China Eximbank provides $140 million loan for Mengo Potash Acquisition Project

Project narrative

In December 2008, MagIndustries Corp., a Canadian potash mining company, signed a 25-year potash investment agreement (PIA) with the Government of the Republic of Congo for the development of the Mengo potash mine in December 2008. The agreement enabled it to gain access to the Mengo exploitation permit and the Kouilou potash processing facility. Then, on July 12, 2011, China Eximbank and Evergreen Resources Holding (BVI) Ltd. (宁波春和钾资源有限公司) — a British Virgin Islands (BVI)-registered special purpose vehicle that owned a 77.6% equity stake in MagIndustries Corp.— signed a $140 million M&A loan agreement for the Mengo Potash Acquisition Project. The purpose of the loan was to enable Evergreen Resources Holding Ltd. of the United Kingdom — a subsidiary of Evergreen Industries Holding Group Company, Ltd. of China — to acquire MagIndustries Corp. The loan was collateralized against Evergreen Resources Holding (BVI) Ltd.’s 77.6% equity stake in MagIndustries Corp. The share pledge agreement between China Eximbank and Evergreen Resources Holding (BVI) Ltd. was finalized on December 25, 2012. The acquisition of MagIndustries Corp. was completed on July 19, 2011. Then, on March 28, 2013, MagIndustries Corp. reported that its Evergreen Holding Group, the parent company of Evergreen Resources Holding (BVI) Ltd., had received approval from the National Development and Reform Commission (NDRC) of the People's Republic of China to invest in and construct the 1.2 million tonnes per annum Mengo Potash Project in the Republic of Congo. NDRC approval of the intended investment in and construction of the project was a necessary condition for the approval of project finance loans from Chinese banks. Then, in November 2013, China Development Bank (CDB) sent a letter of commitment to MagIndustries Corp., pledging to arrange a syndicated, 12-year loan worth up to $740 million to MagMinerals Potash Corp., a wholly owned subsidiary of MagIndustries Corp. that owns a 90% equity stake in the joint venture — MagMinerals Potasses Congo (宁波春和钾资源有限公司 or MPC) — responsible for the Mengo Potash Mine project. CDB offered to provide MagMinerals Potash Corp. up to $370 million as the lead arranger of the syndicated loan (captured via Record ID#59065). The Mengo deposit, about 15 kilometers (9.3 miles) northeast of the port city of Point-Noire, is reportedly capable of producing 1.2 million metric tons of fertilizer annually. Considered one of the world’s biggest undeveloped potash deposits, the Mengo mine is a part of the 136km² Mengo Mining Permit. The mine is located within the Congo coastal basin of Aptian age, stretching from Equatorial Guinea in the North to Angola in the South. The basin comprises a number of evaporate cycles, which have resulted in the deposition of variable amounts of potash in the form of carnallitite. Carnallitite is a magnesium-potassium-chloride mineral or a double salt, while the carnallitite rock occurs in multiple, horizontal horizons ranging in thickness from 0.5m to 25m with an average content of roughly 70% carnallite. The carnallitite rock consists of an interlayering of Carnallite-rich layers and Halite (NaCl), along with minor amounts of Anhydrite (CaSO4) and clay. The Mengo project area hosts four potentially economically extractable carnallitite horizons with depths ranging from 500m to 1,000m below the surface. The Horizon 1 Carnallitite is 19.1m-thick and contains 17.0% potassium chloride (KCl) as Carnallite, while the Horizon 2 is 12.5m-thick and contains 11.7% KCl. The Horizon 3 and 4 Carnallites have a thickness of 9.6m and 25.1m, and contain 23.9% and 17.9% KCl, respectively. The proven and probable reserves at the Mengo potash mine are estimated to be 33.77Mt of KCl or potash. The pre-construction works of the project commenced in March 2013. Then, on July 17, 2013, a formal groundbreaking ceremony took place. The Mengo Potash Mine Project later became ensnared in a corruption investigation when an accountant at MagIndustries Corp. reported to the Canadian authorities that his company was offering bribes to Congolese officials. In early January 2015, MagIndustries Corp. announced that it had formed a special committee to look into allegations that some of its officers and employees had breached the Corruption of Foreign Public Officials Act. Then, on January 22, 2015, Canadian police visited the company’s head office in Toronto with a search warrant in connection with the allegation.