Palisade Research - Tue, Apr 11, 2017

Cash Cow: Gensource Secures US$205M From Indian-Conglomerate To Build Canada's Next Potash Mine

picture of a B&W cow covered with dollar signs eating a pile of green money


Last year in June, Rob Theoret at Gensource Potash received a curious email requesting more information about the Vanguard Potash Project located in Saskatchewan. The email was from a representative of the Essel Group Middle East (EGME), a subsidiary of the India-based, multi-billion-dollar conglomerate, Essel Group, focused on mineral extraction, oil and gas exploration, and the acquisition of natural resource assets.

The representative had a strict mandate of locating potash and fertilizer projects to add to EGME's portfolio of assets. At the time, Essel had made just one acquisition- the Bada potash mine exploration license, located in Eritrea, acquired in May 2015. The rep literally had googled 'potash projects' and came across a well-written research note on Gensource Potash, and subsequently reached to begin an informal due diligence process.

Moving quickly, the development became more serious, with the file passed onto the General Manager, and finally to the CEO. An MOU was signed in November 2016, and Mike and Rob flew to Dubai in early April of this year to formalize the agreement. After two full days of line-by-line review, EGME and Gensource shook hands in what is the most important deal to the potash developer to date.

In the transformational deal, EGME will provide capital to Vanguard in two tranches: the first US $5 million to finance the feasibility study; the second US $200 million to fund the construction and commissioning of the first facility of the Vanguard project! Once construction financing is committed and delivered, EGME will own 70% of Vanguard; Gensource will retain 30%.

The feasibility study is slated for the end of May, with financing negotiations already underway. If this timeline is followed, the mine can begin construction in summer 2018, with production slated for mid-2019.

We believe the most exciting part of this agreement is the effort by both EGME and Gensource "to undertake and complete one or more expansion phases necessary to increase production of potash to a minimum of one million tonnes per annum- the final production target."

Let's do the simple math.

According to Vanguard's PEA, the after-tax NPV of a project is C$283.4 million. After financing, Gensource's stake will equate to C$85.0 million. This is for one small-scale production facilities with a target production rate of 250,000 tonnes per annum. EGME wants at least four.

As we have stated before, the Vanguard area will be able to produce 6 to 8 more projects. It is a large land package and because of the modular production plan that will be used, Gensource will need to do minimal work to get another lease, joint-venture ready.

In fact, for the acreage directly north of EGME's, we estimate that another C$6 million will be enough for the 2D seismic and wells needed to get a PEA for the license. The engineering is already done for Vanguard 1, and because of the similar geology, can be directly transferrable to other parts of the Vanguard.

The four projects EGME wants equate to C$340 million in value to Gensource Potash. Even if that value was halved, Gensource's current market capitalization of C$50 million is still paltry.

We challenge any investor to find another potash company that has secured financing, with as much upside as Gensource Potash, trading at a similar discount. There is incredible value here, and the market still has not caught on.

On another note, the Gensource team will be at Mines & Money New York with representatives from EGME from May 3-4th. If you are an interested investor, please swing by their booth or shoot Rob an email at

picture of four men
(Rob Theoret & Mike Ferguson, with EGME in Dubai) publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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