Analyst Actions: Karnalyte Resources Still a Top Pick at Fraser Mackenzie

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Karnalyte has closed its private placement with Gujarat State Fertilizers and Chemicals (GSFC). "The parties have closed the previously announced equity financing, with Karnalyte issuing 5.49mm shares to GSFC at $8.15, for total proceeds of $44.7mm. GSFC now holds 19.98% of the stock, and retains a right to maintain its ownership share in future financings. GSFC has already committed $15mm to future financings. GSDC has also agreed to an offtake for 350,000 t/yr from Phase 1 (56%) and 600,000 t/yr from Phase 2 (28% of fully ramped production) for a 20-year term, at market prices (FOB Vancouver) on a take-or-pay basis."

GSFC has also appointed a board member. "Vishvesh D. Nanavaty joins Karnalyte's board as a director. Mr. Nanavaty is General manager, Finance and former Corporate Secretary of GSFC."

Discussion: "We believe Karnalyte is in a strong position to finance its project. Phase 1 of the project (625,000 t/yr) is expected to cost around $600mm, which we assume will be split evenly between debt and equity. The company had $29mm in cash as of Q3 and $45mm from GSFC, leaving ~$225mm of equity to be funded. GSFC could account for another $45mm (maintaining a 20%

share), while the remaining $180mm could come from another strategic partner and/or outside investors. Overall, we view the funding requirements as manageable relative to other peers who do not have a strategic partner or have larger upfront capex needs."

Recommendation: "We maintain a TOP PICK recommendation and $16.00 target price. We base our target on a 0.5x multiple against a $28.47/share NAV calculation using a 13% discount rate and adding $1.86/share of net cash (on a fully diluted basis). We are transferring coverage of Karnalyte effective immediately to Wojtek Nowak, Analyst and Julie Paulson, Associate."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright (C) 2014 MTNewswires.com. All rights reserved. Unauthorized reproduction is strictly prohibited.


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