(MENAFN- ProactiveInvestors)There is a significant change occurring at African Potash (LON:AFPO) that is only partly apparent from the recent update it provided the market. But according to executive chairman Chris Cleverly the transformation is expected to occur quickly and it should be immediately value enhancing. Shares in the AIM-listed mining junior which owns the 702 square-kilometre Lac Dinga potash project in the Republic of Congo rose over 40% at one stage on Tuesday as it signalled its move into commodity trading. It did so by signing a preliminary distribution agreement with Comesa a free trade union of twenty African countries to supply 500000 tonnes of fertiliser a year. Success will shift the firm's focus from the depressed mining sector to the booming agriculture industry in Africa. Not just that the first contracts expected to be signed and sealed in the next few months should render the business cash generative. At present DAP fertiliser which contains diammonium phosphate is trading at a price of around US$470/MT (tonne) and Urea at approximately US$290/MT. At these prices it expects be able to generate net revenues of 5-15%/Mt on each transaction under the trading memorandum of understanding. 'What I wanted to do was create a revenue situation straight away' said chairman Cleverly who joined African Potash in March. 'That really is what the Comesa deal is all about.' With the agreement in place the longer-term plan is to create a vertically integrated operator that has the mining processing and marketing skills to tap into a region that buys in an estimated 10mln tonnes of fertiliser a year. Being vertically integrated means it can exert control over all parts of the supply chain. 'In Africa you are wise to have many strings to your bow' chairman Cleverly added. He reveals there are two deals he is looking at currently 'involved in plant and industry' while there is a phosphate acquisition he'd also like to make. The Lac Dinga project won't be ignored and the chairman hopes to continue to 'stimulate' the development of the asset with some of the cash that flows through from sales to Comesa. As for the marketing agreement itself it has been under negotiation for several months and will see African Potash (AP) source fertiliser from Africa India and China. The financial commitments will be minimal with the AIM-listed firm providing 'credit support' to certain partners. This means the estimated £600000 the firm has on its balance sheet should be enough to see across the 'goal line' to cash generation. 'We are fine for now' he said. 'What I am hoping to do with the trading I am hoping will see us through. 'We have lots of people who want to put money in but it would be dilutive.' Cleverly said that the initial agreement could just be the start of the relationship between AP and Comesa. 'We hope to push past the 500000 (tonnes). There are millions of tonnes of fertiliser each a year bought or sold in the region" said the African Potash boss. 'We are the first to do this. It is hard to secure deals of this kind so there are barriers to entry.' Cleverly points to the development of Dangote Group run by Aliko Dangote Africa's richest man as revealing just where Africa's smart money is headed. Having started out in cement and then focused on sugar Dangote is staking its future on the nascent agricultural sector in Africa and fertiliser in particular. Others are following in its wake. 'We are not looking to be taken over in the future; we are trying to create a business' Cleverly said. 'But I do know there will be a land grab for assets and relationships that we are talking about.' The shares which closed 30% higher on Tuesday were up 47% in a busy session Wednesday – suggesting investors are starting to warm to the deal and Cleverly's plans. He pointed said: 'We are a £2.5mln company. We don't have to do a lot of deals for them to be more than incremental to the size of business we are. 'The key to the story is people have to recognise the macro angle of this stock.'
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