June 28, 2012 / 3:19 PM / 5 years ago

Western Potash ends talks with investor, shares plunge

5 Min Read

(Reuters) - Shares of Western Potash Corp WPX.TO remained sharply lower on Thursday as the company confirmed that it had ended talks with a potential investor, raising concerns about when it can get into production.

By mid-afternoon, shares of Western Potash were down 21 percent. Shares of Karnalyte Resources Inc KRN.TO, another junior Canadian potash company, recovered to be off 2 percent, after being down about 14 percent around midday.

Both companies are seeking investors to build potash mines in the Western Canadian province of Saskatchewan. "Junior" is an industry term that generally refers to a potash exploration and development company that does not yet have a mine in production.

Andrea Rubakovic, an analyst at Salman Partners, said Western Potash stock came under pressure early on Thursday from market talk that a deal with a potential Chinese investor fell through. Investor concerns spilled over into the stocks of other junior potash companies like Karnalyte.

John Costigan, Western Potash vice-president of corporate development, later on Thursday confirmed the company had recently ended negotiations with one potential investor, but said it continues to talk with others.

"We're moving on to someone we've had negotiations with for nine months, so we're pretty deep in negotiations," Costigan said in an interview. "Somebody seems to have made a pretty big deal out of this."

Ron Love, Karnalyte's chief financial officer, said there had been no change in the company's project and was at a loss to explain the steep fall in the shares.

"The poor market has something to do with it." said Love. "People have shied away from junior development companies and risk."

On Wednesday, the world's biggest producer of the crop nutrient, Potash Corp of Saskatchewan Inc (POT.N) (POT.TO), said it did not expect any new mines to start production in the next five years.

Potash Corp CEO Bill Doyle's comments may have hurt the junior companies' shares, but they are similar to statements he has made previously, suggesting other factors in the drop, said analyst Robert Winslow of National Bank Financial, who has an "underperform" call on Western.

In a webcast on Wednesday, Doyle singled out a print advertisement from one potash company, which he did not name.

"There was ... a paid ad by one of these promoters, and they showed the fellow sponsoring the project at the mine site," Doyle said. "He was standing in a field of grain. There's no mine, no construction, there's not even any equipment, and he says he's going to be on by 2015."

Western Potash, which was the subject of the ad, is aiming for a 2016 startup of a solution mine, a water-based extraction system that requires less time to build than a conventional mine, Costigan said.

Along with junior miners who are in the planning stages, BHP Billiton Ltd (BHP.AX) (BLT.L) and K+S AG (SDFGn.DE) have started work on potash mines in Saskatchewan.

Big North American fertilizer companies also saw their shares fall early, before trading mixed later. Potash Corp shares were higher in New York and Toronto by Thursday afternoon.

Western Potash shares were down 21 percent at 90 Canadian cents, touching their lowest price since May 22. Karnalyte fell 1.9 percent to C$6.65, bouncing back strongly after touching an all-time low.

In contrast, Rio Verde Minerals Development Corp RVD.TO shares jumped 30 percent to 24 Canadian cents after the company closed a C$12.77 million private placement at a big premium.

The deal gives it funds to develop its potash project in Brazil. The placement also made AGN, a Brazilian holding company founded by former Vale SA CEO Roger Agnelli, the major shareholder of Rio Verde, bringing a strong global network to the company, Rubakovic said.

Shares of other junior potash miners were mixed with Encanto Potash Corp (EPO.V) up 1.8 percent, and Allana Potash AAA.TO down nearly four percent.

Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Matthew Lewis and Tim Dobbyn

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