The growth story in China isn’t what it used to be, but the country still has an appetite for resources in the Americas, as demonstrated by an unnamed Chinese state-owned enterprise that is lending $10 million to Pacific Potash (TSXV: PP; US-OTC: PPOTF) to help develop its Amazonas property in northwestern Brazil.
The deal is a non-binding memorandum of understanding between the two parties, but it requires that Pacific Potash issue unsecured convertible debentures with a 37¢ exercise price per common share.
Pacific Potash says that Chinese stake in its equity will not go above 19.9% at the time of any exercise on the conversion rights. The debt would also come with a 5% interest rate and matures two years from the issue date.
Once the financing is in place it will bring Pacific Potash’s total capital raise for the year up to $16.4 million, which is a tidy sum, considering how tight capital markets have been for miners.
Money from the latest debt financing would be earmarked for developing its Amazonas basin potash-exploration program. Most of the money would go towards drilling six exploration holes, with each going to a depth of at least 1,500 metres. The company commenced the drill program on Oct. 15 and expects it to cost $12 million.
The financing comes on the heels of a cancelled merger between Pacific Potash and Cowley Mining. On Oct. 25 Cowley announced it was cancelling the deal because the companies couldn’t agree on the terms. Cowley is a private company with property adjacent to Pacific Potash’s Amazonas claims.
The Amazonas potash basin contains two known potash deposits, both discovered by Petrobras. The Arari zone has historic, non-National Instrument 43-101-compliant resources of 659 million tonnes grading 17.7% potassium chloride (KCl), and the Fazendinha zone has historic resources of 520 million tonnes grading 28.8% KCl.
Pacific says a merger with Cowley was attractive, but it now heralds the greater leverage that the debt financing offers its shareholders, as it comes with less equity dilution.
The geology at the Amazonas basin consists of three units: the lower sylvinite unit, the middle sulphate unit and the upper sylvinite unit.
Pacific Potash has 7,958 sq. km of claims in three contiguous blocks. Its properties sit 20 km and 40 km from the Arari and Fazendinha zones.
The company has 109 million shares issued and outstanding, but on a fully diluted basis that number moves up to 206 million shares. At press time the company’s shares were trading for 8¢.
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