India backstops first phase of Sask. potash mine

Winnipeg | Reuters — India’s Gujarat State Fertilizers and Chemicals has agreed to guarantee payments on US$700 million in debt to finance the first phase of Karnalyte Resources’ Saskatchewan potash mine project, Karnalyte said Monday, adding supply even as other miners cut production.

Under the deal, a subsidiary of State Bank of India and other lenders would loan Saskatchewan-based Karnalyte most of the funds, with GSFC guaranteeing payments in exchange for a greater voting share. Karnalyte plans to make payments from cash flow and eventually issuing more shares.

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The mine — to be located at Wynyard, Sask., about 140 km northwest of Yorkton — would add supply to a struggling industry that has already seen production cuts by PotashCorp and others, due to weak crop prices and slack Brazilian demand.

According to Mosaic Co. data, potash prices in the U.S. Midwest averaged US$248 per tonne last week, down 38 per cent year over year.

But GSFC bought a nearly 20 per cent stake of Karnalyte in 2013 that included an agreement to buy more than half of the Wynyard mine’s first-phase production for 20 years.

Karnalyte has informal commitments from other potash buyers in the U.S. and Brazil for most of the rest, said president Robin Phinney.

He said Karnalyte’s mine holds an advantage over other producers because its muriate of potash will contain less sodium chloride, a compound that inhibits plant growth, and cost less to produce.

“In a normal market, our product would command a premium,” Phinney said.

Karnalyte plans to produce 625,000 tonnes of potash per year at Wynyard in phase one of a 2.125 million-tonne project. If Karnalyte shareholders approve the deal, construction could start late this year and production could begin in 2019, Phinney said.

The Wynyard project will use solution mining, a cheaper alternative to cavern mining. Under the solution process, a fluid is injected into the deposit through a drilled well. The mineral dissolves in the fluid to form a brine solution that is brought back to the surface.

Germany’s K+S is expected to open this year the first new mine in four decades in the potash-rich province of Saskatchewan.

Karnalyte has endured years of volatility, including a fight last year between former management and a group of shareholders, led by Phinney.

Karnalyte and GSFC also agreed to spin out Karnalyte’s secondary mineral assets and unexplored lands.

Rod Nickel is a Reuters correspondent covering the agriculture and mining sectors from Winnipeg.

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