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.
Bennett will remain for six months as the company transitions from raising finance to contruction and he will assist with the handover to a new CEO.