Chinese Firm to Acquire 51-percent Stake in Western Potash

There’s been a fair amount of M&A talk in the fertilizer space as of late, and another deal was announced Monday.
Specifically, China-based Beijing Tairui Innovation Capital Management agreed to make an $80-million strategic investment in Western Potash (TSX:WPX). The firm will purchase 249,989,860 common shares of Western Potash priced at $0.3213 per share — that represents a 46-percent premium over the company’s volume-weighted average price on the TSX for the 30 trading days ended July 3, 2015.
The deal will give Tairui a 51-percent stake in the company; it will also give Tairui the right to appoint four nominees to Western Potash’s board of directors. Benefits for Western Potash include the fact that the transaction will give it enough cash to fully finance its Saskatchewan-based Milestone potash project through to construction.
Tairui’s investment is also significant for Western Potash in that it comes at a time when a low potash price has made it difficult for companies to get the funding they need to bring projects online.

Positive scoping study for Milestone 
The vote of confidence from Tairui comes just days after Western Potash released a scoping study for a Pilot Plant Scale Selective Solution Mining Operation for Milestone.
Significantly, the scoping study reduces the capex for Milestone by 98 percent, bringing it down to $80.6 million. That’s compared to the $3.3 billion reported in a 2012 feasibility study. The company achieved the massive reduction by starting with a smaller potash mine operation that is expected to produce 150,000 tonnes of potash per year.
Using a price point of US$315 per tonne, the scoping study also points to an after-tax/royalty projected NPV of C$56.7 million, an IRR of 25.2 percent at a 10-percent discount and opex of C$80 per tonne. The $80 million from Tairui will allow Western Potash to bring the project into production.
“We anticipate approximately 24 months for development,” Western Potash’s president and CEO, Patricio Varas, told ResourceClips. “Obviously we need to do a little more engineering before we really tie down dates but I think in two years we could have an operation running.”
The project is located in close proximity to K+S’ (FWB:SDF1) Legacy project, which is expected to start production late next year.
Western Potash’s share price rose 20 percent, to $0.30, last week following news of the scoping study. At close of day Monday, its share price was sitting at $0.305, up a modest 1.67 percent. The transaction with Tairui is expected to close on or about August 31, 2015.
 

Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.