Clarus - KRN - Now In an Enviable Position The complete Clarus report online for everyone to read. Very good read
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Now In an Enviable Position
Further to our note yesterday, we believe Karnalyte’s partnership
with GSFC of India puts KRN in an enviable position among potash
developers because: it will now move towards arranging debt
financing with an off-take partner in-hand; KRN has adequate cash
of over $65 million after the deal, with all the development studies
complete; Karnalyte can still pursue additional partners for its
potash now that it is closer to production; and environmental
approval is expected this quarter. GSFC will be a natural, logical,
and long-standing partner for KRN as India is a large importer of
potash and fully dependent on imports. GSFC’s involvement with its
deep technical expertise in fertilizer products validates KRN’s highpurity, granular product proposition (a strength we have highlighted)
as it intends to blend the potash. We have long singled out KRN as
the best potash (MOP) junior and we believe the market will begin
to recognize this as well. Karnalyte is a best-in-class developer with
not only a proven management team in the potash and chemicals
industry, but also one that possesses various differentiating
strengths. We reiterate our BUY rating and $20.00 per share target
price.
? KRN validated and off-take will support debt financing. KRN
is now in excellent position to secure debt financing with its offtake agreement, transitioning KRN into a real, emerging
producer.
? GSFC’s interests aligned – securing a key part of its
expansion plans. GSFC’s fertilizer products are mainly nitrogen-
and phosphate-based. The off-take agreement helps GSFC’s plans
for increasing production capacity of its fertilizer products and to
sell imported DAP and MOP. The $45 million investment is
affordable, as has cash of ~$120 million (as of Sep. 30, 2012),
and generates income of ~$130 million per year.
? Reiterate BUY. We believe that KRN’s shares will benefit from
this announcement and from achieving any of the upcoming
milestones (i.e. environmental permit, debt financing), and we
see this as an opportune time to invest.