Laurentian Bank has released an analyst report on Karnalyte
Resources, keeping a "Speculative Buy" rating and $15.50 target
price. It said:
Event: "Gujarat State Fertilizers & Chemicals Ltd. (GSFC)
plans to purchase a
19.98% interest in Karnalyte for $45 million. A foreign
investment could support the attractiveness and production
potential for Karnalyte's proposed potash mine in
Saskatchewan."
Highlights: "Karnalyte will issue 5.5 million common shares at
$8.15/share in a private placement. Closing is expected by February
25, 2013. GSFC agreed to
commit an additional $15 million as part of potential future
public equity
financings to maintain their pro rata ownership level. In
exchange, GSFC will enter into a 20-year off-take agreement for the
purchase of 0.4-0.6 million tonnes/year of KCl produced by
Karnalyte at a blended Vancouver FOB market price and published
India contract price. GSFC has the right to appoint one Board
member to Karnalyte. If Karnalyte does not commence commercial
production by October 1, 2016, an additional 0.6 million shares may
be issued to GSFC. Including the potential cash injections, we
estimate Karnalyte will have $90-
95 million in cash. A subsequent equity or debt financing or new
institutional
partners will be needed to fund our estimated 2013 capex of $450
million for
mine construction. We estimate the initial 1.4 million tonnes
planned KCl production level may be reached in 2018 and 2.1 million
tonnes by 2020."
Catalysts: "Catalysts include new institutional partner
investors and in Q2/13,
Karnalyte may receive environmental approval for its potential
potash project."
Key Risks: "Key risks include regulatory, environmental,
financing, interest rate, and commodity prices."
Valuation and Recommendation: "We are maintaining our
Speculative Buy
rating and $15.50 target price based on 1x NAV. Karnalyte trades
at 0.6x NAV/share, slightly above our coverage universe of
potential fertilizer producers. Karnalyte remains one of the few
potash developers with a completed feasibility study and this may
enhance production potential or merger and acquisition
activity."