Canadian potash deal shows trend among Chinese

Updated: 2013-07-05 11:38

By Eddy Lok in Toronto (China Daily)

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 Canadian potash deal shows trend among Chinese

Rocky Gibney, a mill operations superintendent, displays potash in a potash warehouse in Lanigan, Sasketchewan, Canada. Geoff Howe / Bloomberg

Chinese investment in a potash project in the Canadian province of Saskatchewan bodes well for junior mining companies in search of international financing, analysts say.

Vancouver-based Western Potash Corp, recently closed what it called was a strategic equity investment in the company by China BlueChemical Ltd and Guoxin International Investment Corporation.

Under the joint-venture deal, CBC (Canada) Holding Corp will make a strategic equity investment of $32 million in Western Potash at a price of 71 cents a share, according to a company news release.

As a result of this transaction CBC (Canada) Holding will hold a 19.9 percent ownership stake in the company on a non-diluted basis.

CBC (Canada) Holding is jointly owned by China BlueChemical Ltd and Benewood Holdings Corp Ltd. China BlueChemical is a majority-owned subsidiary of China National Offshore Oil Corporation, while Benewood is a wholly-owned subsidiary of Hong Kong registered Guoxin International Investment Corporation Limited.

In addition, the deal also includes an off-take agreement of up to 1 million tons of potash annually for 20 years from Western's Milestone project in southern Saskatchewan.

"This is not only extremely good news for Western Potash, but for other junior mining companies with mid-size projects in search of international financing," said Siddharth Rajeev, a vice-president at Fundamental Research Corp, which analyzes small and micro-cap public companies.

"This deal took many months to put together, but the investment is significant, which shows a good level of confidence by the Chinese investors," Rajeev told China Daily.

"The Chinese investors are going to be very active in this JV, but what is more important is their level of confidence in this project could trigger further financing," he said.

China and India are the world's biggest importers of potash, a plant nutrient used to boost crop yields. Saskatchewan is home to nearly half of the world's estimated potash reserves.

Western Potash's proposed mine in Milestone has the potential to produce at least 2.8 million tons of potash annually for at least 40 years, experts say.

Bill Majcher, a Hong Kong investment banker, said the deal indicates that Chinese entities are still very interested in mid-size projects around the world when it comes to potash to ensure "supply security".

While the risks and benefits of the Western Potash deal are debated, the Vancouver-based mining junior feels that it is now well-positioned to go out and get further financing and off-take agreements with other entities in Asia.

"Our strategic alliance with China Blue and Guoxin will provide Western with access to project financing, technical expertise in large-scale project construction and marketing channels for future potash sales," said Patricio Varas, CEO of Western Potash, which over the past three years has also been in on-going talks with major Indian players, including Rashtriya Chemicals and the Aditya Birla group.

"I think the true significance of this transaction is that it is a strategic investment which can lead to a financing that is non-dilutive," said John Costigan, Western Potash vice-president for corporate development. "China has been searching globally for a potash project and this is an endorsement of our milestone project in Saskatchewan."

Western Potash's Milestone project is estimated to cost between $2.9 billion and $3.3 billion in contrast to other global potash projects in the region that range from $10 billion to $15 billion.

(China Daily USA 07/05/2013 page10)