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KarnalyteResources Inc. (TSX: T.KRN, Stock Forum) (82 cents)
www.karnalyte.com
Shares outstanding: only 27 million
Net Cash: $43 million / $1.59 per share
I am not banking on a company like KRN to generate big returns in a few months - I am currently using them to help with capital preservation during rough markets. That doesn’t mean to say Karnalyte isn’t capable of generating big returns in 2015, I just view them more conservatively at this stage.
For the most part, KRN is a boring stock with a LOT of (severely discounted) cash and a great share structure that would move quickly in a more positive market environment - or with material news.
The company owns a large underground potash resource in Saskatchewan that is deemed completely worthless by the market (because the stock trades so far below cash value). In this case a person is simply buying the grossly discounted cash and hoping for a recovery in potash or the junior market in general.
One of India's largest fertilizer companies (GSFC) financed KRN in January 2013 by paying $45 million for a 20% interest. A far cry from the current scenario! This also included a take-or-pay off-take agreement for 350,000 tonnes of the phase I production
https://www.gsfclimited.com/
Gujarat State Fertilizers & Chemicals Limited (GSFC) is an Indian manufacturer of fertilizers and Industrial Chemicals. GSFC was founded in 1967 and manufactures fertilizers, plastics, nylons, fibers, industrial gases and varied chemicals.
The economics of the potash industry have changed dramatically since 2013 but the following analyst insight will shed some light on what this stock previously looked like. It is hard to imagine KRN currently trades at half the cash value - leading me to belief this is a strong bottom fishing opportunity even in a lousy market environment.
There is a good video on their home page plus this corporate presentation provides more due diligence:
https://www.karnalyte.com/_resources/presentation.pdf
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BMO Capital Markets:
May 21, 2014
Karnalyte Resources
(KRN-TSX)
Stock Rating: Market Perform(S)
Target Price: $1.75
Highlights from the BMO Capital Markets Farm to Market Conference in New York:
Presentation Highlights:
• KRN provided an update on the development of its 625kt Wynyard Saskatchewan solution-mining potash greenfield, at which the company continues to perform detailed engineering, with Wynyard already having completed a feasibility study and received environmental approval.
• The company reiterated its 2016 target for initial production of 625kt, ramping to 2.125Mt in 5-6 years (BMO currently assumes a 2018 start-up for modeling/valuation purposes).
• KRN maintains a $626M capex estimate for the initial 625kt mine (including $40M for warehouse capacity), and around $2B for the fully ramped operation, as well as $125-129/t for opex. KRN reminded us of the $45M investment by Gujarat State Fertilizers and Chemicals, and the signing of an engagement letter for an additional US$300M in project debt.
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2013 ANALYST TARGETS OF $14 and $16 on KRN MISSED BY A COUNTRY MILE
(KRN at the time was trading at $7.90)
https://www.miningweekly.com/article/karnalyte-resources-saskatchewan-project-most-likely-to-secure-financing-2013-03-19
In February, BMO Capital Markets analyst Joel Jackson said that, against a backdrop of depressed mining stocks, challenging equity markets and investor concern that there is a general rising surplus in global potash production, Karnalyte was the most advanced potash junior and most likely to secure mine financing.
On Tuesday, Salman Partners analyst Andrea Rubakovic maintained a ‘buy’ rating on the company’s stock and a $14 price target.“In our view, this project in the Saskatchewan basin is one of the most likely to be financed through to production,” she said in a note to clients.
Fraser Mackenzie analyst Wojtek Nowak - “Overall, we view the funding requirements as manageable relative to other peers who do not have a strategic partner or have larger upfront capex needs.”
Nowak maintained his ‘top pick’ rating and a $16 price target.
_** TWITTER NOTE: I maintain a twitter page at - twitter.com/tsxalerts
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Disclosure: Danny Deadlock owns 40,000 shares of KRN purchased in the open market during 2014.
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