RE: Salman: Sell rating and $0.40 target for WPX Can anyone point out why Salman just downgraded Western to 40 cents??!!
Thanks in Advance
Ferti
According to Salman Partners:
June 3, 2013
Announces receipt of strategic investment and off-take from Chinese entities
Event: Over the weekend, Western Potash announced receipt of a Cdn$32 million strategic investment for a 19.9% equity ownership of the company, from CBC (Canada) Holding Corp. (“CBCHC”), a wholly-owned joint-venture between China BlueChemical Ltd. and Benewood Holdings Corporation Limited. The investment is priced at Cdn$0.71 per common share representing a 15% premium to the 20-day volume weighted moving average, with CBCHC receiving right to one seat on Western's board; the private placement is expected to close on June 14, 2013.
Off-take Agreement: the equity investment is tied to an off-take agreement for the lesser of 30% or 1 million tonnes of potash annually from Western’s Milestone project. The agreement is for a 20-year term, with automatic five-year renewal periods until one of the parties chooses not to extend.
Investors: China Blue is a subsidiary of China National Offshore Oil Corporation (“CNOOC”), the largest offshore oil and gas producer in China. Benewood is a wholly-owned subsidiary of GUOXIN International Investment Corporation Limited, a Hong Kong registered investment company.
Comment: We view the investment and off-take agreement as positive for Western, to the extent that the cash infusion will allow the company to keep the lights on for some time. However, we note that the investment amount is only around 1% of the enormous Cdn$3.3 billion estimated Milestone project capex. In the Saskatchewan basin, we continue to prefer Karnalyte Resources Inc.'s (KRN - TSX; Cdn$7.10; BUY) Wynyard project, due to its phased development approach and relatively low initial capex of Cdn$600 million. We continue to believe that in the current financing environment only the best quality potash assets, or those with a unique appeal to strategic investors, have the potential of being financed through to production.
We maintain our Cdn$0.40 per share 12-month target price with a SELL recommendation on the shares of Western Potash Corp.
Analyst Coverage: Andrea Rubakovic