India’s Gujarat State Fertilizers & Chemicals Ltd. will make a strategic investment of approximately C$45-million in Karnalyte Resources Inc. at a price of $8.15 per common share, which will result in GSFC holding a 19.98-per-cent ownership stake in Karnalyte. Karnalyte and GSFC have agreed to a committed off-take agreement for the purchase of approximately 350,000 mt/y of potash from phase 1 of Karnalyte’s Wynyard carnallite project, increasing to 600,000 mt/y with the commencement of phase 2. The off-take agreement will continue for approximately 20 years from the commencement of commercial production of phase 1.
Using a staged approach to potash plant construction, the Karnalyte plans to operate a solution mining facility that will initially produce 625,000 mt/y, increasing to 2.125 million mt/y. Karnalyte owns a 100 percent interest in Subsurface Permit KP 360A and Subsurface Mineral Lease KLSA-010 located near Wynyard, Sask., comprising a total of 85,126 acres. Karnalyte is listed on the Toronto Stock Exchange under the symbol “KRN”.
"GSFC’s strategic investment and entering into the off-take agreement will support Karnalyte’s growth strategy of constructing its potash production facility and commercializing a superior potash product," said Robin Phinney, Karnalyte president and CEO. "This investment by GSFC is a significant milestone for Karnalyte and establishes Karnalyte as a leader among the new class of potash developers. We are confident that GSFC’s strategic investment and committed off-take agreement will be instrumental in the future success of the project."
Atanu Chakraborty, IAS, managing director of GSFC, commented: "At present, India is fully dependent on imports of potash. This is a significant partnership by an Indian fertilizer manufacturing company with a potash mining company abroad to procure high-quality potash for the Indian market. Karnalyte is ahead of other junior potash mining companies in Canada in terms of expected commissioning of the project. For GSFC, an assured supply will help in expanding its portfolio of fertilizers."
GSFC will subscribe to 19.98 percent of the issued and outstanding common shares after giving effect to this transaction at a price of $8.15 per common share in a non-brokered private placement for total gross proceeds of approximately $45-million. Based on its current issued and outstanding common share capital, Karnalyte will issue approximately 5.49 million common shares to GSFC upon closing of the private placement. The proceeds from the private placement may be subject to escrow pending Karnalyte receiving final approval of its environmental impact statement from the Saskatchewan Ministry of the Environment under the Saskatchewan Environmental Assessment Act. Karnalyte’s public consultation for the EIS commenced on Dec. 29, 2012, and is expected to conclude on Jan. 28, 2013. Following the public consultations, Karnalyte expects to receive final approval from the Saskatchewan MOE shortly thereafter.
The common share issue price of $8.15 is based on a 20-percent premium to the volume-weighted average price of Karnalyte’s common shares traded on the Toronto Stock Exchange for the 20 trading days ended Dec. 20, 2012. The issue price is subject to an adjustment if commercial production has not commenced on or before Oct. 1, 2016, which may be satisfied by the issuance of an additional 555,555 common shares by Karnalyte to GSFC at that time.
Pursuant to the terms of the subscription agreement, GSFC shall have the right to appoint one nominee to the board of directors of Karnalyte. In addition, GSFC retains the right to maintain its equity position in future equity offerings and has agreed to commit approximately $15-million in the next rounds of public equity financing by Karnalyte to finance the construction of phase 1 of the project.
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