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African Potash Ltd. (-)
African Potash Limited ('African Potash' or 'the Company'): Interim Results
31-March-2017 / 15:00 CET/CEST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
African Potash Limited / Epic: AFPO / Sector: Mining
*African Potash Limited ('African Potash' or 'the Company')
Interim Results*
African Potash, the NEX Growth Market traded exploration company focused on
the vertical integration of fertiliser operations in Africa and Sub-Saharan
potash assets, announces its results for the six months ended 31 December
2016.
*Chairman's Statement*
African Potash has spent the past 18 months transforming an exploration
company hampered by a steep global downward funding cycle in its sector and
its resource (i.e. potash) through the implementation of a strategy to develop
the opportunities for generating revenue in the fast developing and related
fertiliser industry, with a long term view of ultimately providing access to
the market for its resource products.
*Fertiliser Trading*
In regard to government and government focussed trades introduced by COMESA, a
number of constraints continue to prevent conclusion trades under MOUs,
primarily because of the severity of the regional drought brought on by El
Nino which has decimated demand for product. Heavy rains in RSA further
hampered this situation as it prompted the main suppliers to draw stock from
their Zambian stockpile to sell to their customers in South Africa. Other
issues also affected government demand; elections postponed decisions and most
importantly budget restrictions meant that our customers could not, despite
assurances to the contrary, secure the necessary payment required either by
way of letters of credit or any other satisfactory payment instruments to
enable us to conclude the potential trades. It has been announced recently
that agricultural subsidies have been withdrawn in Zambia following IMF
intervention. As a result, the future of the e-Voucher program remains
uncertain.
Since we signed a MOU with the Government of Uganda in June 2016, we have
agreed terms, in principle, to deliver 20,000 Mt of NPK product. However
budgetary constraints have led to continued delay in the launch by the
Government of their fertiliser procurement program, which is focussing on
increasing Coffee production.. Despite these changed circumstances we remain
available to the Ugandan Government for fertiliser provision and should a
contract be concluded, we will update the market accordingly.
*Commercial Focus*
The Company's primary initial trading focus was on government and government
focussed business as a cornerstone of our operations. We remain convinced that
there is a very sizeable business opportunity within this area and that we
will be well placed to take advantage of it as time progresses as a result of
our relationship with COMESA. That said, throughout this period, we have
learnt that dealing with governments can be slow and unpredictable. As a
result our strategy has developed such that we are now looking towards both
wholesale and retail trading, with a view to focussing our operations closer
to the end user of fertiliser products.
In this regard, we have taken the decision to 'buy into' an existing business,
As announced on 31 March 2017, we have agreed to take a 21% stake in Advanced
Agricultural Holdings (Pty) Limited ('Advanced Agri'), an excellent example of
a successful fertiliser and speciality input distributor in South Africa. It
is a relationship in which one will benefit the other. We will not only be
assisting them to diversify into regional markets, but we will be leveraging
our supply contacts in the industry to improve their margins. Advanced Agri
will provide us with additional agronomic expertise and speciality products
which will enable us to distinguish our product offering to larger commercial
farming groups and agri-dealers in the region and give us an advantage when
concluding deals with governments and multi-laterals.
In July 2016 we commenced trading operations in Zambia with Nutri-Aid Trust
('Nutri-Aid'), which has over 2,500 agro-outlets certified by COMESA. This
pilot commenced with a partially secured credit-based model whereby the
agri-dealers within the Nutri-Aid network would pay 50% upon collection and
the balance within 45 days. The pilot revealed not only the inherent risks in
a partially secured credit based model but also showed us that many customers
were happy to pay cash on collection. The outcome from the pilot, was that we
are entering into an exclusive agreement with Nutri-Aid to lease their network
of small community warehouses which had been established in conjunction with
US AID, and to use these to build a warehouse and retail business. This
project is ongoing and updates will be provided in due course.
*Lac Dinga*
African Potash retains its interest in the exploration side of the fertiliser
industry through its 70% interest in La Société des Potasses et des Mines S.A.
('SPM'), which holds the exclusive right to conduct exploration activities for
potash salts over the Lac Dinga Project Area ('Lac Dinga' or the 'Project') in
highly prospective Kouilou region in the Republic of Congo which has been
renewed until 25 April 2016, following which, the license is renewable for a
further two years.
The Company is currently seeking partners to farm in to the project to
continue exploration and keep the licence in good standing prior to the next
renewal date in April 2018 and to thereby realise value from the prospectivity
of the Lac Dinga project. During the period, global potash prices have
continued to fall, which is an indication of impairment in the carrying value
of the asset. Although the Board believes that the Project, like others in the
basin, will have lower production costs than other global producers, some of
whom may be marginal at these levels, it has conducted an impairment review.
The Board considers that a current valuation of the Project at $3m reflects
the present state of the general potash market, together with the risks
associated with financing an early stage project. Consequently exploration
expenditure and the associated administrative costs in the period of $7.3m
have been impaired.
*Financial Results*
Revenue for the 6 months to 31 December 2016 was $103,000 (2015: $59,000).
After the impairment charge in respect of exploration assets of $7.3m
(2015:$nil), the loss before taxation for the period was $8.2m (2015: $0.7m).
Cash balances at 31 December 2015 were $30,000 (2015: $509,000).
Since the period end the Company has raised, by way of placings, $152,000
before expenses, to fund the further development of its fertiliser trading
operations.
*Outlook*
Africa holds an estimated 60% of the global uncultivated arable land and
consumes only 2% of world fertiliser production. To meet both regional and
global demand for food in future, African agriculture will have to achieve its
tremendous growth potential. The effective use of fertiliser will have a
fundamental role in realising this, and in meeting the imperatives of
alleviating food scarcity and building food security, through improvements in
both the overall harvest yields and long-term soil management.
We have seen an increasing trend in the market over the past year whereby
commercial farmers are opting to purchase a higher quality 'speciality
fertiliser' over and above the more common generic NPK and Urea products being
sold on mass, mainly for the production of maize.
African Potash is delighted to have now announced the strategic investment
into Advanced Agri, one of Africa's leading speciality fertiliser
distributors, based out of South Africa. The Company believes that the
investment into Advanced Agri will alleviate a lot of the on-going risks
associated with raw material price volatility and the logistic challenges that
come with importing and distributing product around Africa, and as a result of
the speciality products offered should counter the margin compression which
occurs as a result of production and sale of generic products by larger
companies. .Advanved Agri also provides exposure to the South African market.
Since restructuring our business model in Zambia we have built a very
competent team on the ground dedicated to servicing both the Nutri-Aid network
of agri-dealers and the community warehouses which we are rolling out. This
new team have made great strides in a very short period of time, as well as
generating sales from the agri-dealers, they are now well engaged with three
community groups in relation to establishing 'Agri-Hubs' from their respective
warehouses.. Initially we will focus on the supply of fertiliser and over time
expect this will naturally expand into other agriculture related products Once
we have bedded down the most efficient business model at these first three
warehouses, the plan is to gradually roll the same model out across the full
Nutri-Aid network of 32 community warehouses each of which is situated in the
centre of an agricultural region, to give us a significant national
distribution platform.
The Board believe that we now have firm foundations from which to build a
growing revenue generating business and look forward to continued progress in
the second half of the year.
Chris Cleverly
Executive Chairman
31 March 2017
The Directors of the Company accept responsibility for the content of this
announcement. For further information, please contact:
+-------------------+------------------------+-----------------+
|Chris Cleverly |African Potash Limited |+44 (0) 20 7408 |
| | |9200 |
+-------------------+------------------------+-----------------+
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