Yara buys 19.9% of IC Potash(ICP:TSX) Yara International ASA, the world’s largest distributor of plant nutrients, is making a strategic investment of $40 million into IC Potash (ICP) and entering into an off-take agreement that guarantees the sale of 30% of ICP's production on a take or pay basis. The term of the off-take will begin upon the commencement of commercial production for a period of 15 years and will automatically extend every five years thereafter unless either party elects not to extend.
Yara will pay $1.32 a share for 30.1-million ICP shares resulting in Yara owning 19.9% of the issued and outstanding common shares of ICP on a non-diluted basis.
All products will be sold to Yara based on market prices. Yara's ICP shares are subject to a 24 month lock-up or until all financing to complete construction is secured.
Yara is the ideal partner for ICP with a strong distribution network for potash products. Yara has a market cap of $13.5 Billion, revenues of $14 Billion, and EBITDA of $3 billion. The company has operations in 50 countries and annually distributes 20 million tons of fertilizer products into 150 countries.
Yara and ICP continue discussions about forming a joint marketing company to distribute products cooperatively. This partnership could result in the leading global supplier of Sulphate of Potash.
Sulphate of Potash (SOP) is used by producers of vegetables, fruits, tobacco, horticultural plants due to the fact it does not contain the chloride associated with regular potash fertilizer which can damage high value crops.
This partnership is transformational and the first of its kind in the junior potash development space. With Yara as a financial and commercial partner, this validates ICP as the world's leading potash development company and has set the precedent for all other potash development companies.
This investment delivers an immediate premium to ICP shareholders (48% premium to the closing price pre-transaction) and substantially de-risks the Ochoa project which has 190 million tons of sulphate of potash contained within the ore. SOP current sells for approximately $700 per ton in the United States, which translates into a contained product value within the ore of over $130-billion. ICP is trading at a discount versus its peers. Analysts have NAV calculations of $4.00 per share using a 12% discount rate and one would expect upside to price targets now that the project is de-risked through the addition of a strategic partner and off-take agreement.
Post transaction, ICP has retained 100% of the project level equity allowing ICP to enter into additional JVs at the NPV of the project closer to production (current NPV of $1.3 Billion as of the release of the prefeasibility study). Selling 25% of project equity for +$250 million is all the equity capital required to build the project, based on development capex of $706 million, which is low relative to most junior potash projects.
Additionally, with Yara and Resource Capital Funds as strategic investors, this will empower ICP in raising this required equity capital.
In terms of debt financing, with 30% of sales guaranteed through the off-take with Yara, ICP has immensely increased its ability to obtaining credit financing for the debt portion of the project.
Upon reaching production, ICP will generate $440 million of revenue and $315 million of EBITDA based on current market prices. This means at an 8x EBITDA multiple, ICP could obtain a valuation of more than $2.5 billion dollars.
This partnership also places considerable pressure on other SOP producers including Compass Minerals, K+S Kali, and SQM. In the case of Compass Minerals, currently the only large scale producer of SOP in the US, Yara and ICP represent a considerable threat to their market share and pricing power. It is reasonable to assume Compass may attempt to acquire ICP to protect its position in the most profitable market for SOP globally.
CEO Sid Himmel has assembled a world class management team. The Chief Exploration Officer is Pat Okita, who was previously the head of Industrial Minerals Exploration for BHP, the world's largest mining company. Pat did the original work on the mineral ICP is developing while at BHP. The property came to the attention of ICP from Robert J Hite, who was the head of the evaporite division of the United States Bureau of Mines during the 1970's and 1980's. The Chief Operating Officer is Randy Foote, a professional engineer who was the mine superintendent of the Potash Mines in South East New Mexico when Mississippi Chemicals owned them. He was afterwards at Intrepid Potash, as Vice President. Randy joined ICP in early 2009. The company has built very strong relationships politically with all relevant officials, and has developed good relationships with the regulators.
ICP has the most advanced junior SOP development project in the world and has many advantages over existing producers. ICP has a lower cost versus traditional SOP production with opex per ton of production is $147, which is well below the industry norm (near $400 per ton). The project is past prefeasibility. The PFS released last November provides for improved economics in almost all of the relevant metrics including lower opex and capex, and higher total production. Production is targeted for a 2015 start-up with a project life of 40 years beginning at a production rate of 568,000 short tons per annum of SOP plus 275,000 short tons per annum of potassium magnesium sulphate (SOPM). The prefeasibility computes a $1.3 billion after-tax NPV and a 26% IRR.