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Korean Potash (LSE: KP2) is one of the hottest stocks on the stock market today. When I last covered it in late June, it was trading at 1.2p. Today, however, it sits at 3p – 150% higher!
Should investors consider buying this stock given its incredible momentum? Let's talk.
The growing game of the people of the world
First, let me give a quick overview of what this company does.
Kore Potash – as its name suggests – is a UK-headquartered potash company developing assets in the Republic of Congo. Potash is an essential nutrient for plants and will be important in feeding the world's population for decades to come. The company aims to be one of the lowest cost providers in the world.
Currently, the team is working on two important projects called 'DX' and 'Kola'. It is also in talks with a Chinese construction powerhouse PowerChina regarding the latest Engineering, Procurement, and Construction (EPC) proposal.
A risky stock
Now, the way I see it, this stock is speculative in nature. Currently, the company – which has a market capitalization of just £155m – has no revenue or profit, so there is a chance it may need to raise cash from shareholders at some point in the future and this could reduce the share price.
Such companies often face operational constraints when developing their projects. These obstacles can be very frustrating for investors, as they can lead to weak share prices.
Chances of winning big
That said, risk and reward are directly related to investing. And in this case, there are opportunities for big prizes in the future.
The fact that PowerChina can be a key partner for the Kola project is a big deal. A Chinese state-owned company, PowerChina is an engineering and construction specialist with extensive experience when it comes to large-scale projects. Having this type of company as a partner can de-risk and speed up project development. So, this is very exciting for investors.
It is worth noting that there is no guarantee that these two companies will end up working together. But things look promising. In a recent update (17 September), Kore Potash said he met with PowerChina senior officials in Dubai in July. According to the company, both parties have satisfactorily resolved all remaining commercial points and the agreements are now with the appropriate legal advisors of both parties for finalization.
Another reason to be bullish is that the potash market appears to have great potential. In the coming decades, the world's population may increase dramatically. Therefore, we will have to produce more food to meet the demand. Potash is likely to play an important role here because it can increase crop yields. That said, I've seen investors get burned by potash stocks before. Sirius Minerals was one company operating in this space and it crashed and burned.
Is it worth buying?
Given the risks involved here, I do not plan to buy Kore Potash shares myself. For me, the risk level is too high.
However, for those who have it a lot For those with a high risk tolerance (who are prepared to lose 100% of their investment if things go wrong), the shares may be worth a closer look. There is no doubt that there are many opportunities here.
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