The share price of Gensource Potash, planning to build a potash mine near Tugaske, has collapsed in recent weeks.
The shares have dropped from 37 cents to the 21 cent mark. This occurred even after a director bought 375,000 shares in the company and there was an announcement that capacity will be doubled to 500,000 tonnes of potash annually.
Partner company Helm has agreed to double mine production in the Tugaske plant and buy all the production in both phases of construction.
The agreement and expansion plan comes with potash prices being high from war sanctions that reduced Russian potash production.
Still Gensource share price has plummeted.
The only explanation is the uncertainty of project financing now that war scares investors from Europe. Debt financing has been arranged, but Gensource hasn’t nailed down an equity partner.
The project needs to find an investor or investors ready to plunk down about $70 million to finance the equity portion.
That doesn’t include inflationary increases for the $280 million first phase construction. Gensource can expect between 10 per cent and 15 per inflation for construction.
Gensource already has 421 million shares outstanding. To raise the $70 million by selling shares at 20 cents would drastically dilute existing shareholders’ positions.
These reasons may explain the share price collapse.
Plus there is some uncertainty about whether the brine processing technology Gensource plans to pump waste ore back underground will be effective.
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The Bizworld column about lithium production from old natural gas fields may have left an incorrect impression.
While it is true that lithium can be extracted faster and at lower cost from these wells than from mining processes, the market likely won’t be as lucrative as might be expected.
Natural gas is produced all across North America. High prices like lithium shortages have attracted will spur investment in lithium extraction from old gas fields across the continent.
For most of the last 10 years, lithium carbonate prices have run around $10,100 US a ton. Within the last year prices have jumped five fold to around $50,000 a ton.
That kind of price change will attract investors. The three publicly traded lithium explorers featured in the column have a leg up on extraction. Their advantage will be limited until competitors increase supply and the price declines.
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Saskatchewan helium explorers face a similar situation.
Not only is helium found in many places in North America as well as Africa and Russia, the helium content in many fields is much greater than in this province.
Arizona, Oklahoma and Eastern U.S. fields flow between four and seven per cent helium whereas in Saskatchewan and Alberta one to two per cent is more common.
No wonder the Saskatchewan government has to give helium explorers a break on taxes. The tax concession makes them less uncompetitive.
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.
