Potash junior teams up with Indian conglomerate to build new mine in Saskatchewan
It's no secret that building a potash mine to compete with the big companies is no small feat in Saskatchewan, where nine potash mines have been operating in the western Canadian province for the last 40 years. But success could come via some outside-the-box thinking from Gensource Potash Corp., (TSXV:GSP) which last week inked a joint venture with Essel Group ME Ltd., (EGME), an Indian conglomerate.
In a deal announced April 5, Gensource, whose most advanced project is the Vanguard property in central Saskatchewan, has formed a new company with EGME called Vanguard Potash Corp, which is the corporate entity they plan to use to develop a small 250,000 tonnes per annum potash mine.
The agreement builds on a memorandum of understanding published by the two companies last November.
“This is the most significant milestone for Gensource to date,” Gensource president and CEO Mike Ferguson said in a statement. Ferguson helped develop the K+S Potash Canada’s Legacy project, which K+S Potash Canada and partner Amec Foster Wheeler — in charge of the project design and management — hope to start production by end of June, with an expected output of 2 million tonnes per year once at full capacity.
Under terms of the joint venture, Gensource will give Vanguard a 49% stake in the mineral lease, while EGME agreed to spend up to US$205 million in order to earn a 70% stake in the operation, which is expected to cost $200 million. The first $5 million will be put towards a feasibility study, which Gensource says it started in October 2016. The plan is to build out the mine in phases, eventually reaching a million tonnes per year.
It would be mined using the solution method, where wells are sunk into the deposit, and a heated brine solution is injected to dissolve the potash salts. The dissolved salts are then pumped to the surface, where the water is evaporated, leaving potash and salts behind.
According to the Saskatoon StarPhoenix, Gensource's business model is to sell its potash product directly to farmers and farmer groups, thus avoiding competing with large companies like PotashCorp (NYSE:POT) "which have better supply chains and the ability to soak up costs in a weak market."
Canadian potash is currently marketed and sold through Canpotex, which is the world's largest exporter of potash.
Gensource plans to commission the mine in 2018, with first production by the end of that year, or the first quarter of 2019.