Financing A Potash Mine - Jolly Bolly

Benefitz Betty's picture

A fine example of financing a Potash Mine :

14/03/16 - "India’s Gujarat State Fertilizers and Chemicals Ltd. (GSFC) has agreed to guarantee payments on $700-million (U.S.) in debt to finance the first phase of Karnalyte Resources Inc.’s Canadian potash mine project, Karnalyte said on Monday, adding supply even as other miners cut production.

The company’s shares jumped 76 per cent in Toronto to $1.55 (Canadian). Under the deal, a subsidiary of State Bank of India and other lenders would loan Saskatchewan-based Karnalyte most of the funds, with GSFC guaranteeing payments in exchange for a greater voting share. Karnalyte plans to make payments from cash flow and eventually issuing more shares.

The mine – to be located in Wynyard, Sask. – would add supply to a struggling industry that has already seen production cuts by Potash Corp of Saskatchewan and others, due to weak crop prices and slack Brazilian demand. According to Mosaic Co. data, potash prices in the U.S. Midwest averaged $248 (U.S.) a tonne last week, down 38 per cent year over year.

But GSFC bought a nearly 20-per-cent stake of Karnalyte in 2013 that included an agreement to buy more than half of the Wynyard mine’s first-phase production for 20 years. Karnalyte has informal commitments from other potash buyers in the United States and Brazil for most of the rest, president Robin Phinney said.

He said Karnalyte’s mine holds an advantage over other producers because its muriate of potash will contain less sodium chloride, a compound that inhibits plant growth, and cost less to produce. “In a normal market, our product would command a premium,” Mr. Phinney said. Karnalyte plans to produce 625,000 tonnes of potash a year at Wynyard in the first phase of a 2.125 million tonne project. If Karnalyte shareholders approve the deal, construction could start late this year and production could begin in 2019, Mr. Phinney said.

The Wynyard project will use solution mining, a cheaper alternative to cavern mining. Under the solution process, a fluid is injected into the deposit through a drilled well. The mineral dissolves in the fluid to form a brine solution that is brought back to the surface.  Germany’s K&S AG is expected to open this year the first new mine in four decades in Canada’s potash-rich province Saskatchewan.

Karnalyte has endured years of volatility, including a fight last year between former management and a group of shareholders, led by Mr. Phinney. Karnalyte and GSFC also agreed to spin out Karnalyte’s secondary mineral assets and unexplored lands."

Source: http://www.theglobeandmail.com/report-on-business/industry-news/energy-a...

Further: http://www.prnewswire.co.in/news-releases/karnalyte-resources-inc-announ...

TC42/LSE 20/03/16 11.31  "While it is relevant to look at what happened to KRN when they arranged stage 1 finance, i.e. the share price more than tripled, you can't really take that movement in isolation. Prior to the announcement, KRN had been in a long term slump for 2.5 years. The price immediately pre-announcement was about a twentieth of the peak, and post-announcement is still less than a fifth of the peak value.

If we projected this entire pattern on to SXX rather than just the spike upwards, the result would be SXX slumping to about 1.6p, and then rebounding to about 5p when financing is agreed. I'm not for a minute suggesting that's what is going to happen here, but just pointing out the problem with taking a single price movement of KRN in isolation.

http://www.bloomberg.com/quote/KRN:CN (click on 5Y to see the price history)"

Sophie Rose/LSE/20/03/16 - 9.47

"The best template we have to assess what type of financing deal might materialise is the finance deal announced by Karnalyte Resources on 14 March (Karnalyte is a potash miner in Canada and I posted a copy of the announcement on this BB).
In their $700 fund raising for phase 1 of the project, to produce 625000 tpy of 97% purity potash, they entered into partnership with Gujarat State Fertilizers & Chemicals Ltd GSFC of India (GSFC).

The finance deal had three elements to it:
1- $500m (75%) secured loan to be arranged by GSFC from consortium of banks in India with 20 years payment term
2- $88.33 (12.5%) unsecured loan over 7 years
3- $88.33 (12.5%) issue of equity, with a guarantee from GSFC to take up any short fall if Karnalyte is unable to raise the required finance.

The deal is very complicated with various guarantees to avoid significant dilution to existing shareholders. Prior to this agreement GSFC already owed 20% of Karnalyte from $44.78m investment in 2013.

In this deal the dilution comes from $88.33 issue of equity. If Karnalyte is unable to raise the required equity on satisfactory term, GSFC shall purchase from Karnalyte such number of shares at an issue price equal to the lesser of: (a) the issue price of the equity financing and: (b) an agreed upon floor price based on the then fair value of such common shares, prior to closing of transaction.

The important bit here is the issue price of the equity financing will be determined after the deal was announced and prior to closing the deal. On announcing the deal, the share price of Karnalyte jumped from $0.88 to $3.03 (MC increased from $24.1m to $64m). The issue price now will be calculated from the share price after announcing the deal.

Most of PIs assume that SXX will have to raise circa £600m before announcing the deal (i.e. circa 200% dilution). But, the Karnalyte deal shows that the issue price will be based on the share price after the announcement.

For example, if SXX needs to raise let say £600 when the share price is 15p that is nearly a 200% dilution. But after announcing a deal I see no reason why the SXX market cap not to increase to £900m/£1000m, proportionally like Karnalyte. Now we are looking at a share price of 45p to 50p (with a discount of 20% to raise the required equity) an issue price of 35p to 40p or dilution of 65 to 75% is more probable. After such dilution PI owed 65% less of the company, but monetary wise they have gained circa 200 to 250%. It does not matter how much of the company we owe, it is important how much it is worth what we owe.

IMO, the difficult part is to arrange the finance, not the dilution. The dilution when it comes is good news because it make this project finally ready for construction."

GK/LSE/19/03/16 - 13.12    "Modern ore lifting :  http://www.wabicorp.com/first-canada-wabi-breaks-new-ground-shipping-50-...
https://www.phosagro.com/press/company/item10098.php?print=Y  Modern mines will use modern kit. 50t skips is becoming the new standard.
The proposed expansion to 20mt/y involves a new second ore shaft being sunk below the MTS build shaft."

Goptta agree with 'Troops' ... Wiser heads than ours .... Frazer's speciality is financing

http://www.karnalyte.com/

http://www.gsfclimited.com/npk.asp?mnuid=3

York Potash Potash is the highest grade potash in't world - less chloride, kinder to plants, and there's more of it  :-)

lol : https://www.youtube.com/watch?v=cJfqi-HXAJA

Merchants.

https://www.youtube.com/watch?v=dUBm_EjkT0Q

If you want your posts removing you know what to do ...

11 Comments

Capt. 'Bob''s picture

SXX Finance - Some Blue 'Speculations'

"I count myself lucky........

About 250 million years ago a series of unique Geological events combined to produce a world class asset in what became North Yorkshire and by some strange accident of fate,a fairly clued up bunch of chaps decided to try and dig it up!

Around about 5 years or so ago I read a chance article and after a bit of "research" decided to give these chaps a few bob ( multiples of 4.5p) and later when I took things a touch more seriously, some more Bob ( actually at prices a bit higher than now but I'm not troubled by that).

About 3 years ago these fine chaps started to drill some holes in North Yorkshire and found they might have one of the best raw material bases for fertiliser in the world and a bit later on found that a few people around the world agreed - and negotiated some significant (theoretical ) off take Agreements that laid the foundation of a market opportunity.

Not long after that, a plan to go for planning permitting a mine was started. Some thought this quite bold..... others nuts ..... and a few more found many ways to dismiss the idea.

Still , on the bunch ploughed and achieved an unprecedented planning consent in an area of outstanding natural beauty ( or so we are told it is ) around the proposed mine head. On the way through they also got themselves some HMG funding guarantees - cute.

And so we move towards one of the largest mining projects in Europe over the next 7 - 9 years.

As an accident of timing, to be able to participate in this project and reap the benefits when it comes to fruition has to be one of the luckiest things anyone on this BB has had happen to them.

I know I feel that way. Roughly 250,000,016 years after the first evaporites were laid down, up we all pop to get a chance to make a significant amount of cash from a "salt" deposit.

So I reckon all this stuff about trading and getting. "In" and "Out" is fine and if this takes a few more years then fine by me.

Prod me when the next bit of real,news comes in........GLA

Sv."

tis not Bingo ...

https://www.youtube.com/watch?v=wxVwcGjxvuo

http://www.space.com/32329-penumbral-lunar-eclipse-expectations-march-20...

lol.  https://www.youtube.com/watch?v=FAl1dQO1xJg

Benefitz Betty's picture

Spring Cleaning ... Think

http://tunneltalk.com/Company-News-20Apr2016-Stantec-acquires-MWH-Global...

"Canadian-based engineering design and professional services company Stantec acquires USA-based rival practice MWH Global in a deal worth US$793 million.

http://www.stantec.com/

http://www.mwhglobal.com/markets/mining/

Rosia Montana ... Ouch;

https://www.youtube.com/watch?v=qCRae5mRoRE

Oh yeah (the interesting bit)  "The acquisition – which is funded by Stantec through a mix of US$525 million of new equity issue, with the balance payable from a newly negotiated US$800 million revolving credit facility with its banks – is aimed at increasing the global reach of the until-now predominantly North American focused company."

lol ? http://www.gabrielresources.com/site/index.aspx

https://www.youtube.com/watch?v=zZ5gCGJorKk

Oh Dear ... http://www.gabrielresources.com/documents/GBU_2015_YE_release_filing.pdf

https://www.youtube.com/watch?v=Vet6AHmq3_s

Headframes : http://www.stantec.com/our-work/projects/creative-projects/mining.html

Hmmm ... double whammy

https://www.youtube.com/watch?v=AQLBokIJsgM

Feet.

Startec ... https://www.youtube.com/watch?v=y81he0l-d6I

Benefitz Betty's picture

Dough .... Romania 'Out'

Alas, the end of the world is nigh ....

http://www.bbc.co.uk/news/entertainment-arts-36111208

"Romania has been expelled from the Eurovision Song Contest after its national broadcaster failed to pay outstanding debts dating back to 2007.

The European Broadcasting Union (EBU) claimed the Romanian public service broadcaster Televiziunea Romana (TVR) owes 16 million Swiss francs.

The EBU described the action to exclude Romania from next month's contest in Sweden as "regrettable".

Romania has never won the contest, but came third in 2005 and 2010...."

Tut Tut.

"Ovidiu Anton was due to perform Moment of Silence at this year's contest in Stockholm in 12 May.

The 24-year-old singer confirmed the news on his website: "Dear friends, I have finally received the official communication. I am trying to smile and not get carried away, but it is unfair."

"I am still the same, same honest artist, same fighter that won fare [sic] and square both from the jury and from the public's vote, but yet, I have to declare I have been "defeated" By whom? Why? Fair? I don't know how to put it nicely, so I abstain."

Moment of Silence has already been included on the official CD for this year's contest. The EBU said it would keep the digital download of the song available for download and streaming, as a courtesy to the artist."

Wishful thinking ;-) https://www.youtube.com/watch?v=F8E9DP-GGL8

https://www.youtube.com/watch?v=U5Jm4PvngUQ

 

Captain Qahn's picture

SM: Elizabethan Times

28 April 2016  Sirius Minerals Plc

Director dealing

Sirius Minerals Plc (AIM: SXX, OTCQX: SRUXY) ("Sirius" or the "Company") was notified on 27 April 2016 that on that day Elizabeth Noel Harwerth, non-executive director, purchased 49,608 of the Company's 0.25p ordinary shares at an average price of 18.12p each.

Following this transaction, Elizabeth Noel Harwerth has a beneficial interest in 69,465 shares representing 0.003% of the issued share capital of the Company...."

Forever in Blue Jeans ....

https://www.youtube.com/watch?v=YhumCu3fzMI

Oh. "£10 k today could be a nice little £350 k in 7 - 10 yrs...."

Hmmm... Ellis Island ...

https://www.youtube.com/watch?v=9ttDUGM-1mU

Mind, always preferred The Rock mesen

https://www.youtube.com/watch?v=JJ6QLdkdkIw

 

Captain Qahn's picture

SXX: Investors - In Need

Positivity from Proactive by Jamie Ashcroft - shouting out about erm, York Potash :-)

http://www.proactiveinvestors.co.uk/companies/news/125649/all-investors-...

"March’s DFS spelled out the mine’s world class potential

The long-awaited definitive feasibility study (DFS) for Sirius Minerals for the mine development project in North Yorkshire underscored its “world class” potential.

The report says its net present value of the asset is US$15bn using a 10% discount rate.

This figure rises to US$27bn once the mine is up and running. The after-tax internal rate of return is put at 26%.

The operation has the potential to generate underlying earnings (EBITDA) of US$1-3bn a year, depending on volumes and price.

The cash margins on the business are put at 70-85%, while operating costs are expected to be in the order of US$37.20 a tonne.

The plan is for the York mine to initially produce 10mln tonnes of polyhalite fertiliser a year, though there is the capacity to double output.

The cost to deliver the 10mln tonnes a year is put at US$3.56bn, with the financing done in two tranches.

First production will occur in 2021 with the company hitting the 10mln tonnes per year figure by 2023.

The North Yorkshire Polyhalite mine will be a British success story

Chris Fraser, Sirius Minerals chief executive, said: "The business that is created from this project will sit as a world leader in the fertiliser industry based here in the UK.

“It is expected to have a low operating cost structure, high margins and a very long asset life in one of the most business friendly, stable and dynamic economies in the world.

"In delivering this project we can create thousands of jobs in North Yorkshire and Teesside, deliver billions of pounds of investment to the UK and put the country at the forefront of the multi-nutrient fertiliser industry.”

It was a long haul to get to this pivotal stage in the development of Sirius and its project, which is located in North Yorkshire's National Park, not far from Scarborough.

The granting of mining and transport licences last year were major milestones that paved the way for construction, which could begin later this year.

It will be the first new potash mine in the UK for 40 years and will use a deep shaft to access the thickest and highest grade polyhalite ore reserve in the world. It will also involve the development of an underground mineral transport system from the mine to a proposed new materials handling facility at Wilton on Teesside.

Polyhalite is a specialised fertiliser, which will be in high demand

New agronomy studies were released in early May, revealing encouraging findings for the potential use of Sirius Minerals polyhalite (POLY4) product in China.

POLY4 is the group’s flagship polyhalite product. It is a natural blend of nutrients essential for plant growth.

On-going crop trials have demonstrated POLY4’s effectiveness, showing a positive impact on soil nutrient legacy and not significantly affecting soil pH, meaning a more efficient use of the fertilizer.

And the special blend is particularly suited to China’s main crops.

POLY4 is low in chloride, to which tea and chilli pepper crops are particularly sensitive.

Of the 4.8mln tonnes of tea consumed worldwide annually, China supplies 72%. China produces 15.8mln tonnes of chilli peppers a year, around 39% of the global market.

It is also ideally suited to China’s $41bn annual oilseed rape market. Studies have shown it increased yield by 7% and improved nutrient uptake.

“The agronomy studies help to further demonstrate the value in use of the Company's POLY4 product and also support on-going engagement with current and potential customers,” Sirius said in a statement.

Project financing is now the focus

Fraser told Proactive Investors that whilst there is no specific time-tables, the company has been busy laying the foundations to get financing in place as soon as possible.

The process had, by early March, reached a very detailed diligence phase.

It is a major project, with major capital requirements. And, Sirius intends to split the funding process into two parts.

Stage one is for shafts and the subsurface components of the project.

The idea is to put the stage-one capital in place and, when you move down the risk profile, bring the second-stage debt financing in. With this split financing, phase-one capital is expected to be equity and structured debt.

In the second stage it is more likely to be funded via senior debt - a more traditional type project finance - or bonds and the potential involvement from IUK (Infrastructure UK) in that part.

Fraser explained that the two-stage process is designed to align capital with risk, and to minimise the total cost the funding to the equity holders.

Liberum says financing will be the biggest catalyst yet

Securing project finance for the North Yorkshire polyhalite mine is the ‘final hurdle’ in the way of unlocking a possible US$7bn valuation, says Liberum analyst Richard Knights.

Knights says the financing will likely come in the form of high-yield debt and equity.

And, clarifying the quantum and nature of the funding will in itself remove risk from the Sirius investment proposition, he explains.

Knights added that a 50:50 mix of debt and equity would see an 80p per share valuation for the mine's first phase.

With a 40p price target the broker suggests the AIM quoted share should more double in value from the current price of 18p - a move that would see the market capitalisation close to £1bn.

For context, the share is already up 140% from around 7.5p in just over a year.

Liberum’s target is based on a number of assumptions, including a polyhalite (POLY4) price of US$125 per tonne.

But, Liberum has also created an interactive valuation model, which allows investors to tinker with many different variables - including funding terms, debt-to-equity splits, capex costs and currency rates.

A key point to be highlighted is that Knights sees significant upside in important areas including price, demand and the mine’s potential capacity.

“We believe there is up to a 100mt addressable market for POLY4, enabling Sirius to ramp up to 20mtpa over time,” he said in a note.

“We model Sirius producing 10mtpa and delivering >$800m of EBITDA by 2023, and 20mt delivering $1.2bn EBITDA by 2027.”

Nope, now't in there that says they still looking for stage I finance ....

Hi ho hi ho ...

Listen very carefully :

http://www.liberum.com/videos/siriusceo

Double checked : "Fraser told Proactive Investors that whilst there is no specific time-tables, the company has been busy laying the foundations to get financing in place as soon as possible."

 

 

Benefitz Betty's picture

SXX & Some Jolly Bolly

24 June 2016   Sirius Minerals Plc

Capital funding requirement reduction

Contractor engagement has delivered an enhanced implementation approach for the Company's North Yorkshire polyhalite project

Total capital funding requirement has been reduced to US$2.91 billion (18% reduction)

Stage 1 capital funding requirement has been reduced to US$1.09 billion (33% reduction)

Updated Project net present value ("NPV") of US$15.2 billion

Updated Project after-tax debt-free internal rate of return ("IRR") of 28%

Positive progress on the Company's financing plans with a number of parties undertaking detailed due diligence

Sirius Minerals Plc (AIM: SXX, OTCQX: SRUXY) ("Sirius" or the "Company") announces a material reduction of its capital funding requirements for its North Yorkshire polyhalite project (the "Project").

Since October 2014, in parallel with the preparation of the Definitive Feasibility Study ("DFS"), the Company has been conducting a detailed early engagement and competitive tendering process with specialist contractors for critical aspects of the Project's construction.  The completion of the DFS and the selection of the contractors for the mine site development ("MSD") and the mineral transport system ("MTS") has now enabled the Company to confirm a refined implementation plan for the delivery of the Project.

One of the outcomes of this work is that the capital funding requirement for the Project has been reduced to US$2.91 billion (an 18% reduction from the US$3.56 billion estimate detailed in the DFS announcement).  There has also been a significant reduction of the capital required for stage 1 of the two stage financing strategy.  The revised stage 1 requirement is US$1.09 billion (a 33% reduction from US$1.63 billion).  This delivers an updated Project net present value, after tax and debt free ("NPV") of US$15.2 billion and an updated Project after-tax and debt-free internal rate of return ("IRR") of 28%.

Chris Fraser Managing Director and CEO said:

"By working closely with specialist contractors for almost two years we have been able to further strengthen the delivery plan for the Project.  The reduced capital funding requirement will also be a significant benefit to the already attractive economics that underpin our world-class Project.

"We look forward to continuing to work with our contractors and their local supply chains as we move into the delivery phase and maximise value for both our shareholders and the wider economy."

http://otp.investis.com/clients/uk/sirius_minerals/rns/regulatory-story....

Don't spose he plays football?

Excellent news.

https://www.youtube.com/watch?v=9unL2Jfj__U

Captain Qahn's picture

Karnalyte

http://thestarphoenix.com/business/mining/wynyard-disappointed-after-pot...

"A Saskatoon company’s failure to secure $700 million to build a new potash mine near Wynyard is a disappointment for the town of about 1,800 people, according to its chief administrative officer. 

“The potential mine being built was good news for Wynyard, but now that the financing is in jeopardy, that doesn’t bode well for that potash project,” Jason Chorneyko said Friday morning.

Chorneyko spoke in response to Karnalyte Resources Inc.’s announcement that it had been “unable to reach an agreement” with the Indian company Gujarat State Fertilizers and Chemicals Ltd. (GSFC) to fund construction of the mine’s first phase. 

The Saskatoon company said in a news release this week that the Indian firm “ceased negotiations” after failing to find common ground on governance issues and arrangements to “spin-out” secondary minerals found at the site. 

“While these negotiations have stalled, we remain hopeful that Karnalyte and GSFC can come to acceptable terms on financing and the development of secondary minerals in the near future,” Karnalyte president Robin Phinney said in a statement. 

Under the terms of the agreement, GSFC would have covered the cost of the mine’s 625,000 tonnes-per-year first phase and bought 56 per cent of its production at market price for 20 years in exchange for a 51 per cent voting stake in Karnalyte. 

Phinney said in the statement that the company remains optimistic, and that its “focus remains on securing the best financing available to move the Project forward.”

Pheonix & Fiddlesticks: 

Raghuram Rajan: Rock Retires?

http://economictimes.indiatimes.com/markets/stocks/news/raghuram-rajans-...

http://www.mining.com/karnalyte-shelves-financing-talks-for-new-potash-m...

"The roller coaster ride continued for Karnalyte stock on Wednesday as prices spiked almost 50%, recouping some of Tuesday’s losses. The Calgary based company has announced that financing talks with Gujarat State Fertilizers and Chemicals have broken down.

The Indian manufacturer began discussions with Karnalyte back in March to draft the first phase of construction for a new potash mine at Wynyard. But the proposed US$700 million of financing fell through after the two parties failed to reach a mutually beneficial agreement.

The companies sighted conflicts over the proposed terms of governance and the development of secondary mineral projects. Following the breakdown of the potential deal, Karnalyte announced that its VP of capital markets, Julius Brinkman, would no longer be engaged by the company. The framework agreement with Gujarat State Fertilizers and Chemicals will now be allowed to expire on September 30..."

Oh: China Snaps "As an example the analysts mention Jiangxi Ganfeng Lithium, China’s second largest producer of the so called “white gold” and the country’s biggest maker of battery-grade lithium, which late last year acquired 43% of the Mount Marion lithium project in Western Australia."

https://www.youtube.com/watch?v=UMPC8QJF6sI&list=PLVH0a0Cqy0stHSUL4e2yBJ...

Ah, so ...

http://www.nytimes.com/2015/08/08/business/dealbook/potash-corporation-a...

Oops : http://www.reuters.com/article/ks-potash-india-idUSL4N1A42I3

Oh: http://www.bloomberg.com/news/articles/2016-07-28/canpotex-taking-cautio...

"..the Canadian joint venture that represents potash export sales from Potash Corp., Mosaic Co. and Agrium Inc., will only sign contracts to supply China and India with the crop nutrient for the remainder of 2016 as it expects prices to rise next year.

Canpotex is taking a cautious approach, Potash Corp. Chief Executive Officer Jochen Tilk said on an earnings conference call on Thursday. Stronger demand in 2017 is expected to lift spot prices and “that’s what we think contract negotiations should be based on,” Tilk said."

Tis the year of the 'hen' ... 2017.

https://www.youtube.com/watch?v=Um9kd-mhhK4

Propergate:-)

http://planning.northyorkmoors.org.uk/northgate/documentexplorer/applica...

https://www.youtube.com/watch?v=7kE3my5h74I

Benefitz Betty's picture

TT: A Financing Milestone

http://www.tunneltalk.com/York-Potash-06Sep2016-Critical-financing-annou...

"UK potash mine developer Sirius Minerals has taken a significant step towards delivering a £15 billion asset capable of generating £3 billion a year in revenue – including the likely support of the UK Government in the form of loan guarantees.

The company needs to secure US$3.9 billion worth of funding before it can begin sinking the 1.6km-deep mine shaft to gain access to one of the world’s largest reserves of the crop nutrient polyhalite...."