Gensource Potash Corporation (TSXV: GSP) announced on September 2, 2021 an update on the financing, development and future structure of its Tugaske Project in Saskatoon, Canada.
Highlights
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- Gensource has formed a Special Purpose Vehicle (“SPV”), which will finance, own, construct and operate the Tugaske Project;
- The SPV is called KClean Potash Corporation (“KClean”) and will be owned by Gensource and HELM (“HELM”: HELM AG and its North American subsidiary, HELM Fertilizer Corp.) following final equity investments;
- As a part owner of the SPV and as project offtaker, HELM has committed to invest CAD $50 million into the 250 kt/a Tugaske potash production project, contingent upon the remaining equity and debt financing for the SPV being successfully completed and HELM’s board approval. The investment commitment represents an increase over previously discussed amounts and will occur at financial close;
- Mandated senior debt lead arrangers to the project, KfW IPEX-Bank and Societe Generale, are progressing with their respective credit approval processes;
- The fertilizer market is currently buoyant, with prices for most products having increased at least 50% over the past twelve months, whilst food security concerns continue to highlight the need to provide key macronutrients at affordable prices
“We are excited to achieve this next important milestone for the Tugaske Project. The equity investment commitment by the project’s offtaker, HELM, reaffirms Gensource’s fundamental business proposition of creating new and direct supply chains in the potash industry, to help begin the transition of the industry to more of a manufacturing model rather than the conventional “bulk mining” model,” said Mike Ferguson, president & CEO of Gensource. “When we launched Gensource several years ago, our vision was to help achieve food security by supplying the world with a key macronutrient at an affordable cost through a new supply chain that is open, transparent, and sustainable. Today we are one step closer to realizing that vision with the founding of KClean Potash Corporation.”
Formation of KClean Potash Corporation
The Tugaske SPV has now been incorporated and is named KClean Potash Corporation (“KClean”). KClean is a Saskatchewan corporation and is the entity that will finance and ultimately own, construct and operate the Tugaske Project. The Tugaske Project itself involves the use of the latest innovative selective solution mining and processing methods to create an efficient, modular, scalable and environmentally sustainable potash production facility, sized appropriately for local communities. By using its selective solution mining technology, the Tugaske Project will have lower impact on air, water, and land compared to conventional potash mining methods, with significantly lower freshwater use, no salt tailings and no brine ponds. KClean will own the Tugaske Project, which will be the first production module on Gensource’s Vanguard Area located 170 kilometres south of Saskatoon and only 360 kilometres north of the US-Canada border.
With HELM’s increased cash equity commitment as well as other tangible contributions it is making to support the overall financing of the Project, it is anticipated HELM will ultimately own 33 per cent of KClean and Gensource is anticipated to own the remaining 67 per cent through its paid-in capital (i.e., the value of Tugaske Project assets assigned to KClean) and cash equity investments.
Given the defined proven and probable reserves and measured and indicated resource in the Vanguard Area (as disclosed in the company’s news release dated 22 March 2021), Gensource anticipates implementing several potash production modules over the course of the next decades. The company believes that the cost of potash production from its modules will be within the lowest quartile of potash producers worldwide.
HELM offtake agreement
HELM, as the project’s offtaker, is committed to purchasing 100 per cent of the production for a period of 10 years, renewable thereafter. HELM will market the potash directly to its customer base, providing KClean Potash Corporation with the competitive advantage of a direct and efficient delivery network from the mine site to retail. The modular nature of Tugaske will also allow for nimble and capital- efficient future supply additions to meet market demands, without the need for the multi-billion-dollar mega-projects the industry has suffered from up to now.
Senior Debt Update
The senior debt financing package for the Tugaske Project, being arranged by joint lead arrangers KfW IPEX-Bank and Societe Generale, is expected to be for up to CAD $280 million with the financial model supporting the robust economic viability of the project. As highlighted in past news releases, all due diligence reports from external consultants for the assessing the technical and commercial merit of the Tugaske Project, its risks and its financial returns required by senior lenders are in final form and supportive of a favourable credit assessment. Gensource will provide further updates soon with respect to the senior debt financing for the Tugaske Project.
Fertilizer Market Update
Fertilizer prices have increased dramatically over the past year, with prices of major fertilizer products throughout North America increasing by over 50 per cent. The average retail potash (MOP) prices across the United States increased from $380 per metric tonne in 2020 to $661 per metric tonne, 2021 to date, increasing $280 per tonne or 73 per cent. The last time the potash price was above $600 per tonne was in November 2012.
*Prices shown in the above chart are in $US and quoted in short tons. Source: Progressive Farmer-DTN
“I’m very encouraged to see a robust fertilizer market as we continue to achieve our key milestones towards commencing the construction of the Tugaske Project,” added Ferguson. “The presence of today’s higher prices will, no doubt, bring additional new potential projects to the industry, however, it is important to note that Tugaske does not rely on the current high prices to be economically sound. Tugaske was developed under much lower potash pricing scenarios than we are seeing today and shows robust economics at both low and high pricing environments, this is one of many fundamental and differentiating strengths of the project.”
About HELM
HELM, founded in 1900, is a privately-owned company based in Hamburg, Germany. HELM is one of the world’s largest chemical marketing companies and guarantees access to the world’s key markets through its specific regional knowledge and more than 100 subsidiaries, sales offices, and participations in over 30 countries. HELM AG employs approximately 1,600 staff.
As a multifunctional marketing organization, HELM is active in the chemical industry, the crop protection industry, and the active pharmaceutical ingredients and pharmaceuticals industries as well as the fertilizer industry.
HELM’s fertilizer business unit was started in 1972 and has developed into one of the world’s largest independent global logistics and marketing networks. HELM distributes fertilizer in its core markets of Europe, North America and Latin America. Within the US market, HELM Fertilizers is counted as one of the top five fertilizer companies in North America in terms of its storage facilities, distribution hubs, long-term transport contracts and end-user customer networks.
To serve the needs of the customer, HELM has recently increased its portfolio of storage facilities close to the agricultural markets in the US.
Learn more at https://www.helmag.com and https://us.helmcrop.com.
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