Aim-listed Kore Potash, with 97%-ownership of the Kola and DX potash projects in the Sintoukola basin, in Congo-Brazzaville, says discussions are continuing towards finalising terms for the engineering, procurement and construction (EPC) contract at Kola.
On June 28, 2022, Kore announced the signing of a heads of agreement (HoA) with Sepco for the construction of Kola.
Under the HoA, Sepco undertook to continue negotiations with Kore towards an EPC contract for the construction of Kola.
Importantly, the HoA recognises the outcomes of the Kola optimisation study, which was announced on June 27 and confirmed the capital cost of Kola, the construction period and related EPC contract terms, Kore outlines.
Discussions with Sepco to finalise key EPC terms progressed throughout the remainder of 2022, despite some delays resulting from actions taken in China to control the Covid-19 pandemic.
Recognising the length of the proposed construction period and the total financing requirement, Kore has requested that Sepco’s parent company, PowerChina, provide the typically required EPC contract guarantees, including performance and retention bonds supporting the completion of construction and the operating performance of Kola.
PowerChina is now actively involved in the process to finalise the EPC contract terms. As part of this process, PowerChina is reviewing aspects of the Kola design and the planned construction schedule and has had direct communications with the management of Kore.
PowerChina’s review has generated a number of potential design improvements to the project that identify opportunities to further reduce the capital cost and the construction schedule. Discussions on incorporating these design improvements into the EPC contract continue.
PowerChina has engaged a number of external experts to support its review of the Kola design and they require completion of this review to support the provision of the required EPC contract guarantees. PowerChina has not yet advised Kore of the timeline to complete its reviews and internal approvals.
The process to conclude EPC contract discussions has taken longer than the Summit consortium, which has agreed to provide financing for the Kola project, initially envisaged, notwithstanding it being necessary to conclude these discussions prior to receiving its financing proposal, Kore informs.
KOLA FINANCING PROCESS
On April 6, 2021, Kore announced the signing of a memorandum of understanding (MoU) with the Summit consortium for the financing of Kola, which required completion of an optimisation study on Kola and agreement on terms for an EPC contract.
Kore says it continues to work with the Summit consortium to provide financing for the full construction cost of Kola which is intended to be based on royalty and debt finance.
The successful outcomes of the Kola optimisation study were in line with the Summit consortium’s requirements and supported the ongoing financing discussions. The financing parties of the Summit consortium have, again, reinforced their ongoing interest in financing Kola and await finalisation of the EPC contract terms.
Summit has advised that the financing proposal for the full construction cost of Kola will be provided to the company within six weeks of EPC terms being finalised.
Kore says it continues to hold the view that the members of the Summit consortium have the capability to provide the required financing to commit to the construction of Kola and that pursuing this financing opportunity currently remains the best path forward for Kore's shareholders.
Meanwhile, since receiving communication from the Congo-Brazzaville Minister of Mines on October 19, 2022, Kore says it has considerably increased the frequency of dialogue with the Ministry of Mines.
A common theme throughout the recent dialogue is that the Ministry continues to express its and the government’s strong support for Kore to develop Kola, while encouraging Kore to find ways to accelerate the smaller DX project.
Key members of the Summit consortium, including Sepco and PowerChina, have independently written to the Ministry and met with government officials in-person to assist in establishing their credentials and experience.
“The feedback to us from the Ministry is that these visits have been appreciated and are assisting the Ministry to better understand the Kola project and the capability of the Summit consortium members,” Kore states.
Updated information from the company confirms that the DX project is a financially attractive, low capital cost project with a shorter construction period than Kola.
At present, Kore remains focused on completing the financing of Kola and moving forward to construction of Kola as soon as possible, with this strategy aligned to the government’s expectations.
Recognising the government’s desire to accelerate the production of potash in Congo-Brazzaville, Kore has agreed to now consider the strategic options available for the DX project that can bring value forward for all stakeholders and allow more rapid development of the project to contribute to the economy.
The Ministry of Mines is working cooperatively with the company to fully explore all strategic options. These options may include forming a joint venture for the development of DX with a third party or a sale of the DX project, Kore says.