Pacific Potash (CVE:PP) said Wednesday that it has signed an "arms-length" letter of intent to acquire a significant stake in Western Potash's (TSE:WPX) Brazilian potash assets.
The letter of intent relates to the acquistion by Pacific Potash of
Moonraker Acqusition Corp, which holds an option to acquire an 80 per
cent interest in Western Potash's Brazilian potash assets, located
within the Amazonas Potash Basin.
Pacific Potash will purchase Moonraker in exchange for the issuance of 4,975,000 of its common shares to shareholders.
Moonraker will become a wholly owned subsidiary of Pacific Potash.
In order to earn the interest in the Western Potash assets, the deal
requires Moonraker or Pacific Potash to make a cash payment of $100,000
on execution of the option, and pay a further $150,000 and issue 500,000
common shares of Pacific Potash within 5 days after approval of the
Within the first year of the agreement, Moonraker or Pacific Potash
must pay an additional cash payment of $250,000, and issue a further
500,000 common shares of Pacific Potash.
Within three years of the initial deal, Moonraker or Pacific Potash must issue another 500,000 common shares of Pacific Potash.
The option deal also calls for $2.0 million in exploration
expenditures over a three year period in order to earn the 80 per cent
interest. A minimum exploration expenditure of $300,000 per year is
Once the earn in is complete, a joint venture will be formed between
Pacific and Western, with Pacific Potash paying 80 per cent of costs
going forward, and Western paying 20 per cent.
Western will be granted back in rights to earn an additional 29 per
cent interest in the project by providing a bankable feasibility study.
At the transaction's close, a member of the Western team is expected to join Pacific's board.
The Western Potash assets comprise several claim parcels that extend
from the Amazon River to the centre of the Amazonas Basin, where
Potassio do Brasil, Petrobras, and Vale, among others, are exploring for potash deposits.
Two deposits owned by Petrobras-Arari
and Fazendinha-are located 20 and 40 km west, respectively, of the
property being optioned by Pacific Potash. Fazendinha has reported
historic resources of 520 million tonnes at 28.8% KCl, while Arari has
659 million tonnes at 17.7% KCl.
Pacific Potash is focused on the exploration and development of the
Provost potash property in Alberta, Canada that contains the Prairie
Evaporite Formation, which hosts many conventional and solution potash
Western Potash is also focused on the exploration and development of potash mineral properties in western Canada.
The company recently reported at the end of May that it adopted a three-year, shareholder rights plan agreement.
The agreement, dated March 26, 2012, was accepted by the Toronto
Stock Exchange and was ratified by the shareholders of Western Potash at
its AGM held on March 26.
Western Potash noted that the objective of its board in adopting the
plan is to “achieve full and fair value” for the company’s shareholders
in the event of an unsolicited take-over bid.
In February, Western Potash hired Richard Lock as its project
director, to help the company develop its wholly-owned Milestone potash
project in Saskatchewan.
Late last year, the company announced an updated resource estimate
for the Milestone property, which slightly increased the Milestone
recoverable potash resource to 66.6 million tonnes in the measured
category, 186.9 million tonnes of indicated resource, and 708.2 million
In October 2011, the junior miner said an independent prefeasibility
study (PFS) confirmed Milestone showed "significant positive economics".
The study, carried out by AMEC Americas, showed that the asset was of
sufficient size and grade to support mining for more than forty years
at a production rate of 2.8 million tonnes per year.
The property, comprising 500 square kilometres, is located 30
kilometres southeast of Regina, and southeast of Mosaic’s Belle Plaine
Mine, one of the largest producing potash solution mines in the world.