Chinese state enterprises own 10 per cent of Western Potash, which cited "worsening bilateral relations” as it fell behind on $33.1 million in bills.
Author of the article: Arthur White-Crummey
REGINA LEADER -POST
Publishing date: Oct 15, 2021 •
Publishing date: Oct 15, 2021 •
Western Potash Milestone Phase 1 Project located approximately 30 kilometres southeast of Regina. PHOTO BY TROY FLEECE /Regina Leader-Post
A potash company partly owned by the Chinese state owes about $33.1 million in outstanding bills, including to several Saskatchewan companies, as it blames its cash crunch on COVID-19 and tensions between Canada and China.
Western Resources Corp. owns a quarter section of land near Gray, about 30 kilometres southeast of Regina. Its subsidiary, Western Potash Corp., began site clearing in November 2018 in preparation for a potash solution mine known as the Milestone Potash Project on the site.
But work has been suspended since last year, and land title records for the property show that contractors have put millions of dollars worth of builders’ liens on the property to secure their claims to outstanding payments for work on the project.
Companies with more than a million dollars worth of liens registered include MBG Buildings Inc., SNC-Lavalin, Supreme Steel LP and Saskatchewan-based Artisan Construction Services. Smaller amounts are owed to other Saskatchewan companies, including Prince Albert’s Broda Group, Regina’s Clifton Associates, Regina’s Westcan Vac Services, Moose Jaw’s Strictly Fences, Biggar’s AGI Envirotank and Yorkton’s Northern Mat & Bridge.
The largest sum, by far, is an $18 million lien by Stuart Olson Prairie Construction Inc. Most of the liens were registered in early-to-mid 2020, when the company began to face financial troubles.
Matthew Wood, vice president of technology with Western Potash, acknowledged that the money recorded in those liens is largely still owing. He regretted any negative impact on local business, and said Western Potash is doing everything in its power to minimize it. Wood said he’s “cautiously optimistic” that the company will be able to restart construction and pay its vendors by the end of this year.
“We hope, in a short amount of time, we can secure the financing, pay everyone back and then bring the benefits of this project in terms of environmental and potash to the province,” he said in a phone interview Thursday.
The project had relied on financing from the China Development Bank (CDB) — until international tensions turned off that tap.
“When the CDB withdrew its entire business from Canada at the end of 2019 due to the worsening bilateral relations between Canada and China, Western lost a major portion of the Project financing provided through the CDB,” the company said in a letter addressed to the RM of Lajord, where the property is located.
Though the letter does not get into specifics, bilateral relations soured after Huawei executive Meng Wanzhou was arrested at the Vancouver airport in response to an extradition request to the United States. China later arrested and imprisoned two Canadians in what was widely viewed as a reprisal. All three have since been released, but the relationship remains strained.
Wood later played down the role of international politics in Western Potash’s financial travails. He said the state of bilateral relations did, however, make some private investors more hesitant.
Western Resources Corp. is majority owned by a Beijing-based private equity firm, Tairui Mining Inc. But the Chinese government has a significant stake through two state-owned enterprises: China BlueChemical Ltd. and Guoxin International Investment Corporations.
Wood said Western Potash is not controlled by the Chinese state. He said state-owned enterprises own a 10.1 per cent share. “So it’s a small minority,” he said.
The reeve of the RM of Lajord, Armond Gervais, seemed soured by the whole experience. It left him down on the whole idea of potash development in his community.
“If another one came along, I don’t know if we would be quite as interested,” Gervais said
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Western Potash Milestone Phase 1 Project located approximately 30 kilometres southeast of Regina.
PHOTO BY TROY FLEECE /Regina Leader-Post
After the CDB financing fell through, Western Potash suspended construction on the Milestone project in May 2020. It looked to its main shareholder for a loan. In the letter to the RM, it blamed COVID-19 for derailing those plans, as the pandemic bit into the shareholder’s cashflow.
“COVID certainly didn’t come at the right time, not only in terms of the general economics of the situation, but it forced a lot of investors to move their cash elsewhere or use their reserves,” said Wood.
Western Potash then began negotiations with other investors. But they made financing conditional on the company proving its technology by developing the caverns of the mine, according to the letter. Unfortunately, the project faced “unplanned shutdowns and premature equipment failures.”
Still, Wood projected confidence. He called it “very probable” that the conditions will be met and the financing secured this quarter. The company has also sold real estate it owns in Vancouver, and Wood said every dollar will go toward restarting construction so it can secure financing and repay creditors.
“We’re really committed to treating all the creditors fairly and equally, and we’ve been trying to be as transparent as we can and keep them updated on the situation,” he said, adding that the goal is paying the full amount, not a settlement for pennies on the dollar.
“I can confidently say we’re 100 per cent committed to paying all the outstanding amount and we plan to pay exactly in accordance with the purchase contracts,” said Wood.
After the CDB financing fell through, Western Potash suspended construction on the Milestone project in May 2020. It looked to its main shareholder for a loan. In the letter to the RM, it blamed COVID-19 for derailing those plans, as the pandemic bit into the shareholder’s cashflow.
“COVID certainly didn’t come at the right time, not only in terms of the general economics of the situation, but it forced a lot of investors to move their cash elsewhere or use their reserves,” said Wood.
Western Potash then began negotiations with other investors. But they made financing conditional on the company proving its technology by developing the caverns of the mine, according to the letter. Unfortunately, the project faced “unplanned shutdowns and premature equipment failures.”
Still, Wood projected confidence. He called it “very probable” that the conditions will be met and the financing secured this quarter. The company has also sold real estate it owns in Vancouver, and Wood said every dollar will go toward restarting construction so it can secure financing and repay creditors.
“We’re really committed to treating all the creditors fairly and equally, and we’ve been trying to be as transparent as we can and keep them updated on the situation,” he said, adding that the goal is paying the full amount, not a settlement for pennies on the dollar.
“I can confidently say we’re 100 per cent committed to paying all the outstanding amount and we plan to pay exactly in accordance with the purchase contracts,” said Wood.
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Contractors and vendors are not holding their breath. The Leader-Post spoke to executives or owners at three Saskatchewan-based companies who have liens on the property, and two seemed skeptical that they will see much of their money ever again. The third said he has already recouped a sizeable share of the lien amount. All three requested anonymity to talk about sensitive business matters.
“I’ve deemed it to be an uncollectible account, so I don’t put any energy into it,” said one. “They have been providing updates as best they can, but until you’ve got the cheque in your hands, what does that mean?”
Another called the situation “sad,” especially since he believes in Western Potash’s technology. He said an outstanding invoice for a few months is hardly unusual — but waiting two years for payment is another matter.
“It’s not good business,” he said.
Nutrien expects record year for profit and 14 million tonnes of potash sales
$7.5 billion BHP investment in Jansen potash mine 'unmitigated good news,' says prof
Contractors and vendors are not holding their breath. The Leader-Post spoke to executives or owners at three Saskatchewan-based companies who have liens on the property, and two seemed skeptical that they will see much of their money ever again. The third said he has already recouped a sizeable share of the lien amount. All three requested anonymity to talk about sensitive business matters.
“I’ve deemed it to be an uncollectible account, so I don’t put any energy into it,” said one. “They have been providing updates as best they can, but until you’ve got the cheque in your hands, what does that mean?”
Another called the situation “sad,” especially since he believes in Western Potash’s technology. He said an outstanding invoice for a few months is hardly unusual — but waiting two years for payment is another matter.
“It’s not good business,” he said.
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