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Karnalyte resorts to bank debt to raise cash

A week after cancelling its $115-million bought deal, Karnalyte Resources has opted to start stockpiling the nearly $600-million it needs to develop its Wynyard Carnallite potash project by borrowing from the banks.

Last week, Karnalyte announced that its latest equity offering was cancelled after regulators raised some questions about the company's latest technical report. Answering these inquiries took time, and the firm said it would not have met the timeline outlined in its underwriting agreement had it not pulled the deal.

It is still unclear what the precise questions were, but Karnalyte chief financial office Ron Love explained on Monday that they stemmed from regulators' unfamiliarity with carnalite solution potash mines. About 90 per cent of the world's current potash supply comes from sylvinite, which is currently mined in Saskatchewan and is a combination of potash and sodium. Carnallite, more common in the Dead Sea, is a combination of potash and magnesium salts.

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However, some bankers have said that questions about technical reports have arisen before, and in those instances closing dates have been pushed back. Asked about the timeline, Mr. Love said that changing it was too complicated, and that's why the firm pulled the deal, making no mention of the rumours that the equity offering was hung and could not get sold.

As for the new debt financing, Mr. Love pointed out that debt was always in the plan. The Wynyard Carnallite project is estimated to require capital expenditure worth $593-million, and the firm plans to finance about half of that with debt, and the other half with equity.

BMO, who led the pulled deal and well as Karnalyte's initial public offering in 2010, has been hired as a financial adviser to figure out the bank debt.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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