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
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."
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