TORONTO (miningweekly.com) – Saskatchewan-focused potash project developer Karnalyte Resources has closed a $44.7-million private placement with Indian firm Gujarat State Fertilizers & Chemicals (GSFC), which was first announced in January, giving it access to one of the world’s largest potash markets.
Karnalyte had issued about 5.49-million shares to GSFC at $8.15 a share, resulting in GSFC holding a 19.98% interest in the Canadian company.
Under the subscription agreement, GSFC had the right to maintain its equity position in future equity offerings and had agreed to commit about $15-million in future public equity financing by Karnalyte to finance the construction of Phase 1 of its flagship Wynyard carnallite project, in Saskatchewan.
"In addition to putting the offtake agreement into effect, the closing of the private placement represents a significant step towards obtaining the total funding required to enable construction of the Wynyard carnallite project. This agreement is a testament to the superior quality of Karnalyte's potash product, and the partnership with GSFC will provide us with product marketing and distribution support in the Indian marketplace,” Karnalyte CEO Robin Phinney said on Thursday.
GSFC has exercised its right to appoint one nominee to the Karnalyte board and has nominated GSFC finance GM and former company secretary Vishvesh Nanavaty.
The 20-year take-or-pay offtake agreement will see GSFC buying 350 000 t/y of potash from Karnalyte, which would increase to 600 000 t/y of potash as capacity at the project increased during Phase 2 construction.
"The closing of [Karnalyte's] strategic partnership and offtake agreement, de-risks the Wynyard project and puts Karnalyte in an enviable position among potash developers. We believe Karnalyte’s shares will benefit from the achievement of recent financing, partnership and regulatory milestones and we see this as an opportune time to invest,” Clarus Securities analyst Kelvin Cheung said in a note.
Fraser Mackenzie analyst Wojtek Nowak added: “We believe Karnalyte is in a strong position to finance its project. Overall, we view the funding requirements as manageable relative to other peers who do not have a strategic partner or have larger upfront capex needs,” he said in a note to clients.
BMO Capital Markets analyst Joel Jackson resumed coverage of the junior with an ‘outperform’ rating and an $11 target.
“Junior mining stocks are depressed, equity markets are challenged and many investors are concerned about rising global potash surpluses. Amid this, KRN is the most advanced potash junior and most likely to secure mine financing,” the analyst said in a note.
Meanwhile, Canpotex, the market cartel of Canada’s biggest potash miners – Potash Corp, Mosaic and Agrium – in February announced a long-awaited new deal with the Indian government and private sector customers to supply about 1.1-million tons of potash for shipment up to January 2014.