1st Oct 2015 09:24
LONDON (Alliance News) - African Potash Ltd Thursday said it has signed a fertiliser sale agreement with a Zambian-based purchaser through its deal with COMESA.
Under the terms of the sale agreement, African Potash will supply 50,000 metric tonnes of fertiliser to a collateral managed warehouse facility in Zambia for seasonal demand in October and November. The sale price is USD500 per metric tonne.
The company added that it is continuing to negotiate a trade finance facility of up to USD50 million to fund its trading operations. The facility will remain in place until the company's fertiliser trading operations become self-funding.
"Securing this sales contract means that we are now very close to consummating our inaugural fertiliser trade. This initial transaction is important as it acts as a "proof of concept" of our trading facility, in association with and with the support of COMESA/ACTESA," Chairman Chris Cleverly said in a statement.
"It is worth noting that our sales price of USD500 per metric tonne will enable us to hit our margin targets and position us well to execute trades under the other MOUs which we have already announced and those which we are working on. We anticipate finalising our financing arrangements in the near future, and will provide updates in due course," he added.
The deal is the latest in a string of supply deals the company has secured under its agreement with COMESA to create a production and distribution platform for fertiliser in Eastern and Southern Africa by providing 500,000 metric tonnes of fertiliser per year to African supply companies and farmers.
On Monday, African Potash said it had secured a memorandum of understanding to supply 150,000 metric tonnes of fertiliser per year to a local Congolese distributor, and would make between a 5% to 15% net profit per metric tonne under the deal.
It also said on Monday that it had signed a legally-binding fertiliser supply deal with South Africa-based Cudolog Pty Ltd. The deal was signed during the East and Southern Africa Fertiliser Trade Platform conference in Zambia.
Last week, African Potash said it had agreed a deal with another unnamed Zambian supply company to provide 50,000 metric tonnes for USD500 per metric tonne, which would yield a 6% pretax profit margin.
The company is continuing to agree a price for its other deals whereby it will supply a further 200,000 metric tonnes of fertiliser per year. Those deals are comprised of a 50,000 metric tonne agreement with an unnamed Malawian company and to provide 150,000 metric tonnes to an unnamed Zimbabwean fertiliser supply company.
COMESA was formed in 1994 to replace the former Preferential Trade Area which had been formed in 1981. COMESA, as defined by its treaty, was established "as an organisation of free independent sovereign states which have agreed to co-operate in developing their natural and human resources for the good of all their people."
There are 19 member states in COMESA covering a population of 470.3 million including Egypt, Libya, Madagascar, Zimbabwe, Zambia, Uganda, Sudan and Kenya.
The COMESA deal was significant to the company because it enhanced its Lac Dinga project in the Republic of Congo and gave it exposure to the trading sectors of the fertiliser industry as part of strategy to create a vertical platform for the mining, production and distribution of fertiliser.
The idea is to use the exposure to trading fertiliser to generate near-term revenue and to benefit from a first-mover advantage as the deal signed between African Potash and COMESA was "the first agreement of its nature" whilst it advances its Lac Dinga project which will come into play at a later date.
Shares in African Potash were trading up 1.5% at 2.77 pence Thursday morning.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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