Prospect Global Resources Inc. signed a $2 billion supply deal with China’s Sichuan Chemical Industry Holding Group in one of the largest U.S. potash export contracts that may help it secure project financing.
The Denver-based potash exploration company will sell the crop nutrient to Sichuan Chemical from its American West Potash project in Holbrook, Arizona. State-owned Sichuan Chemical will buy at least 500,000 tons a year for 10 years for export to China, the companies said in a statement.
The deal will help Sichuan Chemical, China’s third-largest chemical company, meet the nation’s growing food needs amid shrinking global supplies and rising food prices. For Prospect Global, the deal covers 25 percent of projected output from the project that’s expected to start production in late 2015 or early 2016.
“It is believed to be the largest-ever purchase and sale contract - in price and volume - for a potash mine under development in the U.S.,” the companies said in the statement. “It is also believed to be one of the largest potash export contracts in U.S. history.”
The contract reflects a value of about $475 per metric ton, and is take-or-pay, backed by a letter of credit. Sichuan Chemical can buy more than the amount stated in the contract.
A bankable feasibility study for the project is scheduled for the first-half of 2013.
“Bankable offtake contracts are a top priority in our detailed strategic plan,” Prospect Global’s Chief Executive Officer Pat Avery said in the statement. The supply accord “enhances the attractiveness of the project to lenders,” the company said.
World food prices rose in September to the highest in six months as dairy and meat producers passed on higher feed costs to consumers, the United Nations’ Food & Agriculture Organization said Oct. 4. An index of 55 food items tracked by the FAO rose to 215.8 points from a restated 212.8 points in August, the Rome-based agency said that day.