by Greg Klein | June 2, 2013
A Chinese joint venture has agreed to invest $31,979,022 into Western Potash TSX:WPX and sign a 20-year off-take agreement, the company announced June 2. Under the deal, the JV gets a 19.9% interest in Western and agrees to buy or designate a buyer to purchase the lesser of 30% or one million tonnes of potash annually for 20 years from Western’s Milestone project in southern Saskatchewan. Milestone achieved full feasibility in December and environmental assessment approval in April.
Our strategic alliance with China Blue and Guoxin will provide Western with access to project financing, technical expertise in large-scale project construction and marketing channels for future potash sales.—Patricio Varas, CEO of
The JV, CBC (Canada) Holding Corp, is comprised of China BlueChemical Ltd and Benewood Holdings Corp. China Blue is a majority-owned subsidiary of China National Offshore Oil Corp, China’s largest offshore oil and gas producer. Benewood is a wholly owned subsidiary of Guoxin International Investment Corp, a Hong Kong investment firm.
Under the agreement, CBCHC buys 45,040,876 newly issued shares at $0.71, a 15% premium over the 20-day volume-weighted moving average. CBCHC may also nominate a director to Western’s board. The parties expect to close the agreement by June 14.
In a statement accompanying the news release Western CEO Patricio Varas said, “Our strategic alliance with China Blue and Guoxin will provide Western with access to project financing, technical expertise in large-scale project construction and marketing channels for future potash sales.”
Milestone’s full feasibility study, released in December, used a 10% discount rate to calculate a pre-tax net present value of $3.6 billion and a 21% internal rate of return. The after-tax NPV came to $2.44 billion with an 18.6% IRR. The initial capex was $2.91 billion for a solution mining operation that would produce 2.8 million tonnes of potassium chloride annually for 40 years. Payback was estimated at 5.6 years.
Solution mining involves pumping water into underground caverns, then extracting a potash-rich brine. Western has a 45-year agreement with the city of Regina, 30 kilometres away, to supply Milestone with treated effluent.
Saskatchewan’s Ministry of Environment issued the project an environmental assessment approval in April.