Western Potash rally runs out of steam despite takeover talk and Milestone milestone

Soaring volumes

Despite a pre-feasibility study packed with good news and an ever-louder drumbeat suggesting an imminent takeout, Western Potash sank 6.67% on Wednesday, a day the broader market managed to keep losses to less than 3%.

Western Potash said on Monday it is upping the projected capacity of the Milestone project by 12% to 2.8 million tonnes per year and surprised by lowering its capex and opex cost projections.

Scotia Capital commented that state-owned entities from Brazil, India and China could be interested in Western Potash to secure supply outside of Canpotex and Russian producers which together control around 57% of global supply. Analyst Marc Davis writes the project’s “independent” status is of significant strategic value since Canpotex, the marketing and distribution arm of Saskatchewan’s three dominant potash producers is notorious for demanding lofty prices.

Western Potash may also be actively looking for a big partner as going it alone on the $2.7 billion project would probably be too much to bite off. Western Potash executives maintain the takeover talk is premature and that the company wants to build Milestone on its own.

According to Western Potash’s pre-feasiblity study it can mine for $91 per tonne using the solution mining method – potash contract prices this year is around $500/tonne level. Commercial production is set for 2016 with full operating capacity will be reached six year later with a life of mine of 40 years.

Investors piled into Western Potash before the release of the study and the counter is still up 26% since October 25. Western Potash (TSE:WPX) listed on the venture exchange in May 2008 and graduated to the TSX main board on 12 July with 160,945,183 common shares outstanding in the Mining category. The recent spike has not been enough for Western Potash to get out of negative territory and it is still trading down 14% since moving to the TSX main board. It is worth just over $200 million.

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