Palisade Research - Tue, Nov 29, 2016

Gensource Potash Update - Financed To Production

picture of a golden field and blue sky

Gensource Potash (TSXV:GSP, OTCMKTS:AGCCF, FRA:UGN)

Current Price: C$0.09
Shares Outstanding: ~241.9 million
Market Capitalization: C$21.8 million
52-Week Range: C$0.04 - C$0.12
Cash: ~C$3.2 million

Our sole potash company continues to deliver!

Gensource Potash has just announced the non-binding MOU of a transformational joint-venture with Essel Group Middle East (EGME), the mining arm of Essel Group, one of the largest business conglomerates from India.

Under the terms of the JV, Gensource will vend in a project from its Vanguard area, as well as its project execution team. In turn, EGME will earn 70% of the project (Vanguard 2) by paying for the rest of the current feasibility study (~C$5 million) and financing the construction of the project (~C$250 million!).

Once again, EGME must spend ~C$255 million to earn 70% of Vanguard 2! The market cap of Gensource Potash is just C$21.8 million.

According Vanguard's PEA, the base-case, post-tax, NPV8 of a Vanguard project is C$285.5 million with an IRR 16.9%.

To remind our readers, Gensource's first mega-deal was announced on April 6, 2016, when it signed an asset purchase agreement and off-take term sheet with Yancoal Canada Resources, a wholly-owned subsidiary of Yanzou Coal Mining Company (YZC), a US$6.4 billion company and majority owned by state-owned Yankuang Group. For C$2.5 million, Gensource acquired a land package that leap-frogged them to PEA, concurrently signing a C$500 million off-take for Vanguard 1.

What the market has failed to digest is that the Vanguard area will be able to produce 6 to 8 more projects. It is a large land package and thanks to Gensource's modular production plan, this cookie cutter JV model could be replicated time and time again. And with the feasibility study (FS) to be completed for Vanguard 1 in April or March 2017, the FS will be applied to other projects.

That means Gensource has another 6 to 8 projects worth at least C$285.5 million up its sleeve, or stands to create C$1.7 billion in value for its shareholders.

That does not even include earlier-stage Lazlo, which we expect will be able to churn out at least 5 to 6 projects similar to Vanguard.

What does this mean for Gensource? It means several things. Gensource Potash will be the next potash producer in Saskatchewan. Gensource is also extremely undervalued; it's not every day a company is funded to production and the market not reacting. Lastly, with a FS on the horizon and 6 to 8 projects in its arsenal, expect a continual stream of 'mega-deals' announced on the horizon. If Gensource is not in your portfolio or on your radar now, take a closer look.

Palisade Global Investments Limited holds shares of Gensource Potash. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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