Western Potash gets $15M for Milestone work

Western Potash (WPX-T) is aiming to enhance its liquidity by raising $15 million in a non-brokered private placement — a move that was not entirely well-received by investors.

On Oct. 2, a day following the news, Western Potash 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 can use the warrant to purchase a share at 58¢ within three years after the transaction closes.

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

Joel Jackson, an analyst at BMO Capital Markets, says 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 writes in an Oct. 1 note that the non-brokered private placement is better than debt, but isn’t the most preferred financing.

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

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

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

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

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

Fundamental Research analyst Siddharth Rajeev says in an email that he expects to see a joint venture or acquisition in the next 12 months for Western Potash, which will likely involve 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 a 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 could begin next year, with first production kicking off in 2016.

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

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

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