MagIndustries Signs Project Development Framework Agreement With COMPLANT

2010-02-04

MagIndustries recently announced the signing of a Project Development Framework with COMPLANT, the business name of the China National Complete Plant Import & Export Company Limited. COMPLANT is a public company with its head office in Beijing, trading on the Shenzhen Stock Exchange under the symbol "000151". Its controlling shareholder is State Development & Investment Corporation, the largest state-owned investment holding company in China. At the end of 2008, SDIC had a workforce of more than 60,000 employees with registered capital of US$2.4 billion, total assets of US$ 25.7 billion and shareholders' equity of US$ 8.3 billion. 

MagIndustries reported on November 30, 2009 that with the expiry of the Sinohydro exclusivity period, the Company had started discussions with several other parties interested in investing in the Company or directly in its MagMinerals potash subsidiary and/or the construction of the Company's 1.2 million tpy Mengo Potash Project and arrangement of the debt associated with the Project. 

The Project Development Framework signed by Mr. William B. Burton, President and CEO of MagIndustries and by Mr. Zou Baozhong, Chairman of the Board of COMPLANT, includes a number of key features.

The PDF includes a schedule of milestones to be met in the course of turning the framework into a set of final agreements. The milestones relate to the completion of due diligence and the signing of definitive documents by the end of July 2010, and targeting a start of construction by November 2010. Closing by the end of July 2010 is subject to the receipt of all necessary government and shareholder approvals in China and Canada.

The Company has agreed to appoint COMPLANT Engineering, Procurement and Construction contractor for the Project. During the initial phase, COMPLANT will review all of the Company's engineering designs and equipment providers with a view to identifying material reductions in costs to reach a price for the Project. On the basis of this review of the Project, the partners will enter into a definitive EPC contract to build the Project.

Of high importance to MagIndustries is that COMPLANT undertakes to source debt financing for 100% of the cost of the EPC contract. The indicative term sheet in the PDF provides for a secured construction loan of an amount up to US$1.2 billion, repayable over a minimum term of 10 years from commissioning, bearing interest at a rate approximately 200 basis points above the People's Bank of China's floating mid to long term loan rate (currently posted at 6%).

A portion of the production of the Project at a price to be determined by a formula will be directed to the service of the Project debt and for an additional period of time beyond the repayment of the Project debt to be negotiated.

The PDF provides an option for COMPLANT or its nominee to acquire a 50.1% interest in MPC or equivalent economics in an entity holding MagIndustries' 90% position in MPC subject to the completion of the definitive option agreement. Exercise of the option would leave MagIndustries with a 39.9% interest in the Project and the Republic of Congo intact with 10%. The option is exercisable over the 12 months from the effective date of the EPC contract at a price to be determined by a mutually agreed third party valuation of the Project.

The PDF provides a period of six months exclusivity to COMPLANT for the accomplishment of the diligence, engineering and negotiation phases outlined in the PDF.