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."
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
York Potash Potash is the highest grade potash in't world - less chloride, kinder to plants, and there's more of it :-)
If you want your posts removing you know what to do ...