At a price of 1.2p, could penny share Kore Potash deliver huge gains?

Investors have been piling into penny share Kore Potash recently. Here, Edward Sheldon looks at its potential and provides his view on the stock.

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One penny share that’s been getting a lot of interest recently is Kore Potash (LSE: KP2). In the last few months, its share price has surged.

Could this stock – which currently trades for just 1.2p – deliver big gains in the years ahead? Let’s discuss.

An introduction to Kore Potash

Kore Potash is a UK-headquartered potash company that’s developing assets in the Republic of the Congo, a central African country. Its aim is to be one of the lowest-cost suppliers of potash globally.

Currently, the company is working on two key projects – DX and Kola. It’s in talks with Chinese construction powerhouse PowerChina about an Engineering, Procurement, and Construction (EPC) proposal for Kola.

Source: Kore Potash

Now, this is a very small company. At today’s share price of 1.2p, the market cap is only around £60m.

It’s worth pointing out here that a low share price doesn’t automatically mean that a stock will do well in the future. A stock trading for £100 can do just as well as one trading for 1.2p.

It’s exciting to buy stocks that trade for pennies though simply because one gets so many shares. If I was to buy £2,000 worth of this stock, I’d get nearly 170,000 shares!

Big potential

I can see why investors are interested in this stock.

For starters, potash is a key nutrient for plants. And it’s going to be crucial in feeding the global population in the decades ahead. As Kore Potash points out on its website, the world will need to grow 50% more food by 2050 to feed an anticipated population of 9bn people. So, yields from existing arable land need to be boosted.

Secondly, the fact that PowerChina could be a key partner for the Kola project is a big deal. Having a major engineering and construction company on board could significantly speed up and enhance project development.

Lots of risks

This is a very risky stock though. With these kinds of companies, there’s a lot that can go wrong. In this case, there’s a chance that the EPC agreement with PowerChina could fall through. Today (24 June), the company has announced that the finalisation of the EPC has been delayed. This has sent the share price down sharply.

Looking ahead, capital raisings could also have a negative impact on the share price. It’s worth pointing out that the company has said that it will need to raise further funds for working capital requirements for the period up to the signing of EPC documentation and the financing proposal for the complete construction of Kola.

Other risks to consider include operational setbacks from things like bad weather and labour strikes, and geopolitical issues.

So, ultimately, it’s hard to know if Kore Potash shares will deliver big gains. They do look to have potential. But often, these kinds of stocks end up underperforming.

Given the risks, I won’t be investing here personally. It’s just too speculative for me. All things considered, I think there are better growth stocks to buy for my portfolio today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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