Fraser Mackenzie has released an analyst report on Karnalyte,
with the company's stock as its "Top Pick." It said:
"This morning, Karnalyte announced the Saskatchewan Ministry of
Environment (MOE) has approved the Environmental Impact Statement (
) for Karnalyte's Wynyard Carnallite Project. EIS approval is
essential to the advancement of the project, and was a condition of
the $45 million strategic investment by Gujarat State Fertilizer
and Chemicals (GSFC) previously announced in January 2013. The
company is now in a stronger position as they actively pursue
additional funding opportunities to enable the start of Phase I of
the Project's construction in the second quarter of this year.
Karnalyte will now focus on obtaining the permits required to
initiate construction while continuing detailed engineering
activities and finalizing site preparation.
"We expect the company will be moving forward on arranging
funding for the development. Development capex for the project is
US$2 billion to get to 2.125 million tpa of production with a Phase
1 requirement of around US$600 million. While the company will
attempt to maximize the debt component, we assume a base case for
debt being half of the CAPEX requirement which leaves a balance of
$300 million equity which plausibly could largely be financed from
cash ($29 million), this GSFC investment ($45 million), GSFC
maintaining its pro-rata interest (say $45 million), possibly a
second strategic investor (say $45 million) and existing leading
institutional holders leaving a balance of less than $100 million
to be raised from additional sources.
"We reiterate our bullish stance on KRN which we believe to be
the worldâs most attractive potash play to have surpassed the BFS
stage. The project boasts exceptional merits including a prime
location (Saskatchewan), a high quality potash product, a low cost
profile (most notably low CAPEX) and a high after-tax IRR (21.4%).
The project has material upside beyond this study including
substantial optimization (potential to materially reduce OPEX) and
co-product opportunities (a magnesium PFS shows a $262 million
after-tax NPV = or $11/share).
"Overall, we view this as a positive step in further advancing
the project. We continue to recommend KRN as our Top Pick and
maintain our C$16.00 target price. We base our target on a 0.5x
multiple against our $28.47 per share NAV calculation using a 13%
discount rate and adding $1.86 per fully diluted share of net cash
(on a fully diluted basis). We foresee large upside beyond our
target as the company moves into production and ramps up to a 2.125
million tpa operation while possibly adding a secondary product
line (magnesium). We believe the cash flow from an operation of
that magnitude is supportive of a stock price eventually near $100
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