When we spoke to GenSource (V.GSP) CEO Mike Ferguson in May of 2016 he outlined an ambitious plan to build relatively “small”, 250,000 metric tonne a year, potash mines in Saskatchewan. These mines were designed to have minimal environmental impact and would have low CAPEX and OPEX.
While Gensource planned to use a mining technology which was new to the Saskatchewan potash sector (but proven in other mining jurisdictions), what was really innovative was that their business plan called for these new mini-mines to be run as joint ventures with companies which would sell the potash on to their own clients.
In our earlier interview Ferguson said, “Conventional mining methods, both conventional underground mining and solution mining, are not economical at a small scale.” Large scale potash mining is very expensive and only works with really large tonnages. And that, in turn, means that the only realistic market for the big potash projects are the same markets currently served by the cartels, who are able to deal in millions of tonnes at a time.
A little less than a year later Gensource has concluded its first joint venture agreement with Indian conglomerate Essel Group ME Limited. Essel Group Middle East is a wholly-owned subsidiary of Essel Group – a leading Indian business conglomerate having diverse business interest across Media, Entertainment, Packaging, Infrastructure, Education, Precious metals and Technology sectors. EGME is leading Essel Group’s global expansion in energy, logistics, financial services and natural resources. In the press release announcing this agreement, Ferguson states, “This is the most significant milestone for Gensource to date. Our investors are aware that Gensource’s business plan has been to create a joint venture with a strategic partner who can bring the required financing and commercial expertise to the project.”
Essentially, this joint venture agreement provides the step by step financing and product marketing for an initial 250,000 tonne per year mine and plant and then opens the possibility of the construction of three similar plants for a total production of 1 million tonnes of potash per year – all with the same JV partner, Essel Group ME.
In our interview, Ferguson, who was just back from Dubai where the final agreement was signed explained the terms of the deal, “Essel will advance 5 million USD so we can complete the feasibility study. Then, assuming the feasibility study is positive, Essel will provide financing for the estimated 200 million USD construction cost, so we can build the first of the production facilities. This is our biggest milestone yet and secures the required financing through to operations of the first project.” said Ferguson.
Under the joint venture agreement Gensource puts in the project and the expertise, Essel puts in the money and there is a term sheet for the sale of the potash through Essel. At the end of the day, when the mine and plant are built, Gensource will own 30% of the joint venture with no further cash outlay.
“So the steps are: finish the feasibility, get the environmental permitting completed, put the details of the financing package in place and then shovels in the ground.” said Ferguson.
“We plan to have the feasibility done in late spring, early summer and we plan to start building in the Fall before freeze up. That will give us the winter for procurement and then, in summer of 2018 we’ll get the mine and the plant built. We’re aiming for production in mid-2019.” said Ferguson.
In the news release Ferguson states, “Initially the JV will complete the feasibility study on Phase One of the Vanguard Project before beginning construction of the first Gensource modular small-scale facility with production capacity of 250,000 tonnes/year. If the first facility is successful, our agreement provides that we will work together with Essel to assess the feasibility of adding additional production modules with the goal of achieving 1 M t/a of production.”
So if Gensource can bring in the first project, three additional mini mines will be built. “It will take us a couple of iterations to optimize the modularization; but we are aiming to have the process become cheap and repeatable so that it becomes a clear, low-risk venture to implement one of these modules,” said Ferguson.
Critically, this first joint venture will provide Gensource with a proof of concept for its small footprint, dedicated production, business model. With that proof of concept in hand, there are many other avenues for Gensource to explore.
“We are continuing our discussions with a Brazilian group. And we are talking to other groups in India as well,” said Ferguson.
Gensource, as Ferguson puts it, “is step by step, knocking down the pins.”
As yet, while Gensource shares have enjoyed a run from a low of $0.04 back in early April of 2016 to a recent high of $0.21, Ferguson acknowledges that the company “has not attracted much market attention.”
But Gensource is beginning to attract some attention. Here is Palisade Global Investments Limited Research on Gensource, “Gensource is up 83% since our last update, but the market has still been slow to realize its portfolio of assets. We reiterate, the Vanguard area will be able to produce 6 to 8 more projects. It is a large land package and thanks to Gensource’s modular production plan, this cookie cutter JV model could be replicated time and time again. Gensource’s market cap is currently C$47M and each project is worth at least at C$285.5 million. It is the only potash company that makes sense.”
There is every chance Gensource will attract far more market attention now that a clear path to production has been established with the Essel joint venture. At some point in the fairly near future, Gensource will enjoy a 30% carried interest in the sale of 250,000 metric tons a year of potash without having to spend another dollar of its shareholder’s money. Soon after that, its operations will go to a million tonnes a year and, as Ferguson points out, Saskatchewan is not going to run out of potash anytime soon.
At time of writing Gensource was trading at $0.185 per share with 239.23 million shares outstanding for a market cap of 43.06 million dollars.
This story was provided by Hodgkinson Ventures for commercial purposes.