cancellation - clarification from CCThe long and the short of it: Karnalyte announced it would not be proceeding with the $115-million equity financing (priced at $13.30 per common share) announced on November 29, 2011 due to a delay in filing the final short-form prospectus. KRN reported that as part of the prospectus review process, the company received comments from the securities regulators in respect of its Technical Report (effective October 21, 2011). KRN held discussions with regulators to review these comments; however, as a result of the delay, a final short-form prospectus could not be filed in the required timeframe. KRN believes the issue with regulators is one of timing, in that they feel all the regulators' concerns will be covered off in the immediate future. In Canaccord Genuity Agriculture Analyst Keith Carpenter's view, the issue with the regulators' questions were as follows: i) Who is Ercosplan and why did KRN hire a foreign engineering firm to conduct a feasibility study?; ii) Carnalyte isn't mined in Canada - how can KRN be confident it can be mined?; iii) Potash projects take a considerable amount of time to be put into production; this project states that it can happen much quicker, how is that possible?; iv) They require a Canadian third party to
verify the feasibility study. To clarify: i) Ercosplan is a well-known mining engineering firm - everyone in the industry knows of them, in Carpenter's opinion; ii) Carnalyte is mined in Germany and he believes it simply made sense to have a well-known German engineering firm conduct the feasibility study; iii) Due to the solution mining process and off the shelf processing equipment from U.S. manufacturers, significant construction time is saved (i.e., no requirement to build a 3,000 m shaft and no requirement to enter into a three-year queue for large built processing equipment from overseas). The final point of having third party verification: KRN stated that it will be concluded in the immediate future. As part of the debt due diligence, third parties have been hired to review the feasibility study, and the conclusion to this work is "imminent". As a result, Carpenter remains of the view that financing will be attainable in H1/12, and he believes that it will involve a strategic partner who will become the
cornerstone equity investor. Carpenter estimates the development capex for Phase 1 of the project to be $600 million. The company currently has cash and cash equivalents of roughly $30 million. KRN owns a 100% interest in Permit KP 360 and KLSA 010 totaling 85k acres with Proven and Probable reserves estimated at 155mt of KCl. The company intends to develop the deposit through a staged expansion with initial production of 500-550ktpa, increasing capacity to 2.125 mtpa by 2019.