Aspiring WA potash producer Kalium Lakes has been forced to accept a staggering discount for a $60 million emergency raising to cover a blowout in costs at its Beyondie project 160km south-east of Newman.
The raising, comprising a placement and rights issue through Sydney-based Foster Stockbroking, is set to be priced at 15¢ a share, representing a 70 per cent discount to the company’s last closing price of 49¢.
Kalium shares have been suspended since February 24, when it surprised investors by citing an independent review of the capital expenditure costings and contingencies for Beyondie and its future financing requirements.
A bankable feasibility study on Beyondie placed a $216m cost on the 90,000-tonne-a-year project, which had included a $29m contingency.
It is believed the cost overrun relates to design changes to accommodate performance guarantees required by project lenders, to meet product specifications demanded by German offtake partner K+S and project delays, which have been compounded by COVID-19.
In a note to potential investors, Foster also said the complexity of taking a German-designed plant to the desert of WA had been underestimated while brine extraction rates were lower than expected, requiring additional bores, pumps, pipelines and trenches.
However, the broker, which is underwriting the raising, said the project was now 40 per cent complete with greater certainty around costs, had no further design changes required, had moved to fixed price contracts, extended its timeline by six months and had a 10 per cent cost contingency in place.
First production from Beyondie is now expected in the third quarter of next year, back from the end of this year.
It is understood Kalium has retained the support of its lenders including the Federal Government’s Northern Australia Infrastructure Facility, which has loaned the company $74m to develop Beyondie. Other project financiers, Westpac and German development bank KfW, are also said to be on side.
It is believed the company’s biggest shareholder, London-based private equity outfit Greenstone Resources which holds a 20.5 per cent stake, has committed to take part in the raising with board and management committing $5m above the firm’s pro-rata entitlements.
The Foster note says Beyondie’s low-cost, long-life and strong pricing for sulphate of potash at $US475-$US500/t means the fundamentals of the project remain attractive.
Despite the delays, it described Beyondie as the most advanced sulphate of potash project in WA.
The West Australian understands Kalium Lakes had sought to raise funds through Macquarie last month but failed to reach agreement with the broker.
The Brett Hazelden-led company is one of a handful of aspiring WA potash players in a race to be the first commercial producers of the high-value fertiliser in Australia.
The competitiveness of the fledgling sector is highlighted by a document circulated by Foster comparing Beyondie favourably to projects planned by other WA companies despite the cost blowout.
The Mal Randall-chaired company is also backed by Pilbara pastoralist and businessman Brent Smoothy, who holds a 16.2 per cent stake in the company.
When Kalium made a final investment decision on Beyondie in October, Mr Randall said it had been a remarkable achievement for the company, less than three years after its listing in 2016.
The project comprises 29 production bores, 43km of trenches, 400ha of plastic-lined evaporation ponds, a purification plant, a 70-room camp and worker village, an airstrip and an upgraded 80km access road to Great Northern Highway.
Beyondie will tap the hypersaline brines beneath a series of interconnected salt lakes, evaporate the liquid in ponds before treating and purifying it into sulphate of potash.
SOP commands a significant premium to the more commonly known fertiliser muriate of potash.
Its demand is expected to grow significantly in future because of global population growth, changes in diet and a reduction in arable land.
KLL Price at posting:
49.0¢ Sentiment: None Disclosure: Held
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