SHARES in Kore Potash fell as much as 10% on Tuesday after the fertiliser minerals developer detailed a $2.2bn funding package for its Kola Project in the Republic of Congo. By mid-afternoon, the share was 5% lower in London.
The term sheet for the funding package, to be supplied by OWI-RAMS, comprises debt totalling $1.53bn and a $655m royalty portion that gives the lender the right to buy all of the potash mined at Kola.
OWI-RAMS represents the interests of UK-listed Record Financial Group and OWI Group, a privately-held Shariah principles fund.
David Hathorn, chair of Kore Potash described the agreement on the funding term sheet as “pivotal”. It is certainly long in the making. Kore Potash has been working on the Kola Project as early as 2010. A mining licence was issued by the RoC in 2013.
“As the world seeks to strengthen agricultural resilience and secure essential nutrient supply chains, Kola is poised to become a globally significant source of potash,” said Hathorn in a statement today.
Hathorn said the funding package was “less dilutive” as no shares were placed, but given the size of the funding required the package comes with a host of conditions. In addition to strict covenants on the senior debt facility, a fixed profit payment of 6.8% to 9.3% annually is to be finalised during due diligence and calculated on the capital amount.
As for the royalty side of the agreement, the lender will inject the upfront, non-refundable cash in return for ongoing revenue sharing representing 14% of total in the first four years of the Kola project and then 16% of everything the mine earns in revenue thereafter.
Capital distributions, including dividends, are also not permitted unless the covenants in the senior lending facility are met.
“The Royalty Finance Facility structure eliminates the requirement for Kore Potash to raise equity funding in respect of the construction, development and operation of the Kola Project, thereby avoiding the issuance of new shares and preserving ownership for existing shareholders,” the company said in its announcement.
Kola has been designed to produce 2.2 million tons a year of muriate of potash. This is in terms of an optimised definitive feasibility study. Construction of the project is scheduled for 2026 and first production anticipated about about three-and-a-half years later.
In November, PowerChina International Group, parent company of SEPCO, signed a $1.93bn EPC contract agreement in RoC’s Brazzaville. The contract is fixed priced, meaning the risk of project overruns was “minimised”, said Kore at the time.
Of the $1.93bn contract, roughly $708.9m is for transportation and utility pipelines which Kore said would make it self-reliant unlike other potash projects. It will supply muriate of potash to Brazil and other emerging African nations.
Potash is used to improve crop yields. New mineral fertiliser projects are under currently under development by BHP and Anglo American. The potash market is projected to grow at a compound annual growth rate of 4.5% for the foreseeable future.
