TORONTO (miningweekly.com) – Shares in Western Potash Corp, hoping to mine the fertiliser ingredient in Saskatchewan, bounded 17% higher in Toronto on Tuesday, prompting speculation a takeover may be on the cards following the imminent release of its Milestone project's prefeasibility study.

Vancouver-based Fundamental Research analyst Siddharth Rajeev said the company was due to announced the results of the study either this week or next, which might bring the Vancouver-based firm into the crosshairs of a major mining company, such as Rio Tinto, Vale or BHP Billiton.

“It’s one of the very few advanced-stage projects in Saskatchewan that’s yet to be acquired,” he told Mining Weekly Online in a telephone interview, adding that TSX-quoted Western Potash was “extremely undervalued”.

Rajeev backs up his view by pointing to the fact that the junior has a market capitalisation of C$196-million, while its peer Karnalyte Resources, which has similar assets, has a 50% higher market value of C$350-million.

Karnalyte, also listed in Toronto, has a 455-million ton resource, compared with the 945-million ton resource Western Potash has.

On Monday, Karnalyte announced the results of its own feasibility study for its Wynyard project in Saskatchewan, which upgraded 150-million tons of resources into the reserves category.

Its study envisaged an initial C$593-million price tag to build a 625 000 t/y operation, with a further C$1.3-billion required to lift output to 2.1-million tons yearly.

Rajeev said Western Potash’s share price on Tuesday might be partially riding on the back of Karnalyte’s positive news.

Western Potash closed at $1.22 a share in heavy TSX trading. The stock has gained 62% since the start of October.

The company last year published the results of a scoping study outlining a $2.5-billion capital cost for a 2.5-million ton a year operation at Milestone, which, like Wynyard, will be a solution mine, meaning the companies will extract the potash by pumping water into the orebody to dissolve the minerals, which is then pumped back up to surface.

BMO Capital Markets analyst Joel Jackson attributed the Western Potash’s dramatic share price jump on Tuesday to the expectation in the market that the company would release the results of the prefeasibility study in the next few days.

He expected the study to describe a project similar to K + S’s Legacy asset, which it bought through its $434-million acquisition of Potash One earlier this year. The German company aims to produce up to 2.7-million of potash from that deposit, with first output in 2015.

Jackson said the capital estimate for Western Potash might increase to $3-billion, with costs slightly higher than for Legacy, because Milestone is further away from the water it needs for the solution mining process.

Rajeev said his company had been speculating over the last year that Western Potash might become a takeover target.

He said that potential buyers would first want to see proof that its project was solid, before entering any talks.

“That [the anticipated prefeasibility study's release] will be a strong indicator that the fundamentals are good,” he commented.

Companies that might be interested include “any of the majors that are keen on diversifying in potash”, Rajeev added, highlighting Vale, BHP Billiton and Rio Tinto as potential candidates.

Western Potash did not immediately respond to messages Mining Weekly Online left, seeking comment.

BHP Billiton is finalising a feasibility study on its Jansen project, expected to produce up to eight-million tons a year of the crop nutrient.

Vale owns properties in South America and Saskatchewan, and Rio Tinto earlier this month bought into properties Russia’s JSC Acron owns in the Canadian province, after massive debt forced the Anglo-Australian miner to sell its potash assets in 2009.

Saskatchewan hosts around one-half of the world’s known potash resources, and accounts for just under one-third of global production.