MagIndustries advances Kouilou potash project

Using a treasury with a consolidated working capital of about $105 million, MagIndustries (MAA-V) continues to advance its Kouilou potash project in the Republic of Congo. The project is 25 km from Pointe Noire in the Republic of Congo (ROC). (The Republic of Congo is not the same country as DRC, the Democratic Republic of the Congo, which has been rocked by renewed fighting.)

The Kouilou project has proven and probable reserves of 33.5 million tonnes potash, and measured and indicated resources of 35.2 million tonnes. Inferred resources stand at 209 million tonnes potash. These figures are reported after a reduction to account for losses owing to solution mining.

It is anticipated that the project will be built in two phases, each rated to produce 600,000 tonnes potash per year, for a total production capacity of 1.2 million tonnes.

The project is being advanced via a subsidiary, MagMinerals Potash, which holds $100 million of the combined $105 million in working capital, while MagIndustries itself holds $5 million.

A key component of the Kouilou project is an agreement with the ROC government to supply free natural gas to the project for 25 years. This is crucial to the project economics, since solution mining is energy-intensive. The company will have to build and operate the infrastructure to deliver the natural gas.

An agreement in principle with the government for the free natural gas is in place, and MagMinerals Potash is currently finalizing the technical details. The company is hoping to finalize the agreement in early 2009. Another key component is an agreement with the ROC government to give the project a 16-year tax holiday.

The project will cost US$1 billion, of which 30% is equity and the rest is anticipated to be raised as debt. Since US$90 million has already been spent, and the company will use some of its existing working capital in the project, MagIndustries is planning to raise another US$120 million in equity. The company believes that once this is completed, the financial institutions slated to provide the debt financing will advance the loan.

If financing can be lined up, construction of phase 1 is scheduled to start in early 2009, and production should start at the end of 2011.

In October, MagMinerals Potash signed a 12 million euro, 24 month contract with Foraco International to drill production wells on the project. The company has also signed an $8 million contract with Socofran to build warehouses in the Poine Noire harbour.

MagIndustries owns about 69% of the 139.5 million shares of MagMinerals Potash, and is in the process of taking the subsidiary public on the TSX or the TSX Venture exchange, with a target date of December 31, 2008 for the public listing. If MagMinerals Potash is not taken public, its shareholders will receive MagIndustries shares in place of their stake in MagMinerals Potash.

MagIndustries has 197.5 million shares outstanding, and 287 million shares fully diluted. The majority of the approximately 90 million extra shares are those which could be issued to MagMinerals Potash shareholders in case it is not taken public.

NOTE: This is a corrected version. The measured and indicated resources have been corrected.