Okotoks-based Karnalyte Resources raised about $60 million in its first forays into the stock market last week.
The potash company’s CEO said the money raised in its Initial Public Offering (IPO) will allow it to complete a feasibility study on its plan to build a potash processing facility east of Saskatoon.
The company went public last week, listing 6.97 million shares on the Toronto Stock Exchange at a price of $8.60.
It was expected to net the company just under $60 million.
CEO Robin Phinney said he expects they will exceed this goal with the IPO.
“We got everything and more,” he said. “We were very successful, they liked everything we’re doing.”
By close of trading Monday, the company’s stock was worth $8.19.
Including funds raised with the IPO, the company has raised almost $80 million since it was first founded in 2007. He said this will allow the company to complete its feasibility study.
The company’s goal is to raise $409 million to build a facility to produce half a million tonnes of potash each year in its first phase and 200,000 tonnes of magnesium annually would be accomplished in a planned second phase.
Both can be used for a range of industrial purposes and potassium chloride is a key ingredient in fertilizers.
He said the company plans to sell more shares next year and then borrow funds to be able to build the processing facility.
He added the company can start work on the facility in spring 2012.
“We have one more year to complete our feasibility study,” he said.
The company owns two quarter-sections of land near Wynyard, SK, east of Saskatoon, for its operations. The province is the largest potash producer in the world and accounts for 25 per cent of global production.
He said the company’s processes are a “paradigm shift” in the industry.
Phinney has patented a process that essentially involves injecting water into seams of the mineral carnallite deep underground to dissolve the mineral, which is a source of potassium chloride, commonly known as potash. The resulting solution can then be brought to the surface and processed.
Karnalyte’s plan has a number of advantages over conventional potash mining.
It will require considerably less time and money to build and operate the facility compared to the conventional model. In addition, the capital costs are one-third of a conventional mine.
Conventional potash mining requires creating sub-surface mines, using equipment to remove the mineral and bring it to the surface. Once processed, the result is massive salt piles often covering hundreds of acres.
Karnalyte’s plans would mean a considerably smaller footprint. The company would only require land to build well sites for removing the carnallite and a site to build a processing facility. Unused land could still be farmed and all salt byproduct will be injected back underground.
To date, the company has drilled production holes and built a micro plant to prove the viability of its process and produce samples for customers.
Murray Fulton, University of Saskatchewan public policy professor, said only time will tell how successful the move will be.
As potash prices rise, he said there could be more start-up companies looking to get into the potash business.
“If there’s an anticipation prices are going to strengthen, you’ll see more companies come into play that had never thought about coming into operation before hand,” he said.
He said the costs to start new potash operations are extreme, however, Karnalyte may have the benefit of lower start up costs because it won’t have to dig costly mine shafts.
As well, he said the conventional industry’s environmental impact will become a much bigger issue in the coming years and Karnalyte may have a niche for itself as a more environmentally friendly producer if its process works out.
“That isn’t out of the question, it isn’t something that’s going to be here today or tomorrow, but in the longer-term that’s probably in the cards,” he said.
Fulton said the company will have a lot of hurdles to overcome, including getting its finished product onto the market.
He also said they will have to be able to prove the sustainability of its process over time.
In general terms, he said a lot of small, start up resource firms look to be bought by larger firms.
“My guess is these kind of start ups are somewhat common in the mining sector where they have a good piece of land or a new technique they think is noteworthy,” he said. “Many of things are highly speculative.
“There are exceptions and this company could be one of the exceptions.”
