Chinese company eyes big stake in Congo project

Toronto-MagIndustries Corp. reports that a large, unnamed Chinese-based multi-national company intends to subscribe for 400 million MagIndustries shares at a price of C$.70. Mag says it has agreed to negotiate exclusively with the company until the earlier of July 31, 2009, or the date definitive documentation is entered into. In addition, Mag says the memorandum of understanding includes that the definitive documentation will contain a right for the subscriber to participate pro rata in any future financings completed by the company, and to appoint a majority of directors to the company’s board. The share subscription is also conditional on the subscriber arranging substantially all of the debt financing required for the completion of Phase I of the company’s Kouilou potash project in the Republic of Congo as an alternative to debt financing that might be available to the company from other sources. Mag said the company would be in a fully-funded position with respect to the Project if the transaction contemplated by the MOU is completed. Upon conclusion of the investment, the Chinese company would hold approximately 52.7 percent of the company’s common shares outstanding. The latest technical report for the project indicates proven and probable reserves of 33.2 million mt of potash, which can support a reserve life of more than 54 years at a projected production rate of 600,000 mt/y. Phase 1 capital expenses are estimated at US$835 million. Estimated operating expenses are now $124 per mt of K60 resulting from increased expectations for higher natural gas costs. Potash price assumptions for 2012 are $649/mt, up from $464/mt net realized price KCl (based on current third-party potash price forecasts). Mag said the report authors project an internal rate of return of 23 percent, with the net present value estimated at US$914 million using a discount rate of 12 percent. Assuming total project costs of US$1.2 billion, pay back is achieved in approximately five years, assuming cumulative cash flows from operations for the period 2012 to 2016.