Potash junior shoots up after inking Indian deal

Karnalyte Resources (TSX:KRN)  opened 20% higher in Toronto on Thursday after announcing a deal with an Indian fertilizer company.

By midday after a halt, trading had calmed down somewhat with the share changing hands at $8.70, up 8.75% in heavy volumes. The Calgary-based potash developer  is worth $190 million and is up 28% since the start of the year.

Gujarat State Fertilizers & Chemicals will take up a 20% stake in the company  for $45 million at $8.15 a share and also signed a 20-year offtake agreement.

Karnalyte’s proposed solution-mining method Wynyard project in Saskatchewan carries a lower capital and operating cost than traditional mining methods, and can be brought into production quicker.

Construction is likely to start before mid-year and Karnalyte expects to ramp up initial production to 625,000 tons per year by 2015 and reach over  2m tonnes by 2017 at a cost of $1.5bn.

The big three North American producers Potashcorp, Agrium and Mosaic represented by Canpotex, together with Russia's Uralkali's and Belarus's Belaruskali which also jointly distribute,  supply some 70% of the world's potash – a key ingredient in fertilizers.

Small companies such as Karnalyte and Western  Potash (TSX:WPX) in Canada, Allana Potash  (TSX:AAA) in Ethiopia and Verde Potash (TSX:NPK) in Brazil have long attempted to break into the tightly controlled market, while established independent players are bringing vast new supplies to the market over the next few years.

Germany's K+S is adding a 2m tonnes project in Saskatchewan by 2017 and another 900,000 tonnes six years later, while Russia's fertilizer maker Eurochem is expanding into potash mining with projects that together will bring 8m tonnes on stream.

On top of these projects BHP Billiton could soon give the green light to another new Saskatchewan mine. If it's built, Jansen would add another 8m tonnes to global capacity.

Image of Robin Phinney, President & CEO, of Karnalyte Resources Inc., joined by Ungad Chadda, Senior Vice President, Toronto Stock Exchange ringing the opening bell on January 21, 2011.