still at least four years away, management is looking to sell itself to a larger player.

In fact, the firm’s already in active discussions for a potential complete cash buyout. And while a formal price per share for such a deal hasn’t been announced, a chunky premium could end up being paid.

Risk versus reward

The formal sale process for Kore Potash has already made some significant strides, including site visits with two interested parties and even the Mines Minister of the Republic of the Congo seemingly giving his blessing for a takeover deal.

However, while this is all very encouraging, it’s important to recognise that a takeover at this stage is far from guaranteed. Until recently, management was engaged with two interested parties. But at the end of last month, the company announced that one of these has pulled out.

If the other interested buyer also decides not to proceed, Kore Potash shares could take a nasty tumble. After all, without additional funding, management may have no choice but to aggressively dilute shareholders in an attempt to raise more cash to keep the lights on.

What’s the verdict?

Investing in a pre-revenue business is an exceptionally risky endeavour, particularly for mining companies, which have to deploy vast sums of capital before seeing any return on their investment.

In the case of Kore Potash, a potential acquisition offer does open the door to some rapid chunky gains. But these are far from guaranteed. And if a deal fails to emerge, it could be years before a revenue stream materialises, potentially leaving investors with nothing. Personally, that’s not a risk I’m interested in taking.

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Should investors consider buying this stock given its incredible momentum? Let’s discuss.

A play on the rising global population

First, let me provide a quick recap of what this company does.

Kore Potash is — as its name tells us — a UK-headquartered potash company that’s developing assets in the Republic of the Congo. Potash is a key nutrient for plants and is going to be crucial in feeding the global population in the decades ahead. This company is aiming to be one of the lowest-cost suppliers worldwide.

Currently, the group is working on two key projects called ‘DX’ and ‘Kola’. And it’s in talks with Chinese construction powerhouse PowerChina about an Engineering, Procurement, and Construction (EPC) proposal for the latter.

A risky stock

Now, the way I see it, this stock is very speculative in nature. Currently, the company – which has a market cap of just £155m – has no revenues or profits, so there’s a chance it may need to raise capital from shareholders at some point in the future and this could send the share price down.

Such companies often face operational setbacks when developing their projects. These setbacks can be very frustrating for investors, as they can lead to share price weakness.

Potential for big gains

That said, risk and reward are directly related in investing. And in this case, there’s potential for substantial rewards in the future.

The fact that PowerChina could be a key partner for the Kola project is a big deal. A Chinese state-owned enterprise, PowerChina is a specialist in engineering and construction with considerable experience when it comes to large projects. Having this kind of company as a partner could both de-risk and speed up project development. So, this is very exciting for investors.

It’s worth noting that there’s no guarantee that the two companies will end up working together. But things are looking promising. In a recent update (17 September), Kore Potash said that it met with senior PowerChina officials in Dubai in July. According to the company, both parties satisfactorily resolved all outstanding commercial points and the agreements are now with the respective legal counsels of both parties for finalisation.

Another reason to be bullish is that the market for potash appears to have huge potential. In the decades ahead, the global population is likely to rise significantly. So, we will need to produce far more food to meet demand. Potash is likely to play a key role here due to the fact that it can boost yields from arable land. That said, I’ve seen investors burnt by potash stocks before. Sirius Minerals was one company operating in this space and it crashed and burned badly.

Worth buying?

Given the risks here, I don’t plan to buy Kore Potash shares myself. For me, the risk level is too high.

However, for those with very high risk tolerances (who are prepared to lose 100% of their investment if things go wrong), the shares could be worth a closer look. There’s no doubt that there’s a lot of potential here.

The post This is one of the hottest stocks in the market and it only costs 3p appeared first on The Twelfth Magpie.

Could this stock – which currently trades for just 1.2p – deliver big gains in the years ahead? Let’s discuss.

An introduction to Kore Potash

Kore Potash is a UK-headquartered potash company that’s developing assets in the Republic of the Congo, a central African country. Its aim is to be one of the lowest-cost suppliers of potash globally.

Currently, the company is working on two key projects – DX and Kola. It’s in talks with Chinese construction powerhouse PowerChina about an Engineering, Procurement, and Construction (EPC) proposal for Kola.

Source: Kore Potash

Now, this is a very small company. At today’s share price of 1.2p, the market cap is only around £60m.

It’s worth pointing out here that a low share price doesn’t automatically mean that a stock will do well in the future. A stock trading for £100 can do just as well as one trading for 1.2p.

It’s exciting to buy stocks that trade for pennies though simply because one gets so many shares. If I was to buy £2,000 worth of this stock, I’d get nearly 170,000 shares!

Big potential

I can see why investors are interested in this stock.

For starters, potash is a key nutrient for plants. And it’s going to be crucial in feeding the global population in the decades ahead. As Kore Potash points out on its website, the world will need to grow 50% more food by 2050 to feed an anticipated population of 9bn people. So, yields from existing arable land need to be boosted.

Secondly, the fact that PowerChina could be a key partner for the Kola project is a big deal. Having a major engineering and construction company on board could significantly speed up and enhance project development.

Lots of risks

This is a very risky stock though. With these kinds of companies, there’s a lot that can go wrong. In this case, there’s a chance that the EPC agreement with PowerChina could fall through. Today (24 June), the company has announced that the finalisation of the EPC has been delayed. This has sent the share price down sharply.

Looking ahead, capital raisings could also have a negative impact on the share price. It’s worth pointing out that the company has said that it will need to raise further funds for working capital requirements for the period up to the signing of EPC documentation and the financing proposal for the complete construction of Kola.

Other risks to consider include operational setbacks from things like bad weather and labour strikes, and geopolitical issues.

So, ultimately, it’s hard to know if Kore Potash shares will deliver big gains. They do look to have potential. But often, these kinds of stocks end up underperforming.

Given the risks, I won’t be investing here personally. It’s just too speculative for me. All things considered, I think there are better growth stocks to buy for my portfolio today.

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