Denver-based Prospect Global Resources and Sichuan Chemical Industry Holding announced Monday a more than $2 billion agreement, over a 10-year period, under which Sichuan will purchase at least 500,000 metric tons of potash annually, or 25 percent of the projected output of Prospect Global's American West Potash Field in Holbrook, Az.
The conservative deal valuation reflects current market prices of about $475 per metric ton for a total of 5 million metric tons.
The contract is take-or-pay, backed by a letter of credit.
The agreement also provides an option for American West to sell and Sichuan Chemical to purchase an additional mount of potash.
Prospect Global said it is believed to be the largest-ever purchase and sale contract - in price and volume - for a potash mine under development in the United States. It added that the deal is also believed to be one of the largest export contracts in United States history.
"Prospect Global believes this bankable offtake agreement enhances the attractiveness of the project to lenders," the company said in a statement.
The current timetable calls for the American West site to be in production by late 2015 or early 2016.
Pat Avery, executive officer of Prospect Global said the agreement is "a major vote of confidence both in the long-term potential of our American West Potash site as a mineral resource and in Prospect Global's ability to create a state of the art mining operation to capitalize on that potential."
Prospect Global said that from the perspective of Sichuan Chemical, a state-owned enterprise that is one of China's largest fertilizer manufacturers and its third-largest chemical company, the accord provides a large - and independent - source of a commodity that is critical to meeting the challenge of feeding the world's largest nation.
Prospect Global said that this year's record drought in North America and Europe has cut grain harvests, squeezing global food reserves and raising prices. In that context, obtaining dependable supplies of potash, which raises agricultural productivity without depleting soil nutrient, is vital to China's food security, said the Denver company.
Kiaojun Chen, chairman of Sichuan Chemical said the agreement with Prospect Global "has important benefit for Sichuan Chemical and "also will make a significant contribution to the economic development of Sichuan Province and the Chinese potash industry."
Chen said Sichuan Chemical is "honored to work with Prospect Global" and looks forward "to a prosperous future."
Howard Pankratz: 303-954-1939, hpankratz@denverpost.com or twitter.com/howardpankratz
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