potash or pothole

"An acquisition of a "world class" potash asset as declared by the company could prove very lucrative in the medium to long term. However being a world class asset is not in itself enough to sustain a company and its share price.

Factors which must be considered include size of deposits, grade, further exploration potential, proximity to market and/or transportation, cost of extraction and processing, power and access to a reliable workforce. These matters are currently unknown. Thus, any impediment on these fronts could easily turn a potash asset into a pothole, world class or not.

Since early February, Fortis Mining has made at least 3 significant price sensitive announcements to the market:

1. An investment of $2.4m through a placement of 6m shares to Hong Kong investor Grand Concord Investments and its owner Madam Cheung. Also noted is the stated connection of Madam Cheung to numerous mining opportunities

2. A $10m equity facility (line of credit) with UK based company Global Emerging Markets

3. A binding heads of agreement to purchase a 75% stake in Hong Kong based Ji'an Resources Investments Ltd. Ji'an holds a right to purchase a 100% stake in a Panamanian company, Wiyot SA which in turn holds 95% of the shares in Bates Potash Co Ltd, who hold the rights to two potash sites in Kazakhstan

While at first glance these statements appear positive, little in the way of complementary information has been provided by the company on the first and third announcements.

The investment to Madam Cheung comes with no further information on the background of the company, Grand Concord Investments or its owner. Additionally, the owners full name is not stated. We know her only as Madam Cheung. The investment of $2.4m was through the placement of 6m shares at 40c, a premium to the SP at the time.

Such limited information provides us with limited leads. However a search of Hong Kong records sends us to a Madam Cheung Kwai Lan, Chair, owner and founder of China Vanguard Group (formerly B & B Group Holdings) and former chair of Hong Kong Life Group Holdings. Could this be the same Madam Cheung? We do not at this stage make that claim.

However we would note that Madam Cheung Kwai Lan has been involved in numerous publicly listed and private companies in various fields of industry. According to a leading Hong Kong corporate watchdog site, webb-site.com, companies with connection to and ownership by Madam Cheung Kwai Lan have been involved in numerous potentially questionable transactions and related share price spikes followed by cancelled deals. It should be noted that if this is the same Madam Cheung as stated by Fortis, some of these transactions require closer attention.

Some matters discussed by webb-site.com in relation to China Vanguard are provided (here)

Separately, but potentially connected is the binding heads of agreement with Ji'an Resources. Yet again, limited information has been provided by Fortis about Ji'an and the further two companies connected to the potash asset, Wiyot SA and Bates Potash.

Questions which might reasonably be asked include:

1. who are the directors of said companies?
2. who are the shareholders or owners?
3. Do any of these companies hold a material connection to Grand Concord or Madam Cheung?

The binding heads of agreement provides for a cash payment of $1m to Ji'an in addition to the issuing of 40m shares which is almost twice the available shares on issue. At today's closing sp the 40 m shares are worth $96m AUD

Of particular note is that the transaction between Ji'an and Wiyot "is still to be finalised as it is subject to a number of condition precedents and variable contractual terms." The price for the acqusition of Wiyot is yet to be determined. Further:

"The transactions contemplated by the HOA remain subject to a number of key conditions precedents being satisfied, including:

1. completion of detailed due diligence (legal, technical, exploration data, etc) on the two Kazakhstan assets;

2. completion of detailed due diligence in respect to the legal, contractual and proprietary rights between to Ji'an Resources, Wiyot SA and Bates

3. execution of final transaction documents

4. approval from all relevant Governments and regulatory authorities"

It must be noted that the agreement between Fortis and Ji'an and the issue of $1m and 40m shares has been listed as binding, subject to shareholder approval. It makes no mention of the agreement being conditional on the successful acquisition of a potash site.

If this acquisition does not go ahead, no mention is made of any other assets or mining sites held by Ji'an.

Conclusion: While the potash deposit could be "world class", such limited information as provided leads to too many questions. A genuine potash deposit in an emerging market could provide significant value to a company as has been seen with South Boulder Mines. But sustained company value can only be attained when and if information on significant matters are disclosed.

Until such information is released to the market, the potash future of Fortis Mining remains unknown."

This post was sourced from here