TORONTO (miningweekly.com) – TSX-listed MagIndustries has signed a project development framework with China National Complete Plant Import & Export Company (Complant), for the financing and development of its Mengo potash project, in the Republic of Congo.

If all goes to plan, construction could begin on the 1,2-million tons a year operation by November this year, CEO William Burton said on a conference call with analysts and investors.

Under the framework agreement, Complant will commit to arrange a loan of up to $1,2-billion to fully finance the construction of the Mengo operation, and will also be appointed engineering, procurement and construction (EPC) (EPC) contractor for the project.

Mag had initially expected to partner with another Chinese firm Sinohydro, but announced in November that, after continued delays in Sinohydro's internal approval processes, it had allowed an exclusivity period to expire, and would start talks with other interested parties.

Company officials declined to comment on Monday regarding the obstacles that had prevented the Sinohydro deal.

However, corporate development director Rich Morrow reiterated that the structure of the Complant deal is “very different” to what had been envisaged with Sinohydro.

“What we're really looking at is a debt-financed project, where Complant will be seeking debt funds on behalf of the project.”

Further, while MagIndustries had planned to stage the construction of the project in two phases, of 600 000 t each, Complant has made it clear that it wants to get up to the full 1,2-million tons a year as soon as possible.

“It is their intention that the project be viewed as a 1,2-million ton operation,” Morrow said.

The companies are aiming to have concluded an EPC agreement within six months, Burton said.

Meanwhile, Complant will review all the existing engineering designs and equipment providers, to calculate a capital cost for the project.

Although MagIndustries and Complant are talking about a capital requirement of around $1,2-billion, the final figure will likely be lower, because Complant will aim to reprice much of the project by sourcing lower-cost equipment, machinery, materials and so on, particularly in China, Burton said.

The framework agreement also includes an option for Complant to buy a 50,1% interest in MagIndustries' subsidiary that holds the Canadian firm's 90% stake in the project.

Assuming the option is exercised, MagIndustries would hold 39,9% of the project and the Republic of Congo would retain its current 10%.

The option is exercisable for 12 months after the EPC contract is signed.

The framework agreement also provides for a six-month exclusivity period, for Complant to complete its due diligence and for the negotiation of an EPC contract.

Complant is a publicly listed company, and has extensive experience in building projects in Africa, Burton said. Its controlling shareholder is the State Development & Investment Corporation, the largest State-owned investment holding company in China.

Shares in MagIndustries jumped 9,6% on Monday, to C$0,57 apiece by 15:59 in Toronto.

Besides the Republic of Congo potash project, the company also has forestry and wood-chip operations in the country, and hydroelectric assets in the Democratic Republic of Congo.

To subscribe to Mining Weekly's print magazine email subscriptions@creamermedia.co.za or buy now.