Verde Potash's $25 million deal provides no succour to investors still nursing 27% knock after poor economic study
Verde Potash shares fell 19c or 2.84% to $6.51 by lunchtime on Thursday after the company announced bought deal financing of $25 million.
The Toronto-based firm is offering 3.87 million shares at a price of $6.45, with the possibility of another 580,000 for over allotments, to continue work at its Brazil project.
While small investors should welcome the additional shares – only 32 million shares are outstanding at the moment – a price 3.7% below the ruling price is something of a slap in the face (even though financing of this kind usually comes at a discount).
In the run up to the release of a preliminary economic assessment report for the Cerrado Verde project in the Amazon basin, Verde Potash's shares were driven all the way up to $8.95, only to come crashing down after the study disappointed investors all round.
The company, founded as Amazon Mining in 2005, reported capex of $654 million and opex of $263 per tonne for 600,000 tonnes a year of the soil nutrient during Cerrado Verde's first five years. Starting in 2015 production is expected to be a ramped up to 3 million tonnes annually by 2024 at a cost of $291/tonne.
Potash prices have hovered around the $500/tonne level this year after strong gains the past two years, but the many greenfield and brownfield properties coming on line over the next few years adding as much as 17 million tonnes of additional capacity by some estimates will put pressure on prices later in the decade and make life difficult for juniors.