Karnalyte lands India investor for Canada potash mine (updated)

Zuari Agro Chemicals

10/01/2013 17:03

* India's GSFC to buy 20 pct stake, assures potash supplies 
    * Saskatchewan mine would compete against Potash Corp 
    * Karnalyte shares jump as high as 21 pct 
 
 (Adds comments from conference call) 
    By Rod Nickel 
    Jan 10 (Reuters) - Tiny Canadian mining company Karnalyte 
Resources    has landed a small but highly strategic 
investment from India, likely reducing that country's future 
dependence on Canpotex, the marketing arm for North America's 
dominant potash sellers. 
    Gujarat State Fertilizers & Chemicals Limited   , an 
Indian farm business that makes fertilizer and industrial 
products, will buy a stake of nearly 20 percent in Karnalyte for 
C$45 million ($45.5 million), or C$8.15 per share.  
    GSFC will invest a further C$15 million in the next round of 
public equity financing, making it more likely that Karnalyte's 
planned potash mine will win the funding it needs go ahead. 
    Karnalyte shares jumped as much as 21 percent in Toronto 
before trading in late morning up 9 percent at C$8.74. GSFC 
closed down more than 3 percent on India's National Stock 
Exchange. 
    GSFC also agreed to buy 350,000 tonnes of potash per year 
for 20 years, or more than half of the output from the first 
phase of Karnalyte's planned potash project near Wynyard, 
Saskatchewan. The off-take agreement increases to 600,000 tonnes 
per year once phase 2 is built. 
    "At present, India is fully dependent on imports of potash," 
 Atanu Chakraborty, managing director of GSFC, said in a 
statement. "This is a significant partnership by an Indian 
fertilizer manufacturing company with a potash mining company 
abroad to procure high quality potash for the Indian market." 
    India imported 4.6 million tonnes of potash in 2011, 
according to data compiled by Scotiabank. 
    Karnalyte's mine would be small compared with those operated 
in the resource-rich province by giant fertilizer companies 
Potash Corporation of Saskatchewan Inc   , Mosaic Co 
   and Agrium Inc   . But if the mine is built it 
would be the first in Saskatchewan with such significant 
influence by investors from China or India, the world's two 
biggest importers of the nutrient used to boost crop yields. 
    Fertilizer makers in those countries import much of their 
supplies from Canpotex Ltd, the offshore marketing arm for 
Potash, Mosaic and Agrium, or BPC, which performs the same role 
for Russia's Uralkali OAO    and Belaruskali of Belarus. 
    Karnalyte would operate independently, as would mines under 
construction in Saskatchewan by Germany's K+S AG    and 
Anglo-Australian miner BHP Billiton Ltd      . 
    "If this is an indication of major purchasers like India 
moving outside of the cartel, that has long-term negative 
implications for Canpotex," said analyst Peter Prattas of Fraser 
Mackenzie, noting that the agreement won't make much impact in 
the near future. 
    The Indian state of Gujarat holds a more than one-third 
stake in GSFC and is its biggest shareholder, according to 
Thomson Reuters data. 
    The deal, announced by the companies early on Thursday, is a 
premium of less than 2 percent over the last traded price for 
Karnalyte on Tuesday before trading was halted the following 
day. But it is a 20 percent premium to the volume-weighted 
average price for the 20 trading days that ended Dec. 20.  
    The stock has risen sharply in recent days. 
    Karnalyte's solution-based mine would cost C$600 million in 
the first phase and produce 625,000 tonnes of the crop nutrient 
per year, starting in 2015.  
    The funds combined with the buying commitment from GSFC - 
subject to Karnalyte's project gaining Saskatchewan approval on 
environmental grounds - will make raising the remaining capital 
through debt and equity far easier, Prattas said. 
    "All of a sudden, in our view, this has greatly reduced the 
financing risk." 
    Karnalyte's options for raising its remaining financing are 
"wide open," said the company's chief financial officer Ron 
Love, but include potentially taking on another strategic 
partner. A handful of large Indian companies buy Canadian 
potash, including Coromandel International Ltd   , Tata 
Chemicals Ltd   , Zuari Agro Chemicals Ltd    and 
Indian Farmers Fertiliser Co-operative (IFFCO). 
    Karnalyte's second phase would take production to 2.125 
million tonnes of potash per year. 
    The deal represents a shift toward potash by GSFC, which 
currently buys only about 100,000 tonnes of the nutrient 
annually, and mainly distributes urea and phosphate. 
    Karnalyte is competing with Encanto Potash Corp    and 
Western Potash Corp    for funds to launch Canadian potash 
mines. Shares of Western rose 3 percent, while Encanto was flat. 
    The trio of so-called junior miners owns the right to mine 
potash reserves in Saskatchewan, but lacks capital.  
   The appeal of potash to investors, a soil nutrient used 
worldwide to boost crop production, has grown in recent years 
with population and income growth in developing countries. But 
the world's biggest miner, BHP Billiton, has delayed a decision 
on proceeding with its own Saskatchewan potash mine amid 
difficult economic conditions, and some analysts say there is 
too much global potash production capacity being planned. 
    BMO Capital Markets advised Karnalyte, while 
PricewaterhouseCoopers Private Limited advised GSFC. 
    ($1=$0.99 Canadian) 
 
 (Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by 
Maureen Bavdek, Nick Zieminski and Sofina Mirza-Reid) 
 ((rod.nickel@thomsonreuters.com 1 204 947-3548)(Reuters 
Messaging: rod.nickel.thomsonreuters.com@reuters.net)(�)) 
 
Keywords: KARNALYTE POTASH/