Vancouver – A $26-million financing is giving MagIndustries (MAA-V) enough cash to continue phase I construction at its Kouilou potash project in the Republic of Congo (DRC) until the company can conclude on-going negotiations for a major debt financing deal.
MagIndustries is selling 62.15 million shares for 42¢ a piece in order to raise $26.1 million. An overallotment option, exercised in full, could boost proceeds to $30 million. The company says all funds raised will all go toward phase I construction at Kouilou, including building of a portion of the natural gas pipeline, purchasing materials and equipment, and accelerating engineering work.
Kouilou is one of the largest greenfield potash projects in the world. The project hosts 33.5 million tonnes of potassium chloride (KCl) reserves, sufficient to support 600,000 tonnes of production annually for 54 years. MagIndustries plans to build a facility of that size and then double its capacity in the first few years of operation so as to produce 1.2 million tonnes of KCl each year.
Over the last year MagIndustries has made great strides in bringing Kouilou towards development. In late 2008 the company signed a 25-year deal with the Congolese government that granted MagIndustries exclusive rights to develop and mine Kouilou. The deal came shortly after a feasibility study gave the project a net present value of US$1.2 billion, using a 12% discount rate, and a 19% internal rate of return.
The valuation and return may be high but so are the capital costs. The study pegged total capital costs – including the expansion to 1.2 million tonnes annual production – at US$1.4 billion. Of that, phase I is expected to cost US$723 million, phase II adds US$423 million, and financing throws in another US$257 million.
MagIndustries says it is advanced discussions with a group of international project finance institutions to secure the debt financing portion of Kouilou’s capital costs. The company says it plans to finance 70% of the costs through debt financing; to that end it is seeking “not less than US$800 million.” The parties are currently conducting due diligence.
And the debt financing agreement will be supported by an off-take agreement with Swiss firm Ameropa AG that covers the marketing and sale of 100% of the first phase of potash production, meaning 600,000 tonnes annually, and the second phase increase when and if it comes online.
MagIndustries also inked a deal in late 2008 for the drilling of the first 50 production wells; that work is already underway. Pre-construction activities at the plant site have also commenced, such as tree cutting and preliminary earthworks.
And in March the company signed a gas supply agreement with Italian oil and gas producer Eni Congo that will see Eni supply Kouilou from its own yet-to-be-built treatment plant 25 km southwest of Kouilou. The two companies are now working together on engineering the pipeline.
The potash at Kouilou is contained in four horizons, each 7 to 24 metres thick, that sit 400 to 1,000 m below surface. The mineralization is amenable to solution mining, which is where heated water introduced to the carnallite mineralization via deep boreholes preferentially dissolves the carnallite, leaving other unwanted minerals behind. The returning water, known as brine as it is loaded with dissolved magnesium, potassium, and sodium chlorides, is recovered and processing induces product recrystallization. Spent caverns are filled with surplus sodium and magnesium chloride brines for stabilization.
MagIndustries expects to start full construction later this year, achieve initial production in late 2011, and hit full phase I production capacity by mid-2012. The project is owned by MagPotasses, which in turn is owned 90% by MagIndustries and 10% by the government of the Republic of Congo.
The project sits 25 km from the city of Pointe-Noire, which serves as the country’s industrial capital and is home to a deep-water port.
On news of the $26-million financing MagIndustries’ share price fell 6.5¢ to 44.5¢. The company, which has several other divisions including MagForestry, MagEnergy, and MagMetals, has a 52-week trading range of 16.5¢ to $3.72 and has 288 million shares outstanding.