8.5 billion tonnes of potash, page-29

I asked myself this question and came up with the following scenario:

If the deal is done with BHP the owner would be offered 1 million BHP shares value approx $46m.

BHP would take on all debt put in the $100 million and get the mine up and running.

But because BHP is so large the capital aappreciation over 12 months would be what? up to $55 per share? This only provides a CG of $9m.

Now by going in with FMJ owner gets 40 million shares potential control of the board. Present value of the future 40 million are now worth $100 million. Once deal is confirmed chance of rise to $4 per share highly likely. At which point a capital raising would be done of approx 25 million shares at $4. To ensure liquidity of stock owner does not participate plus she may not want to borrow to add to her present position.

At end of capital raising 105 million shares on issue with $100 million in the bank to build mine.

Over the following 12 months I would expect the owner would receive a greater capital return with FMJ than BHP or any of the other majors.

Now given this potential scenario who would you deal with: i) FMJ and obtain a controlling interest in the company plus the potential for major CG or go ii) with one on the mining majors like BHP and obtain 1 million shares (or 2 million if you want to price match with todays FMJs close)?

This is just one potential scenario could be many more.

8.5 billion tonnes of potash at $400 per tonne is worth a lot. But if you are talking about the potential value of the Satimola mine they have 8.5 billion tons with a cut off grade of 10%. Assume 10% across the depoist for the low value this would equate to an in ground value of 820 million tons by $400/ton = approx $340 billion.

But the info on the Satimola mine is it will cost $600 million to be brought into production. Inital production is planned for 2013 at 700,000 tons per annum and then over a ten year period will be ramped up to 6 million tons for a cost of $3 billion. That's the plan.

For comparison Canada's Potash Corp can produce up to 12 million tons per year.