WINNIPEG, Manitoba | March 14, 2016: India's Gujarat State Fertilizers and Chemicals Ltd has agreed to guarantee payments on $700 million in debt to finance the first phase of Karnalyte Resources Inc's Canadian potash mine project, Karnalyte said on Monday, adding supply even as other miners cut production.

The company's shares jumped 76 percent in Toronto to C$1.55.

Under the deal, a subsidiary of State Bank of India and other lenders would loan Saskatchewan-based Karnalyte most of the funds, with GSFC guaranteeing payments in exchange for a greater voting share. Karnalyte plans to make payments from cash flow and eventually issuing more shares.

The mine - to be located in Wynyard, Saskatchewan - would add supply to a struggling industry that has already seen production cuts by Potash Corp of Saskatchewan and others, due to weak crop prices and slack Brazilian demand. According to Mosaic Co data, potash prices in the U.S. Midwest averaged $248 per tonne last week, down 38 percent year over year.

But GSFC bought a nearly 20 percent stake of Karnalyte in 2013 that included an agreement to buy more than half of the Wynyard mine's first-phase production for 20 years.

Karnalyte has informal commitments from other potash buyers in the United States and Brazil for most of the rest, said president Robin Phinney.

He said Karnalyte's mine holds an advantage over other producers because its muriate of potash will contain less sodium chloride, a compound that inhibits plant growth, and cost less to produce.

"In a normal market, our product would command a premium," Phinney said.

Karnalyte plans to produce 625,000 tonnes of potash per year at Wynyard in phase 1 of a 2.125 million tonne project. If Karnalyte shareholders approve the deal, construction could start late this year and production could begin in 2019, Phinney said.

The Wynyard project will use solution mining, a cheaper alternative to cavern mining. Under the solution process, a fluid is injected into the deposit through a drilled well. The mineral dissolves in the fluid to form a brine solution that is brought back to the surface.

Germany's K&S AG is expected to open this year the first new mine in four decades in Canada's potash-rich province Saskatchewan.

Karnalyte has endured years of volatility, including a fight last year between former management and a group of shareholders, led by Phinney.

Karnalyte and GSFC also agreed to spin out Karnalyte's secondary mineral assets and unexplored lands.

(Source: http://www.business-standard.com/)