RPT-UPDATE 2-Karnalyte lands India investor for Canada potash mine

Thu Jan 10, 2013 3:31pm EST
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(Repeats story published late Thursday; no changes to text)
    * India's GSFC to buy 20 pct stake, assures potash supplies
    * Saskatchewan mine would compete against Potash Corp
    * Karnalyte shares jump as high as 21 pct

    By Rod Nickel
    Jan 10 (Reuters) - Tiny Canadian mining company Karnalyte
Resources has landed a small but highly strategic
investment from India, likely reducing that country's future
dependence on Canpotex, the marketing arm for North America's
dominant potash sellers.
    Gujarat State Fertilizers & Chemicals Limited, an
Indian farm business that makes fertilizer and industrial
products, will buy a stake of nearly 20 percent in Karnalyte for
C$45 million ($45.5 million), or C$8.15 per share. 
    GSFC will invest a further C$15 million in the next round of
public equity financing, making it more likely that Karnalyte's
planned potash mine will win the funding it needs go ahead.
    Karnalyte shares jumped as much as 21 percent in Toronto
before trading in late morning up 9 percent at C$8.74. GSFC
closed down more than 3 percent on India's National Stock
    GSFC also agreed to buy 350,000 tonnes of potash per year
for 20 years, or more than half of the output from the first
phase of Karnalyte's planned potash project near Wynyard,
Saskatchewan. The off-take agreement increases to 600,000 tonnes
per year once phase 2 is built.
    "At present, India is fully dependent on imports of potash,"
 Atanu Chakraborty, managing director of GSFC, said in a
statement. "This is a significant partnership by an Indian
fertilizer manufacturing company with a potash mining company
abroad to procure high quality potash for the Indian market."
    India imported 4.6 million tonnes of potash in 2011,
according to data compiled by Scotiabank.
    Karnalyte's mine would be small compared with those operated
in the resource-rich province by giant fertilizer companies
Potash Corporation of Saskatchewan Inc, Mosaic Co
 and Agrium Inc. But if the mine is built it
would be the first in Saskatchewan with such significant
influence by investors from China or India, the world's two
biggest importers of the nutrient used to boost crop yields.
    Fertilizer makers in those countries import much of their
supplies from Canpotex Ltd, the offshore marketing arm for
Potash, Mosaic and Agrium, or BPC, which performs the same role
for Russia's Uralkali OAO and Belaruskali of Belarus.
    Karnalyte would operate independently, as would mines under
construction in Saskatchewan by Germany's K+S AG and
Anglo-Australian miner BHP Billiton Ltd .
    "If this is an indication of major purchasers like India
moving outside of the cartel, that has long-term negative
implications for Canpotex," said analyst Peter Prattas of Fraser
Mackenzie, noting that the agreement won't make much impact in
the near future.
    The Indian state of Gujarat holds a more than one-third
stake in GSFC and is its biggest shareholder, according to
Thomson Reuters data.
    The deal, announced by the companies early on Thursday, is a
premium of less than 2 percent over the last traded price for
Karnalyte on Tuesday before trading was halted the following
day. But it is a 20 percent premium to the volume-weighted
average price for the 20 trading days that ended Dec. 20. 
    The stock has risen sharply in recent days.
    Karnalyte's solution-based mine would cost C$600 million in
the first phase and produce 625,000 tonnes of the crop nutrient
per year, starting in 2015. 
    The funds combined with the buying commitment from GSFC -
subject to Karnalyte's project gaining Saskatchewan approval on
environmental grounds - will make raising the remaining capital
through debt and equity far easier, Prattas said.
    "All of a sudden, in our view, this has greatly reduced the
financing risk."
    Karnalyte's options for raising its remaining financing are
"wide open," said the company's chief financial officer Ron
Love, but include potentially taking on another strategic
partner. A handful of large Indian companies buy Canadian
potash, including Coromandel International Ltd, Tata
Chemicals Ltd, Zuari Agro Chemicals Ltd and
Indian Farmers Fertiliser Co-operative (IFFCO).
    Karnalyte's second phase would take production to 2.125
million tonnes of potash per year.
    The deal represents a shift toward potash by GSFC, which
currently buys only about 100,000 tonnes of the nutrient
annually, and mainly distributes urea and phosphate.
    Karnalyte is competing with Encanto Potash Corp and
Western Potash Corp for funds to launch Canadian potash
mines. Shares of Western rose 3 percent, while Encanto was flat.
    The trio of so-called junior miners owns the right to mine
potash reserves in Saskatchewan, but lacks capital. 
   The appeal of potash to investors, a soil nutrient used
worldwide to boost crop production, has grown in recent years
with population and income growth in developing countries. But
the world's biggest miner, BHP Billiton, has delayed a decision
on proceeding with its own Saskatchewan potash mine amid
difficult economic conditions, and some analysts say there is
too much global potash production capacity being planned.
    BMO Capital Markets advised Karnalyte, while
PricewaterhouseCoopers Private Limited advised GSFC.
    ($1=$0.99 Canadian)

 (Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by
Maureen Bavdek, Nick Zieminski and Sofina Mirza-Reid)