Troubled commodities aspirant Salt Lake Potash now believes it will start generating revenue just weeks before it is due to start repaying debt, giving it a strong incentive to end its habit of over-promising and under-delivering.Salt Lake Potash was poised to be the first of a fleet of new Australian potash producers when construction of its processing plant at Western Australia’s Lake Way was completed in June, but sustainable production was never achieved after disappointing geological and processing results.The potassium grades extracted and evaporated from Lake Way were lower than hoped and a floatation circuit within the processing plant also delivered underwhelming results.The company needs more money to fix its problems, and big investors were approached about an equity raising in recent days, which the company hopes to complete within the next eight weeks.Assuming it can raise the required funds, Salt Lake Potash said it hoped to be producing potash before March 31.The equity raising shapes as a sliding doors’ moment for Salt Lake Potash’s battle weary investors, after the company conducted six separate equity capital raisings in the year to June.
Equity markets have been extremely accommodating for junior resources stocks over the past year with pre-revenue exploration companies raising record amounts of cash in each of the past three consecutive quarters.In that market context, investors spoken to over the past week believed Salt Lake Potash would most likely be given another chance to get its project working.Lenders such as Taurus Funds Management have security over the assets at Lake Way and the $US138 million debt arranged by Taurus carries interest rates of 9 per cent.Interest is charged at 12 per cent on a second $18 million loan with Sequoia Economic Infrastructure Fund.Salt Lake Potash is due to start repaying the Taurus syndicated loan on March 31, while repayments on the Sequoia loan commence on April 11.
If those repayment schedules are not revised under the equity raising, the company faces a relatively urgent delivery schedule; Salt Lake Potash said on Friday it expects first potash production in March.The fundraising exercise will be doubly important for Salt Lake Potash chairman Ian Middlemas, who chairs a second ASX listed company that surprised investors by purchasing more than 44 million shares in Salt Lake Potash over the past year at between 40¢ and 50¢ per share.That company, Equatorial Resources, was an African iron ore aspirant with no obvious connection to Western Australian potash.The reality is worseEquatorial appears to have burned money on the Salt Lake Potash investment; Salt Lake shares were 31¢ when they went into a trading halt in July.But the reality is much worse; Salt Lake Potash’s London listed shares have continued trading through the Australian halt, and have lost 80 per cent of their value since the Australian stock went into the trading halt.
That suggests the Australian stock is now worth closer to 6¢, and any equity raising will likely need to offer a discount to that price.It has been a bad year for companies chaired by Mr Middlemas; Equatorial was stripped of its iron ore project in the Republic of Congo, while uranium play Berkeley Energia suffered a negative permitting decision in Spain which led to the halving of its share price.Salt Lake Potash and its peers have tried to make a premium product called Sulphate of Potash (SOP), which is different from the Muriate of Potash (MOP) that BHP intends to produce in Canada later this decade.ASX listed Kalium Lakes is now poised to be Australia’s SOP pioneer, assuming it keeps to its recent promises.Two years ago Kalium Lakes was vowing to be in production in the 2020 calendar year.
At the start of 2021, it vowed to be in production before September 30. In a market disclosure on September 16, Kalium Lakes talked about two different types of SOP; standard and granular.The company said it would sell “standard” SOP before December 31 and granular SOP before March 31.
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