LONDON (Alliance News) - African Potash Ltd Monday said it has secured another memorandum of understanding to supply 150,000 metric tonnes of fertiliser per year to a local Congolese distributor.
The deal is the fourth supply deal the company has secured under its agreement with COMESA to create a production and distribution platform for fertiliser in Eastern and Southern Africa by providing 500,000 metric tonnes of fertiliser per year to African supply companies and farmers.
The company said it will pay COMESA a commission fee between 5% to 7.5% from the sales under the memorandum with the unnamed Congolese distributor for introducing the deal to the company.
African Potash said it will make between a 5% to 15% net profit per metric tonne under the deal.
Last week, African Potash said it had agreed a deal with an unnamed Zambian supply company to provide 50,000 metric tonnes for USD500 per metric tonne, which would yield a 6% pretax profit margin.
The company is continuing to agree a price for its other deals whereby it will supply a further 200,000 metric tonnes of fertiliser per year. Those deals are comprised of a 50,000 metric tonne agreement with an unnamed Malawian company and to provide 150,000 metric tonnes to an unnamed Zimbabwean fertiliser supply company.
Overall, African Potash now needs to source supply deals for another 50,000 metric tonnes to hit its 500,000 metric tonne per year target under the COMESA deal.
COMESA was formed in 1994 to replace the former Preferential Trade Area which had been formed in 1981. COMESA, as defined by its treaty, was established "as an organisation of free independent sovereign states which have agreed to co-operate in developing their natural and human resources for the good of all their people."
There are 19 member states in COMESA covering a population of 470.3 million including Egypt, Libya, Madagascar, Zimbabwe, Zambia, Uganda, Sudan and Kenya.
The COMESA deal was significant to the company because it enhanced its Lac Dinga project in the Republic of Congo and gave it exposure to the trading sectors of the fertiliser industry as part of strategy to create a vertical platform for the mining, production and distribution of fertiliser.
The idea is to use the exposure to trading fertiliser to generate near-term revenue and to benefit from a first-mover advantage as the deal signed between African Potash and COMESA was "the first agreement of its nature" whilst it advances its Lac Dinga project which will come into play at a later date.
The company has previously said it is also seeking additional potential entry points into the fertiliser production industry within Africa to add another complementary industry division to its operations.
African Potash shares were up 0.1% to 3.03 pence per share on Monday.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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