Karnalyte Resources Inc. said March 14 that it has entered into an agreement in principle with India’s Gujarat State Fertilizers and Chemicals Ltd. (GSFC) to provide approximately US$700 million to finance construction of the first phase of Karnalyte’s 625,000 mt/y potash mine at Wynyard, Sask. (Phase 1), and an agreement in principle to spin-out Karnalyte’s secondary mineral (magnesium-related) assets and unexplored lands into one or more separate entities.
“I am proud to announce that Karnalyte is about to achieve its most significant milestone yet: a fully financed structure to build our potash mine in Saskatchewan,” said Karnalyte Founder and President Robin Phinney. “We are extremely pleased to have entered into the agreement in principle with GSFC, which is expected to enable Karnalyte to develop its significant potash resource. The agreement in principle provides for a comprehensive financing package to fully fund Karnalyte’s 625,000 mt/y potash mine while enabling shareholders to maximize their investment in Karnalyte’s secondary minerals and unexplored lands.”
“This ground-breaking deal structure demonstrates GSFC’s long-term commitment and desire to secure supplies of key natural resources through investment structures that are aligned with the values of Canadian shareholders,” said Vishvesh Nanavaty, GSFC’s senior vice president and CFO. “I believe this financing will serve as a template for future investment by Indian companies in Canada and will strengthen relations between our two countries for years to come.”
In 2011 Karnalyte received a positive feasibility study prepared by Foster Wheeler Canada and Ercosplan for Karnalyte’s plans to construct a solution mining facility at Wynyard to produce a high-grade (97 percent purity) granular potash product. Karnalyte intends to construct the facility in three phases, with Phase 1 expected to produce approximately 625,000 mt/y, increasing by 750,000 mt/y with Phase 2, and totaling 2.125 million mt/y with the addition of Phase 3.
In 2013, GSFC, one of India’s largest fertilizer and industrial chemicals manufacturing companies, made a strategic investment in Karnalyte of approximately $44.7 million, resulting in GSFC holding a 19.98 percent ownership stake in Karnalyte. In connection with this investment, Karnalyte and GSFC executed an off-take agreement for GSFC’s purchase of approximately 350,000 mt/y from Phase 1. The offtake commences with commercial production from Phase 1, with the result that Karnalyte has secured sales for about 56 percent of its potash production from Phase 1 for approximately 20 years. GSFC can increase its offtake as the project progresses, and up to 1 million mt/y in Phase 3.
GSFC is required to have and maintain at least a 51 percent voting interest in Karnalyte while the senior secured debt is outstanding on the loan.