Gensource Potash Inks Deal to Advance Vertical Integration Strategy

- April 7th, 2016

This Wednesday, Gensource Potash announced it had signed an asset purchase agreement and term sheet for an offtake agreement with Yancoal Canada Resources, a move that ties directly into the company’s vertical integration strategy.

This Wednesday, Gensource Potash (TSXV:GSP) announced it had signed an asset purchase agreement and term sheet for an offtake agreement with Yancoal Canada Resources, a move that ties directly into the company’s vertical integration strategy.
The agreement includes the purchase of two potash exploration permits, conditional upon their conversion into mining leases, for a purchase price of $2,480,000 payable in two installments. The projects lie fairly close to Gensource’s Lazlo project, and is hosted within the same geological structure. No doubt, that could potentially be a boon for project development.
However, for Gensource president and CEO Mike Ferguson, it’s the term sheet for an offtake agreement that’s more exciting. “The offtake agreement is actually a more valuable item in the long term than the actual assets are, we believe,” he said in an interview with the Investing News Network.

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Ferguson pointed out that Yancoal is a subsidiary of China’s Yanzhou Coal Mining (NYSE:YZC). “It’s a very large organization, with international marketing and logistics capability, that has made own decision to get into the potash business,” he said. “So the fact that they are providing an offtake agreement for this small project is very exciting for us, and we think its very important to the execution of our business plan.”
As mentioned in Thursday’s release, Gensource is focused on ensuring that any product is “pre-sold” before it develops a potash project to any great extent. Thursday’s agreement includes a term sheet rather than an actual offtake, but Ferguson noted that the agreement is conditional on the two companies negotiating a formal offtake agreement within the closing time frame.
As Ferguson explained, an offtake agreement could be a potential benefit to Yancoal as it moves to establish itself in the potash business. “Yancoal has a very large land position in Saskatchewan, and they are currently creating their own project,” he said, referring to the 2.8 million tonne per year Southey potash solution mine. Right now, Yancoal is currently building out its potash business to market its product.
“That’s where we fit in,” he added. “Our planned production is … less than a tenth of what their planned production is. So, adding ours to their represents only a small additional increment, so it fits. Potentially, Gensource’s production could begin earlier, too.”
That’s exciting, especially for newly purchased projects, but Ferguson also stressed that Gensource still plans to stay focused on developing its Lazlo project as well. “The two are quite synergistic. We’re absolutely not shifting focus away from the Lazlo project area,” he said. “We see the two as quite independent. The Yancoal properties give us a second independent project area, and a second independent market partner.”
Ferguson stated that while Gensource hasn’t completed a full offtake for the Lazlo project yet, the company is working with separate groups in Brazil and India to get to an agreement.

In terms of what investors can expect next, Ferguson stated that Gensource will move to quickly towards resource estimates and prefeasibility studies for the projects, noting that Yancoal has already collected a significant amount of geological data on both properties. “I think we probably have to drill one more hole on these two permits to arrive at a formal, 43-101 indicated resource estimate,” he said. “And because we’ve completed most of our engineering already with that 43-101 resource, we’ll arrive at essentially a prefeasibility level study.”
Ferguson added that the company hopes to publish a prefeasibility-level study for the projects in mid to late summer.
Shares of Gensource were up 11 percent on Thursday to $0.05. Roughly 217,450 shares of the company traded hands, higher than its 173,739 daily trading average. Gensource has a market capitalization of 7.65 million and has traded within a 52-week range of $0.04 to $0.07.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 
Editorial Disclosure: Gensource Potash is a client of the Investing News Network. This article is not paid for content.

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