MagIndustries Corp. (TSE:MAA) jumped over 17% on Thursday after it secured a letter of commitment from the China Development Bank (CDB) for the majority of funding required for the construction of its Mengo potash project in the Republic of Congo.
The conditional commitment, which has been a year-and-a-half in the works, is for CDB to arrange a syndication loan for up to US$740 million, with a term of 12 years, in which the Chinese bank would provide up to US$370 million as the lead arranger.
"This is a major step forward for the funding of the Mengo Project and we anticipate being able to complete the negotiation of the definitive documentation in respect of the Loan within the first half of 2014," said MagIndustries CEO Longbo Chen, in a statement Thursday.
"In the meantime with the support of our contractors we remain largely on track with our time line for the Project, with construction now underway."
The letter of commitment is outstanding for 12 months from today, the company said, and can be terminated by mutual agreement or by CDB in the case of MagIndustries not fulfilling certain conditions.
The Mengo project, which is projected to produce some 1.2 million tonnes of potash per year, is expected to cost about US$1.3 billion to build. MagIndustries is now in talks to shift capital cost for new port facilities, currently included in the $1.3 billion estimate, into a separate build-own-transfer agreement.
Of the remaining funds required, the company said it expects US$740 million will be financed by the loan with CDB, while the balance is thought to have been "largely funded by MagIndustries historic investment in the project". The potash developer said that this is subject to review by the Chinese bank, which could result in an unfunded equity gap, for which it has identified "several potential strategic partners".
Shares of MagIndustries rose over 17% to 29 Canadian cents, 11 cents shy of its 52-week high. The stock has more than doubled so far this year.