February 1, 2010 / 5:20 PM / 8 years ago

MagIndustries signs deal with Complant, shares up

* Complant to finance construction of Mengo potash project

* Shares up 7.7 percent in midday trade (In U.S. dollars unless noted)

By Euan Rocha

TORONTO, Feb 1 (Reuters) - Canadian potash explorer MagIndustries MAA.TO said on Monday it has signed a project development agreement with the China National Complete Plant Import & Export Company Ltd (COMPLANT) to further its Mengo potash project in the Republic of Congo.

The company plans to construct and commission a 1.2 million tonne per year potash plant that will supply the key crop nutrient to South America, South Africa, South Asia and Europe.

MagIndustries plans to begin production at the facility in 2012 and has for some time been scouting for a strategic partner that will help finance and develop the project.

Costs for constructing potash mining and production facilities are typically prohibitively high and exploration companies are hard pressed to arrange the necessary finances.

MagIndustries and Complant will sign a definitive agreement by July, once a due diligence process is complete and certain milestones are met. The agreement is subject to government and shareholder approvals in China and Canada.

MagIndustries shares were up 7.7 percent at 56 Canadian cents following the announcement.

Complant will arrange all necessary financing for the engineering, procurement and construction of the project. The preliminary agreement between both parties provides for a $1.2 billion loan facility payable over a minimum of 10 years.

The agreement also gives Complant an option to acquire a 50.1 percent stake in the project further down the road.

A slew of potash exploration companies have emerged over the past year after the price of potash skyrocketed in 2008. The price of the essential crop nutrient has since fallen, but it still remains well above the historical average. [ID:nN18138648]

Huge profits booked by existing potash producers have also attracted big mining giants like Brazil’s Vale (VALE5.SA) and BHP Billiton (BHP.AX)(BLT.L) to the sector.[ID:nN20132301]

BHP, the world’s largest mining company, said on Thursday it would acquire Canadian potash explorer Athabasca Potash API.TO for C$341 million ($323 million) in cash, expanding its asset base in the potash-rich Canadian province of Saskatchewan. (Reporting by Euan Rocha; editing by Peter Galloway)

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