One step closer to the dream
The analysts think that Krn is more likely than EPO to secure financing.
Karnalyte Resources ‘one step closer to dream’, secures $300m debt.
By: Henry Lazenby
14th June 2013
Updated 4 hours ago
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TORONTO (miningweekly.com) – Potash project developer Karnalyte Resources on Friday said it had engaged financial services providers BNP Paribas and Natixis (New York) as lead arrangers to underwrite project financing to the value of $300-million to be used to fund the construction and commissioning of the Wynyard carnallite project, in Saskatchewan.
The facility would be structured on an underwritten basis whereby each lead arranger would underwrite half of the facility – subject to credit approval, due diligence and satisfactory legal documentation – and would syndicate it to banks, financial institutions and other institutional lenders.
A definitive term sheet and commitment letters for the facility would be entered into once the conditions had been met.
The net proceeds from the facility, together with the $45-million Karnalyte secured from Indian strategic investor Gujarat State Fertilizers and Chemicals (GSFC) in January, would provide Karnalyte with about 60% of the total capital required to construct the first phase of the project.
Karnalyte in January inked a $45-million investment and a 20-year offtake agreement with GSFC, resulting in GSFC holding a 19.98% stake in the potash junior.
Karnalyte on Friday affirmed that it was pursuing a financing strategy for the project based on a combination of the facility and equity.
The Bank of Montreal was acting as Karnalyte's financial advisor for the debt facility.
Analysts viewed the debt facility as a positive development, with Scotiabank analyst Ben Isaacson characterising the announcement as “one large step closer to the dream”.
In a note to investors, Isaacson said he estimated Karnalyte to seek between $250-million to $275-million more of either debt or equity before it could start construction of the 625 000 t/y first phase of the Wynyard project.
“We think Karnalyte will near-certainly issue additional equity to secure the outstanding financing required to move the project forward. Given recent deals announced by Western Potash Corp and Elemental Minerals, we would not be surprised to see another foreign-owned entity step in as a second equity partner for Karnalyte - likely a Chinese group (for regional diversification),” he said.
He added that with a commitment for financing being largely sorted out and a signed off-take agreement in place, Karnalyte could begin construction by the end of the year, or by early 2014. By 2016, the company could emerge as the second independent potash producer after Intrepid Potash.
Cantor Fitzgerald analyst Peter Prattas added that this was a positive development towards mitigating Karnalyte’s primary risk factor – being the ability to finance its project.
“It is highly unlikely that a reputable institution like BNP Paribas to engage in this respect without a high degree of certainty in closing this deal,” he said in a note.
BMO analyst Joel Jackson also noted the involvement of GSFC and this potential debt package “hopefully should attract a broader institutional equity raise and/or perhaps another strategic investor, although the juni mining space remains depressed”.
Several analysts observing the Saskatchewan potash industry in March seemed to agree that Karnalyte Resources was most likely to secure financing for the first phase of its C$626-million Wynyard potash project this year.
Edited by: Creamer Media Reporter
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