China makes strategic investment in Canadian potash miner

Chinese investment firm Beijing Tairui Innovation Capital Management Ltd has agreed to invest C$80 million to acquire a strategic 51-per cent stake in junior Canadian potash miner Western Potash Corp, making its foray into the global potash market.

Under the terms of the deal, Beijing Tairui will acquire 249 million shares of Western Potash for C$0.3213 per share. The offer price represents a 46-per cent premium over the 30-day volume weighted average price of the stock up to 3 July 2015 on the Toronto Stock Exchange (TSE).

Proceeds from the Chinese investment will be used to develop a pilot scale solution mining operation in the Milestone deposit.

The news follows just days after German salt and chemicals major K+S rebuffed an $8.8-billion takeover attempt by Canadian giant Potash Corp of Saskatchewan due to inadequate valuation for the company. (See: Germany's K+S spurns $8.8-bn takeover offer from Canada's PotashCorp).

Vancouver-based Western Potash is an exploration and development stage company with properties in Canada and Brazil.

The miner's main asset is its world-class Milestone potash deposit near Regina in southern Saskatchewan, in close proximity to K+S's Legacy project, which Potash Corp targeted.

Western Potash has already received the environmental approval for the Milestone project from the provincial government.

With the Chinese involvement, the company is set to go into production, side by side with K+S's Legacy project, which plans to go on stream late next year.

Western Potash has cut down its capital expenditure by a drastic 98 per cent to C$81 million from the initial C$3.3 billion, bringing down output level to a mere 200,000 tonnes per year compared to Legacy's C$4-billion investment targeting a production level of 2.9 million tonnes.

However, with anticipated high profit margins, Western Potash believes that its production rates could be scaled up any time to comparable levels of Legacy depending on market demand.

According to analysts, Western Potash is the wild card in potash space, which the Chinese would like to keep up their sleeve, especially in negotiating potash prices with western producers.

Beijing Tairui is a private equity firm with its focus on the energy and mining industries.

Western Potash earlier raised over C$140 million, from institutional and retail investors including an initial public offering in 2008.

CBC Holding Corp (CBCHC), a joint venture between China BlueChemical Ltd and Benewood Holding Corp, owns approximately 20-per cent stake in Western Potash.

China BlueChemical is a large-scale producer of fertilizers and chemicals, majority owned by Chinese petroleum giant China National Offshore Oil Corp (CNOOC), while Benewood is a wholly-owned subsidiary of Chinese state-owned investment firm Guoxin.

The transaction is expected to close by the end of August 2015 subject to customary closing conditions including the approval of the TSE.

Under the terms, the Chinese firm will have the right to appoint four board members of the potash company.