How determination and patience helped Karnalyte Resources secure a US$700M financing deal with its Indian partner

There are stories, great stories after which there’s the book that is required to recap the last two years at Calgary-based Karnalyte Resources.

And that book is placed for a Hollywood ending thanks to an agreement in principle the company signed now with India’s Gujarat State Fertilizers and Chemicals Ltd. (GSFC.) That agreement will give you for US$700 million of financing C a mixture of debt and equity – required to construct the very first stage of Karnalyte’s potash mine in Saskatchewan.

And for an organization that was down to its last $30 million, whose share price some time ago was trading below cash value, securing the financing was an amazing effort.

Put the agreement right down to two factors:

The resolution of Robin Phinney, the company’s founder and president C who was ousted from his CEO’s position in May 2014 only to resign from the board 30 days later, form a concerned shareholders group and return to the chief suite annually later.The overwhelming need for GSFC, which in 2013 outlayed $44.7 million and became a 19.9 per cent shareholder, to have a guaranteed supply of resources from a stable and reliable partner. In contrast to the alternative suppliers, Canada looks very good. GSFC has signed up to take 56 per cent of the mine’s output.

Reached Tuesday, Phinney said “it was important to have the your government in GSFC. We are the next generation of potash producers, that’s high grade and produced at competitive prices with low capital and operating costs.”

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In an argument, GSFC said the ground-breaking deal structure demonstrates its “long term commitment and desire to secure supplies of key natural resources through investment structures that are aligned with the values of Canadian shareholders.”

GSFC, whose major shareholder (having a 37.84 percent stake) is Gujarat State Investments argues, the financing “will function as a template for future investment by Indian companies in Canada.”

Such a result, whereby stage one of the mine is going to be fully financed, was a long odds possibility when Phinney was ousted almost two years back. He was replaced one day after receiving 98.28 percent support in the shareholders in the annual meeting.

“Never imagined in a million years which i might have a shot of getting it back,” he explained Tuesday.

Ousting Phinney set in motion a number of managerial and board changes with the new team being unable over the next nine months to secure “a financing proposal (by having an Indian financial institution) that might be in the best interests from the Corporation.”  

Indeed, so un-enamored was the new team with the project the company took a 94 percent jot down on the mine and began a procedure to locate a buyer.

But Phinney, employed in the background, secured a “proposed framework” with GSFC to raise funds to create the mine. GSFC also indicated it desired to “reconstitute,” the board.

In such an environment relations between the two sides became testy. Karnalyte sued Phinney and his wife – an action that drew a counterclaim from Phinney. All those actions have now been settled.

So last May, prior to the rescheduled annual meeting Phinney returned and set about working on a financing package with GFSC. Now everything joined together.

Financial Post

bcritchley@nationalpost.com