TORONTO (miningweekly.com) – Saskatchewan-focused project developer Karnalyte Resources on Monday achieved a critical milestone with the Saskatchewan Ministry of Environment (MoE) approving the environmental-impact statement (EIS) for the company’s flagship Wynyard carnallite project.
This is expected to pave the way to secure debt funding and construction for the first phase of the project.
CEO Robin Phinney said EIS approval was critical to advance the project and was a condition of the $45-million strategic investment by India-based Gujarat State Fertilizers & Chemicals (GSFC).
“We are now in a stronger position as we actively pursue additional funding opportunities to enable the start of Phase 1 of the project's construction in the second quarter of this year,” Phinney said.
Analysts also saw the EIS approval in a positive light.
“We believe Karnalyte’s shares will benefit from the achievement of this milestone, and we see this as an opportune time to invest. Karnalyte continues to be a best-in-class developer with a proven management team and potash project that possesses various differentiating strengths,” Clarus Securities analyst Kelvin Cheungsaying said in a note to clients.
Scotiabank analyst Ben Isaacson said one should bear in mind the company still needed to secure about $550-million in additional financing to implement Phase 1 construction of its planned 2.12-million-ton-a-year project.
“With the project significantly de-risked and an off-take agreement in place, we believe financing construction remains the last hurdle for the Wynyard project,” he said in a note.
“We reiterate our bullish stance on KRN [Karnalyte], which we believe to be the world’s most attractive potash play to have surpassed the BFS [bankable feasibility study] stage. The project boasts exceptional merits including a prime location (Saskatchewan), a high-quality potash product, a low-cost profile (most notably low capex) and a high after-tax internal rate of return (21.4%),” Fraser Mackenzie’s Peter Prattas said.
He added that the project had material upside to reduce operating expenses with further process optimisation, and as soon as the project started to produce a magnesium co-product, the net present value further increased.
“We foresee large upside beyond our target as the company moves into production and … [it is foreseebale that] a secondary product line [could be added]. We believe the cash flow from an operation of that magnitude is supportive of a stock price eventually near $100 per share,” Prattas said.
Karnalyte submitted a revised EIS to the Saskatchewan MoE in September 2012 and after technical and public review, the MoE was satisfied that any harmful environmental effects could be eliminated or reduced.
Karnalyte said it would now focus on obtaining the permits required to start construction, while continuing detailed engineering activities and finalising site preparation. Karnalyte intends to advance the development of the project simultaneously with secured funding.
Early in January, the company announced that it had entered into a strategic investment agreement with GSFC to invest $45-million in Karnalyte and committed to an offtake agreement for about 350 000 t/y of potash from Phase 1 of the project, increasing to 600 000 t/y when Phase 2 starts production.
Closing of the agreement is expected to take place on February 22.
Karnalyte’s Toronto-listed shares traded at C$8.35 apiece on Monday.