Western Potash gets $15M for Milestone [Update]

Western Potash (WPX-T) aims to enhance its liquidity by raising $15 million in a non-brokered private placement. And it’s a move that was not well-received by investors.

On Oct. 2, the day following the news, Western Potash shares lost 6.5% to close at 43.5¢ as over 1 million shares changed hands.

The financing consists of 31.3 million units at 48¢ apiece. Each unit contains a share and a warrant, both with a four-month hold. Investors could use the warrant to buy a share at 58¢ within three years.

Most of the proceeds will go towards completing a feasibility study for the Milestone potash solution mine near Regina, Sask., expected in late November.

Joel Jackson, an analyst at BMO Capital Market, said he had anticipated the financing given the junior’s “perilously low cash position” which at the end of June was less than $2 million. He wrote in an Oct. 1 note that though the non-brokered private placement is better than debt, it is still not the most preferred type of financing.

That said, the company should now have ample cash to complete the feasibility, and to use for environmental and permitting expenditures, as well as general working capital.

While the financing gives the company some breathing room, Western Potash still needs to secure a substantial amount of capital to build the $2.8-billion Milestone project.

In early September, the Vancouver-based firm commented it was in discussions with several parties regarding possible financings, potential takeovers and joint ventures. It also confirmed it was in talks with Rashtriya Chemicals and Fertilizers (RCF), a large Indian fertilizer producer.

Jackson wrote from what he understands several companies may have moved on from Milestone after conducting some due diligence on the project. He declined to provide the names of those firms.  

However, John Costigan, the company’s vice-president of corporate development in an Oct. 3 interview refuted Jackson’s view, saying no company has yet passed on the project and he maintains that discussions are still ongoing, including with RCF. 

Fundamental Research analyst Siddharth Rajeev said in an email that he expects to see a joint venture or acquisition in the next 12 months for Western Potash, likely involving a Chinese or Indian firm. 

“China and India, who are huge consumers of fertilizers, do not have long-term stable supply of potash, and potash prices are set by countries with lot of supply; which is why I think they will be interested in advanced stage projects such as WPX’s.

“Most of the [Saskatchewan] potash juniors were acquired post-feasibility stage,” he adds. “WPX will be coming out with a feasibility study on their Milestone project shortly. We expect some kind of development post-feasibility stage.”

According to a 2011 prefeasibility study, construction at the mine is slated to begin next year, with first production kicking off in 2016.

At full production rate, Milestone should churn out 2.8 million tonnes per year over its 40-year life.

In early September, Western Potash submitted an environmental impact statement (EIS) for the proposed mine to the province’s Ministry of Environment. Analysts estimate an EIS approval by spring 2013.

In June, Western Potash got a nod from the city of Regina to have a large portion of the city’s treated sewage effluent diverted to the proposed Milestone mine.

Following the latest financing news, Rajeev is updating his price target, but has a “buy” on Western Potash.

However, some other analysts appear more conservative with their recommendations. Andrea Rubakovic at Salman Partners has placed her previous 55¢ target under review and maintains a “sell” on the stock, while BMO’s Jackson has a 65¢ target and “market perform” rating.