The letter of intent relates to the acquistion by Pacific Potash of Moonraker Acqusition Corp, which holds an option to acquire an 80 per cent interest in Western Potash's Brazilian potash assets, located within the Amazonas Potash Basin.
Pacific Potash will purchase Moonraker in exchange for the issuance of 4,975,000 of its common shares to shareholders.
Moonraker will become a wholly owned subsidiary of Pacific Potash.
In order to earn the interest in the Western Potash assets, the deal requires Moonraker or Pacific Potash to make a cash payment of $100,000 on execution of the option, and pay a further $150,000 and issue 500,000 common shares of Pacific Potash within 5 days after approval of the agreement.
Within the first year of the agreement, Moonraker or Pacific Potash must pay an additional cash payment of $250,000, and issue a further 500,000 common shares of Pacific Potash.
Within three years of the initial deal, Moonraker or Pacific Potash must issue another 500,000 common shares of Pacific Potash.
The option deal also calls for $2.0 million in exploration expenditures over a three year period in order to earn the 80 per cent interest. A minimum exploration expenditure of $300,000 per year is required.
Once the earn in is complete, a joint venture will be formed between Pacific and Western, with Pacific Potash paying 80 per cent of costs going forward, and Western paying 20 per cent.
Western will be granted back in rights to earn an additional 29 per cent interest in the project by providing a bankable feasibility study.
At the transaction's close, a member of the Western team is expected to join Pacific's board.
The Western Potash assets comprise several claim parcels that extend from the Amazon River to the centre of the Amazonas Basin, where Potassio do Brasil, Petrobras, and Vale, among others, are exploring for potash deposits.
Two deposits owned by Petrobras-Arari and Fazendinha-are located 20 and 40 km west, respectively, of the property being optioned by Pacific Potash. Fazendinha has reported historic resources of 520 million tonnes at 28.8% KCl, while Arari has 659 million tonnes at 17.7% KCl.
Pacific Potash is focused on the exploration and development of the Provost potash property in Alberta, Canada that contains the Prairie Evaporite Formation, which hosts many conventional and solution potash mines.
Western Potash is also focused on the exploration and development of potash mineral properties in western Canada.
The company recently reported at the end of May that it adopted a three-year, shareholder rights plan agreement.
The agreement, dated March 26, 2012, was accepted by the Toronto Stock Exchange and was ratified by the shareholders of Western Potash at its AGM held on March 26.
Western Potash noted that the objective of its board in adopting the plan is to "achieve full and fair value" for the company's shareholders in the event of an unsolicited take-over bid.
In February, Western Potash hired Richard Lock as its project director, to help the company develop its wholly-owned Milestone potash project in Saskatchewan.
Late last year, the company announced an updated resource estimate for the Milestone property, which slightly increased the Milestone recoverable potash resource to 66.6 million tonnes in the measured category, 186.9 million tonnes of indicated resource, and 708.2 million inferred tonnes.
In October 2011, the junior miner said an independent prefeasibility study (NYSE:PFS) confirmed Milestone showed "significant positive economics".
The study, carried out by AMEC Americas, showed that the asset was of sufficient size and grade to support mining for more than forty years at a production rate of 2.8 million tonnes per year.
The property, comprising 500 square kilometres, is located 30 kilometres southeast of Regina, and southeast of Mosaic's Belle Plaine Mine, one of the largest producing potash solution mines in the world.