Its subsidiary Davenport Pty Ltd, which will hold the project, plans to list on the Australian Securities Exchange subject to raising at least $4 million and meeting regulatory requirements.
Both Potash West and Davenport shareholders will have priority entitlement in the capital raising.
The company will receive $250,000 as non-refundable option and exclusivity fees as well as 36,458,333 Davenport shares at listing price of $0.20 plus 67,708,334 performance shares, which will convert to ordinary shares on achieving pre-determined project milestones.
It will own about 28% of Daveport, subject to the amount raised.
Funding to be applied to drilling targets identified by Potash West in March 2015.
South Harz consists of the Küllstedt and Grafentonna licences. Küllstedt has an Exploration Target of 4 to 5 Billion tonnes of potash ore at a grade between 7 and 25% K2O.
Patrick McManus, managing director, commented:
"This transaction is a major step forward for Potash West and our shareholders. The South Harz project will now have a focused, and well-resourced team to take it forward.
"The review of data for Küllstedt has identified several targets where drilling could validate previous exploration work, allowing a rapid path to a JORC compliant resource.
"Whilst maintaining a significant exposure to South Harz, the company can continue to progress its other projects: The Dinner Hill phosphate and potash project in the Dandaragan Trough and its ground-breaking extraction technologies, the 100% owned K-Max technology and the 25% owned Li-Max technology."
South Harz is located in Central Germany where world class infrastructure network is being utilised by current potash producers to access key in Europe and offshore.
The Küllstedt and Grafentonna exploration licences cover 457 square kilometres with potential for rapid resource definition and growth using extensive historical drilling records.
A total of 34 drill holes were drilled in the Küllstedt licence, and its immediate surrounds, in the period 1960 to 1980.
There is a well-documented history of production on the licences and very long history of extensive production on neighboring properties from Sylvinite and Carnallitite ores (100 million tonnes of potash prior to 1993, and over US$20 billion in today's value).
Three shafts were sunk in the Küllstedt licence extracting potash early last century.
Distribution of potash salts in the Küllstedt area has been well documented through over a century of exploration and mining and the geology of the area is well understood.
Planning for a confirmatory drilling program targeting areas of thick mineralisation at shallower depths is in progress with consultants and will be finalised in the next few months.
Current potash mining in the region exploits sylvinite, and carnallitite, utilising both large scale underground and solution mining / extraction methods.
Adding interest, Germany is the fifth largest potash producing country with extensive expertise in potash mining.
Potash West's sale of South Harz to Arunta Resources will allow the company to focus on its Dinner Hill project and extraction technologies while retaining a meaningful interest in the potash project.
Its shareholders will also have priority entitlement in Davenport's capital raising, giving them the opportunity to increase their exposure.
The company is currently carrying out feasibility studies of the Dinner Hill Phosphate Project.
Potash West had $1.5 million in cash as at 30th June 2015 and recently raised $1.8 million in an oversubscribed placement.
Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.