By Nick Worth
Prospect Global Resources Inc. announced the signing of an agreement Tuesday that will allow the company to pay off its senior secured debt with the Karlsson Group at the rate of approximately 17 cents on the dollar.
What this means for Prospect is that all the company’s $148 million debt to Karlsson can be paid off for $25 million.
Prospect is the parent company of American West Potash, LLC, which is working to develop a potash mining operation in the Holbrook Basin.
According to a filing with the Securities Exchange Commission, Prospect Global has until March 10, 2014, to raise the $25 million payoff to Karlsson. All the agreements in place previous to this one, which set restrictions on how the company could use money it raises, are set aside in the new amendment.
There is a condition under which the Karlsson Group could foreclose on Prospect Global.
“Under the Karlsson Note amendment, upon payment of the discounted payoff amount, the Karlsson Note will be deemed paid in full, and Karlsson will release its first priority lien over our assets,” reads the SEC filing. “However, in the event we do not pay the discounted payoff amount on or before the prepayment expiration date, we will be in default under the Karlsson Note as in effect prior to the Karlsson Note amendment without the ability to cure such default, which would allow Karlsson to foreclose on all of our assets.”
Still, Prospect Global officials see the deal as another positive step in a year of accomplishments.
According to the press release, the pay-off deal with Karlsson Group “will significantly strengthen the company’s balance sheet and provide PGRX with more flexibility and options for raising the financing required to complete a definitive feasibility study in 2014 and begin construction in 2015.”
Among the achievements the company posted this year are what they term “the major project developments and progress made toward production during 2013.”
In February, the company submitted its application for an air permit with the Arizona Department of Environmental Quality (ADEQ) and submitted its application to convert its state mineral exploration permits to mineral leases with the Arizona State Land Department (ASLD). A major component of the submission to the ASLD was a mineral development report (MDR) covering a geologic assessment, economic feasibility, environmental assessment, mine operation plans, and reclamation and closure plans.
In September, Prospect received an air permit to construct and operate a 2.2 million ton per year mine and processing plant in the Holbrook Basin.
During the course of 2013, Prospect Global and its representatives have been in discussions with the ASLD as they worked on their application for a mineral lease. The company expects to receive a mineral lease in the first half of 2014.
Prospect Global completed a major engineering milestone in July when a team of engineering and consulting firms completed a pre-feasibility study for the Holbrook Project.
Highlights of the pre-feasibility study included:
* 1.42 million ton per year operation.
* $825 million estimated capital cost.
* $1.4 billion net present value at eight percent and a 27 percent after-tax internal rate of return.
* 33 million tons of mining operation plan production over the initial 26-year mine life.
The company also completed a 17-hole drilling program in October. The drilling program was designed to maximize the potential conversion of “inferred” potash deposits to the “measured” and “indicated” categories in order to support the completion of a definitive feasibility study.
In addition, the company completed the sampling and assaying of six holes from its Phase III drilling program, which added a total of 23 holes to the 22 holes the company had previously drilled, which formed the basis for previous resource estimates.
An updated geologic model and resource estimate will be completed in 2014 and will form the basis for the definitive feasibility study.
“The company continues to advance talks on both offtake and strategic investment with a number of strategic and financial companies,” read the statement. Offtake is an agreement to buy future production from the producer of a resource.
“The company believes it is well positioned to raise the financing to repurchase its debt in the first quarter of 2014.”
Prospect Global also plans to receive its mineral lease from the ASLD by mid-year and complete a definitive feasibility study for its Holbrook Project by the end of 2014.
In good news for the Holbrook Basin, the Prospect Global statement goes on to note that the company is working on these three priorities. “The completion of these three major milestones in 2014 will position the company to begin construction in 2015,” read the press release.
“Now that the company’s pre-feasibility study and infill drilling program for the Holbrook Project have been completed, our focus is on identifying and reviewing various alternatives in order to secure the financial commitments required to proceed with the project,” said Prospect Global President and CEO Damon Barber in a Dec. 2 statement. “We believe our Holbrook Project is a compelling project that’s attracting global attention.”
The Karlsson Group will retain its two percent royalty interest in Prospect Global following the $25 million payoff. After the payment is made Prospect has agreed to enter into a “mutual release of claims” with the Karlsson Group and will provide that Karlsson is entitled to a one-time payment of 10 percent of the net proceeds in excess of $200 million received by the company upon a sale of the company consummated on or before Feb. 1, 2018.
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By Nick Worth