ETHIOPIAN POTASH ON BRINK OF COLLAPSE

The recent newsflow out of Ethiopian Potash Corp. (FED/TSXV) is simply bewildering. It has been clear to investors the company is in a chaotic state.

Apparently, it is in dire financial straits as well. Mackie Research Capital analyst Jaret Anderson noted Ethiopian’s cash position was down to $588,888 as of March 23, compared to $1.69-million at the end of December. It burned about $2.4-million of cash in its latest fiscal quarter, financial statements show.

“Should [Ethiopian Potash] not alter its current level of exploration and corporate spending, the company could find itself unable to meet its financial obligations,” Mr. Anderson wrote in a note. “A liquidity event is a very real possibility and could result in equity shareholders having their investment in the company wiped out.”

Ethiopian received a $600,000 loan at the end of February, and said it is in talks for a private placement with an unnamed strategic investor. If a deal is executed, Mr. Anderson wrote it could be a big positive catalyst for shareholders.

But for now, he maintained a sell rating on the stock and cut his price target to 20¢ a share (down from 25¢) because of the company’s deteriorating cash balance.

“We continue to see large amounts of financing and project risk associated with [its] Danakil project and recommend investors switch into other names in the greenfield potash space offer lower-risk projects,” he wrote.