Analyst Actions: Laurentian Bank Keeps Rating, TP on Karnalyte Resources

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."

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

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

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