by Greg Klein | July 6, 2015
An $80-million strategic investment from a Chinese private equity firm could put Western Potash’s (TSX:WPX) Milestone project into production. Announced July 6, the deal offers enough to cover capital costs of the southern Saskatchewan project as calculated in a revised scoping study reported four days earlier. The investment by Beijing Tairui Innovation Capital Management remains subject to approvals, including a shareholder vote. The parties expect to close by August 31.
“We anticipate approximately 24 months for development,” Western president/CEO Patricio Varas tells ResourceClips.com. “Obviously we need to do a little more engineering before we really tie down dates but I think in two years we could have an operation running.”
Milestone reached full feasibility in December 2012, with a $2.44-billion capex and other calculations based on higher potash prices. The breakup of the Uralkali/Belaruskali cartel sent prices downward the following summer. Last week Western announced a preliminary economic assessment for a scaled-back but upwardly scalable operation using horizontal drilling and selective solution mining. That dropped the capex to $80.6 million. Based on prices of $315 per tonne, the PEA showed a net present value of $56.7 million and a 25.2% internal rate of return after taxes and royalty.
The $80-million investment would come through 249 million shares at $0.3213, giving Tairui a 51% stake in Western. The price represents a 46% premium over the company’s volume-weighted average for 30 days ending July 3.
The Chinese interests “understand the need for potash over there, how southeast Asia needs potash,” Varas points out.
Additional investment might come from CBC (Canada) Holding Corp. Currently with a 19.9% interest in Western, CBC may participate to maintain its stake. “So this financing might get bigger yet,” Varas says. Referring to CBC’s response to the new PEA, he adds, “They’re onside. They like the idea that we’re moving it forward.”
CBC also has an offtake agreement for the lesser of 30% or one million tonnes of Milestone potash annually for 20 years.
Milestone has all major permits in place, two rival rail lines crossing its property and an agreement with the city of Regina, 30 kilometres away, to supply the mine with treated waste water.
Disclaimer: Western Potash Corp is a client of OnPage Media Corp, the publisher of ResourceClips.com. The principals of OnPage Media may hold shares in Western Potash.