Kore Potash (LSE: KP2) is one of the hottest shares in the stock market today. When I last covered it in late June, it was trading for 1.2p. Today, however, it’s sitting at 3p – 150% higher!
Should investors consider buying this stock given its incredible momentum? Let’s discuss.
A play on the rising global population
First, let me provide a quick recap of what this company does.
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Kore Potash is — as its name tells us — a UK-headquartered potash company that’s developing assets in the Republic of the Congo. Potash is a key nutrient for plants and is going to be crucial in feeding the global population in the decades ahead. This company is aiming to be one of the lowest-cost suppliers worldwide.
Currently, the group is working on two key projects called ‘DX’ and ‘Kola’. And it’s in talks with Chinese construction powerhouse PowerChina about an Engineering, Procurement, and Construction (EPC) proposal for the latter.
A risky stock
Now, the way I see it, this stock is very speculative in nature. Currently, the company – which has a market cap of just £155m – has no revenues or profits, so there’s a chance it may need to raise capital from shareholders at some point in the future and this could send the share price down.
Such companies often face operational setbacks when developing their projects. These setbacks can be very frustrating for investors, as they can lead to share price weakness.
Potential for big gains
That said, risk and reward are directly related in investing. And in this case, there’s potential for substantial rewards in the future.
The fact that PowerChina could be a key partner for the Kola project is a big deal. A Chinese state-owned enterprise, PowerChina is a specialist in engineering and construction with considerable experience when it comes to large projects. Having this kind of company as a partner could both de-risk and speed up project development. So, this is very exciting for investors.
It’s worth noting that there’s no guarantee that the two companies will end up working together. But things are looking promising. In a recent update (17 September), Kore Potash said that it met with senior PowerChina officials in Dubai in July. According to the company, both parties satisfactorily resolved all outstanding commercial points and the agreements are now with the respective legal counsels of both parties for finalisation.
Another reason to be bullish is that the market for potash appears to have huge potential. In the decades ahead, the global population is likely to rise significantly. So, we will need to produce far more food to meet demand. Potash is likely to play a key role here due to the fact that it can boost yields from arable land. That said, I’ve seen investors burnt by potash stocks before. Sirius Minerals was one company operating in this space and it crashed and burned badly.
Worth buying?
Given the risks here, I don’t plan to buy Kore Potash shares myself. For me, the risk level is too high.
However, for those with very high risk tolerances (who are prepared to lose 100% of their investment if things go wrong), the shares could be worth a closer look. There’s no doubt that there’s a lot of potential here.
