12 April 2018
Finweek English Edition
12 Apr 2018
By David McKay
Food security is of increasing interest to investors. According to Ian Harebottle, the new CEO of Kropz, farmers are expected to produce more food over the next 50 years than has been grown in the previous 10 000; which is to say, since time immemorial.
Population growth, diminishing arable land partly owing to climate change, and dietary changes with people eating more meat, which in turn requires the production of more cattle fodder, are some of the main drivers of this industry.
Unfortunately, it doesn’t look as if Kropz – which explores, mines and develops plant nutrient minerals – is going to make a public debut, even if it does eventually overcome some rather shrill environmental opposition to its Elandsfontein project near the Langebaan Lagoon on the West Coast.
In an interview in February, Harebottle told finweek that Kropz was investigating private equity finance and debt to finance the mine. In any event, there’s probably some reluctance for 70% shareholder Mike Nunn to release shares at the moment, while uncertainty over Elandsfontein is a factor. The only way in for investors is through African Rainbow Capital, which has a 20% stake, but that is very marginal access.
The good news is that last month, advanced stage mineral exploration and development company Kore Potash, which is incorporated in the UK, took an inward secondary listing on the JSE.
Potash is also used in fertiliser production, but it’s a different product to the phosphates Kropz wants to produce. Nonetheless, it “feeds” into the same human need and is nonrenewable, non-recyclable, and – at the moment – there’s no real prospect of fertilisers being engineered out, which often happens when supply is controlled, as it is in potash, by a highly concentrated supplier group. As with water 30 years ago, fertilisers are underappreciated for their strategic importance.
David Hathorn is doing the talking for Kore Potash despite being its non-executive chairman following the announcement that CEO Sean Bennett is to step down. That may seem a somewhat inauspicious way to start life in Johannesburg, but the fact is that Kore is fairly well established. It has been investigating a potash project in the Republic of Congo (RoC), known as Kola, since at least 2012, when it completed a pre-feasibility report, and it already has an established Sydney listing. In addition to the inward secondary in South Africa, the firm has taken an AIM listing in London, where it was re-domiciled a few years ago.
The listing in Johannesburg is to raise some capital as well as tap into the investor base that Hathorn knows well from his time with Mondi (he was CEO for 17 years) and, before that, Anglo American.
In Kore Potash, however, there’s a variation in that although it’s an “extractive commodity”, potash is a bit different to bulk products such as iron ore or coal.
“It’s a very big market, and it’s growing,” Hathorn says. “The growth rates are consistent, and there’s a consistent demand scenario.” He adds that the market is calibrated to world population growth, expanding at about 2% to 3% annually.
The supply side of the equation also points to some interesting potential – it’s highly concentrated. Three companies hold about 60% of the production of about 65m tonnes/year.
Does it compare to other strategic commodities such as uranium or even oil?
Not a bit of it, Hathorn says. Prices used to be monopolistically controlled, but the sector has liberalised in the last 10 years.
A typical end user for potash is Brazil. Although an enormous country, its soils are poor in quality and need potash – made from potassium – to develop
successful crops. “We have an advantage because in the RoC there is relatively good geographical access to Brazil,” he says.