Construction could start this year on the Moose Jaw district’s third potash mine.
Gensource Potash has pretty well lined up all its ducks to start turning sod at the mine site near Tugaske, some 50 miles northwest of Moose Jaw.
The company has the last pieces in place, namely commitment of $280 million debt financing and $80 million in shareholder equity financing.
Shareholder financing was achieved when Helm USA, a chemical and agricultural firm, agreed to buy 33 per cent of shares in the Tugaske mine project.
Gensource holds the other 67 per cent of the new mine entity KClean Potash.
An agreement with Helm to buy all the production for the first 10 years cemented the debt financing.
The solution mine will produce between 250,000 and 300,000 tonnes a year of potash at a low operating cost of $85 a tonne.
First production is planned for early 2024 with about 45 employees at what is a small mine by Saskatchewan standards.
This solution mine differs from other solution mines in that there is no pile of salt slag, no tailings pond, less use of water and no impacts on the environment.
The process places waste material back in the ground and recycles water used to force the ore out of caverns. The process is so environmentally friendly the province did not require an environmental impact study.
Gensource had to give up a lot of equity to finance the project so opted to form KClean Potash to own the mine.
President and CEO Mike Ferguson led the tram that took over the Legacy project near Bethune, developing it into a potential mine before selling to K+S Potash which is mining the deposit.
Ferguson and his team have their sights set on building more mines.
Gensource has 125,000 acres of potash leases near Craik and straddling Highway 11. Four mines could be developed on this land as well as a mine on the Vanguard leases in central Saskatchewan.
Gensource has the option in future development of sharing equity or building alone. This small-c conservative approach to development also ensures a buyer for production.
Currently Gensource trades at 28 cents a share, with a year low of 19 cents and a high of 48 cents.
This company is a highly speculative investment with lots of risk and limited upside.
The risk includes mine building and accomplishing the work within budget.
Limited upside comes from the large number of Gensource shares outstanding — just over 420 million.
Gensource’s share of production at a 250,000 tonne rate will be 167,600 tonnes, leaving an estimated $90 million annual cash flow by my back-of-the envelope calculation.
Given a 10 times cash flow valuation, or $900 million, equals a $2.14 cent stock value. And that’s providing the current $725 per tonne price holds.
The real big gains would come from a long-term hold when the company has another two or three mines in operation.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
