VANCOUVER — A $434-million takeover bid for Potash One (KCL-T) from German fertilizer giant K+S Aktiengesellschaft is evidence that the failure of Australian giant BHP Billiton’s (BHP-N) US$39- billion takeover bid for Potash Corp. of Saskatchewan (POT-T, POT-N) has not diminished international appetite for Canada’s huge potash stores.
K+S has offered to buy all of Potash One’s outstanding shares for $4.50 apiece, in a deal focused on the company’s feasibility-stage Legacy potash project.
The offer price represents a 31.3% premium to Potash One’s 10-day volume-weighted average share price and an 82.2% premium to the company’s share price of $2.47 on Aug. 16, the day before Potash Corp. rejected BHP’s unsolicited proposal.
“Today’s announcement delivers on our commitment to maximize value for Potash One shareholders while eliminating further risks inherent in developing and funding the Legacy project,” said Potash One president and CEO Paul Matysek. “K+S is a highly qualified global leader with over 100 years of experience in the potash industry. . . they have the technical and operational depth and proven marketing and sales expertise to successfully bring Legacy forward.”
The Potash One board is unanimously recommending the offer and the company’s directors and officers are signing lock-up agreements representing 21% of the company’s shares.
Potash One has entered into a support agreement with K+S that includes deal protection measures, such as a non-solicitation covenant by Potash One, the right for K+S to match any superior proposals within five days, and a $16.5-million break fee.
The potential partners also arranged for an affiliate of K+S to subscribe for $30-million worth of convertible secured debentures from Potash One. The funds will finance immediate water infrastructure construction commitments at Legacy.
In three years, Potash One has advanced Legacy from a greenfield exploration site to a long-life project almost ready for construction, backed by a positive feasibility study and an environmental permit.
Sitting 80 km northwest of Regina, Sask., Legacy is home to 135.8 million reserve tonnes of potassium chloride, or potash. In addition to its reserves, Legacy hosts 80 million indicated tonnes and 859 million inferred tonnes of potash resource.
The reserves alone are enough to support production of 2.86 million tonnes of potash annually for 47 years. Production would be accomplished through solution mining, where water pumped down to the deposit through bore holes dissolves the potassium chloride minerals before being pumped back to the surface for processing.
Building a solution mine at Legacy will not be cheap — capital costs are expected to come in at $2.78 billion, including $364 million in contingency. Once built, the operation should be able to produce and ship a tonne of potash for US$111.79. Potash is currently selling for between US$375 and US$410 per tonne delivered.
The project is expected to generate a 17.9% after-tax internal rate of return and carries an after-tax net present value of US$2.63 billion, using a 10% discount rate. The mine should repay its investment capital in roughly six years. The mine would employ some 300 skilled workers and initial production is expected no earlier than 2015.
In early November, the Saskatchewan Minister of Environment approved the Legacy proje c t’s environmental impact statement, making Legacy the first approval ever granted to a greenfield potash project under the current Environmental Assessment Act. Upon receipt of the environmental permit for Legacy, Potash One immediately started working towards a construction permit for the project.
News of the takeover bid lifted Potash One’s share price 91¢ to $4.53, a new 52-week high and just above the offer price. In June, Potash One shares were trading at $1.98. The company has 84 million shares outstanding, 97 million fully diluted.
Be the first to comment on "K+S bids $434M for Potash One"