By Dr. Michael Green

This morning brought plenty of good news concerning Kore Potash’s move towards potentially becoming the lowest cost potash supplier to the giant Brazilian market. This latest announcement concerns an update on the Dougou Extension (DX) Pre-feasibility Study (PFS) which follows the completion of a review of the production target by independent consultants Agapito.

The Updated PFS materially enhances the results of the PFS published about six months ago and makes for really good reading. The PFS mine schedule involved the declared Sylvin i te Ore Reserves of 17.7Mt at a grade of 41.7% KCl.  The Ore Reserve estimate for the DX Project remains unchanged and all key assumptions and modifying factors are still valid. However, with an improved understanding it is now deemed likely that the production schedule for this Updated PFS includes 2.43Mt of Muriate of Potash (MoP) from Indicated Mineral Resources and 2.31Mt MoP from Inferred Mineral Resources.

The end result is a far longer mine life and a 29% higher NPV. With more resources added to the mining plan, the updated Production Target extends the project life from 18.4 years to 30 years. This is based on an annual production rate of 400,000 ktpa MOP. This upgraded mining schedule includes 34.5% of the Inferred Mineral Resources which provides 20% of the life of project MoP production. As such, to us this seems to open the door to future upward revisions as the understanding of the mineral resource further improves.

The updated PFS determined an attributed NPV 10 of US$412 million and 23.4% IRR on a real post tax basis at a life of project average granular MoP price of US$422/t (which is Argus Media’s price forecast CFR for DX Project’s target markets). This is 29% higher than the real ungeared post tax and NPV10 (real) of approximately US$319 million (where the IRR was approximately 22.9%) on an attributable basis using exactly the same MoP price. The post-tax payback period from first production remains unchanged at 4.3 years.

At the time Brad Sampson, Kore’s CEO, commented that “We are very pleased to be able to provide updated outcomes for the DX PFS. We were already confident that DX is a world class asset, with very high grades and very low costs; and this update improves that confidence. The DFS for DX is already underway and we fully expect it to confirm the first-rate results we have published today. As we move towards the second phase of the DFS and to production we will be able to further de-risk the Project and demonstrate DX’s investment case.”

The company has been developing its Sintoukola potash basin in the Republic of the Congo since 2010.  It has to be pointed out that at Kore we are seeing district scale development potential as the company has something like 6 billion tonnes of potash to play with, which amazingly is located a mere 12km from the coast. With more than US$150 million spent on this vast project, there is plenty of technical data and a series of existing feasibility studies.

Further off into the future, there will be the need to do a big project to really do justice to such a vast resource, but that will require a big budget. There is no doubt that Kore’s flagship 2.2Mtpa Kola project came through its DFS with flying colours. The only problem is that such a project needs US$2.1 billion capex, which is just not available for a small cap player to raise for a new project in the Congo. Such facts of life have led to the team devising the smaller starter DX project which will mark the first stage in the district wide development of the Sintoukola potash basin.

Given the progress to date we believe the 400,000tpa DX project could be in production by Q4 2023. The early signs are that DX can rapidly come on stream with capex under US$300 million (at US$285.9 million in the updated PFS), making it financially possible for a greenfield operation in the Republic of the Congo. DX is a scalable solution mine which is low risk as there are many such successful potash projects around the world. Getting DX into production is a game changer as it will make the financing of Kola possible and begin to unlock the tremendous value here.

Kore’s management team is obviously making rapid progress on the DFS, which should allow the project to be pushed smartly further up the valuation curve. Our view is that Kore will either be allowed to grow or be acquired. DX and Kola put Kore on a real journey with its 6 billion tonnes of potash. Not only are the company’s production costs attractively low, importantly, Kore has the shortest shipping route to the African markets and Brazil. Moving ahead, the development of the Sintoukola Potash District will basically be serving to replace potash from the Northern Hemisphere.

Today, we believe Kore looks very well placed to commence a dramatic growth trajectory, although it is all in the lap of the gods whether the majors will be prepared to concede market share to them or buy them up. The stage looks set for substantial value to be created at Kore over the coming years. We initiated coverage on Kore Potash with a Conviction Buy stance in June 2020 with a target price of 6.51p when the shares were trading at 0.85p. With the shares currently standing at 0.65p, we are more than happy to reconfirm our stance.

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