African Potash – it’s not just the fertiliser which stinks here…

Disclaimer: Shareinvestors is not authorised by the Financial Conduct Authority to give investment advice. Terms such as ‘Buy’, ‘Sell’ and ‘Hold’ are not recommendations to buy, sell or hold securities, these statements and other statements made by the author have the meaning only to express the author’s personal views on the quality of a security. Independent financial advice from an authorised investment professional should always be sought before making investments. CAPITAL AT RISK. Full Disclaimer here.

One early childhood memory of mine was trapsing around the countryside collecting ‘cow pats’ for composting with my late grandfather, he’d add some kitchen waste to his finds, a load of earthworms and a few months later he’d have some fertiliser for whatever he was growing in his garden that year. Unsurprisingly his garden always hummed.

So with bad smells and fertiliser in mind I turn to African Potash, which is attempting to establish an integrated fertilizer company in Africa and in African Potash’s case its fertiliser smells like roses compared to its corporate governance.

Tom Winifrith has covered this in detail here but I thought I would join in with my favoutite African Potash transactions, i’ve got four for your below which quite frankly stink…

Note – The following article simply contains facts and poses questions, I am happy for the company to address these or correct as it feels necessary.

#1 The loan from the Finance Director’s Better Half

Katrina, wife of the FD loans the company money, a related party transaction.

afpo loan

The effective annual interest rate I have calculated here including the arrangement fee is 29.59%! Tom claims this is the most expensive loan in AIM history, i’m not sure but it must be close.

As I’m a nice guy i decided to help out the board of African Potash, I have found a credit card for them to use for their future funding needs, it’s a few % cheaper than Katrina’s loan and furthermore as a bonus the more they spend the more the board will earn free air tickets and hotels, which they can use towards their next trips to Uganda or Zambia:

afpo credit

Jokes aside, as at August 30th 2016, the loan would have cost them around £150,000 to service, this assumes the loan does not default (I’m not suggesting it will). My questions are – Why was this source of finance used? Was there no other way to raise money?

#2 The Investment in Blenheim Natural Resources

Just two weeks later African Potash used 10% of its bridge loan, £69,000 to invest in a small AIM Investment company Blenheim Natural Resources at 0.8p a share. This company invests in companies associated with Natural Resources. Some questions: What has this investment got to do with fulfilling the strategy of African Potash? Are any synergies created? How does it create value for African Potash shareholders? The shares of Blenheim Natural Resources stand today at 0.35p, less than half the level that African Potash subscribed at, so I can answer the third question then myself – no value has been created.

#3 Mr Chris Cleverly becomes NED of Blenheim Natural Resources

As part of the same transaction noted above the CEO of African Potash became a Non Exec at Blenheim Natural Resources. The RNS from African Potash did not mention the details but Mr Cleverly was also granted 27.5m share options. The options are yet to be exercised due to the failure of the shares to reach 1.6p for a period of 7 days, the vesting condition. It looks unlikely this will be achieved now, but it will be interesting to see whether any further options are granted at any point.

In the interest of being balanced though, the director pay at African Potash was at the year ended June 2015 was not actually obscene:

afpo directors

However, was Mr Cleverly’s NED appointment and the investment in BNR an attempt for Mr Cleverly to get a source of income?

#4 What happened to the 20,000MT of Urea?

Saving the best (worst) until last, let me run through the timeline of AFPOs maiden revenue:

6th January 2016
Goody Gum Drops, $10m of revenue and payment expected 35 days max to a customer. No mention of profit but good to get some revenues. Letter of Credit too so this is pretty much guaranteed cash!

Iadpo rns 1

12th January 2016
A placing of shares to raise £825,000 6 days later. With the joy of its maiden revenues due then no problem getting the placing away.

9th February
33 days after the deal was done, no sign of the money yet… Perhaps it is just a minor hiccup…

afpo rns 2

22nd April 2016
It all goes quite for three months and then….

afpo rns 3

After all that, no customer. Why did it take so long for African Potash to clarify the position? Why did the letter of credit fail? At what point did African Potash learn there was no customer? Was this before or after the placing?

What’s the verdict then?

SELL – Target 0.15p

I don’t think I need to say anything more. There are some serious unanswered questions here and it is no shock to see that the share price has collapsed since the 22nd April RNS. This company in my opinion is not an investment without answering these questions, pure and simple. Look forward to hearing from African Potash…

Disclaimer – I have no positions in this stock and to my knowledge nor do any close family, friends nor associates. This post is purely my opinion and should not be taken as financial advice. I welcome any alternative comments and will consider adjusting posts based on information made available to me.

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