Karnalyte, Indian fertilizer co agree to build new potash mine

Karnalyte Recources (TSX:KRN) has inked a major deal with an Indian fertilizer manufacturer to build a new potash mine in Saskatchewan.

Announced Monday, the deal with Gujarat State Fertilizers and Chemicals Limited (GSFC) will finance construction of the first phase of Karnalyte’s 625,000 tonnes per year potash mine, located half a kilometre south of Highway 16 near Wynyard, Sask. The two parties also agreed to spin-out Karnalyte’s secondary mineral assets and 241 kilometres of unexplored lands into separate entities. The financing package amounts to USD$700 million, including senior secured debt, subordinated unsecured debt, and an equity infusion to be backstopped by GSFC.

The deal sent stock in Saskatoon-based Karnalyte Resources rocketing today, with an eye-watering 80% gain on the Toronto main board.

A 2012 preliminary feasibility study envisions the mine taking shape in three phases, with the first phase expected to produce 625,000 tpy, with increases to 750,000 tpy in phase 2 and 2.125 million in the third phase. The potash would be mined using the solution mining method.

In 2013 GSFC, one of India's largest fertilizer and industrial chemical companies, made a private placement of around $44.7 million in Karnalyte, giving it a 19.98 percent ownership stake. The two companies also negotiated an offtake agreement whereby GSFC will purchase about 350,000 tpy in the first phase, and about 56% of potash production for 20 years. The agreement also gives the Indian company the option to increase its offtake, in increments, by up to 1 million tpy by phase 3.