Speculators dump Western Potash after Chinese deal disappoints

Western Potash (TSX:WPX) slumped more than 10% on Monday despite confirming over the weekend months of speculation of an equity investment from China.

China BlueChemical, a subsidiary of China National Offshore Oil Corporation and Benewood Holdings, part of a Hong Kong investment firm have agreed to make a equity investment of C$32 million in Western Potash at a price of $0.71 per share. The price constituted a a 15%  premium over the 20 day volume weighted moving average of WPX.

In afternoon trade Western Potash were changing hands at $0.65, down 10.9% with almost three times the usual number of shares changing hands as investors who were hoping for a more groundbreaking deal or complete takeover, dumped the stock.

Despite today's fall Western Potash is still showing robust gains for the year – speculators chased the counter up 30% since the beginning of May in anticipation of a deal. The company is worth some $120 million on the TSX main board.

Western Potash has long been considered a takeover target with Indian and Chinese players mentioned, and the Vancouver-based company may also be actively looking for a big partner as going it alone on its giant Milestone project would probably be too much to bite off on its own.

Western Potash's a feasibility study released in December pegs the project's proven and probable reserves at 137 million tonnes KCl with the capacity for a 2.8 million tonnes per year mine using the lower cost solution method.

Capex came in at $2.9 billion for the Saskatchewan project with commercial production set for 2016 and full operating capacity six year later with a life of mine of 40 years.

Western Potash also operates in a busy corner of the market with BHP's massive Jansen project, which if built would be the world's largest potash mine,  competing for scarce labour and skills in the Canadian province.

There is continuing belt-tightening in the potash industry with the big players in Saskatchewan cutting back on production amid high inventory levels.

Prices have held up relatively well however, with prices in the spot market up $50 to $70 a tonne since contracts were inked by the major players for the first half of the year at close to $400.