PhosCan Chemical Corp.
TSX VENTURE : FOS

PhosCan Chemical Corp.

December 17, 2008 16:30 ET

PhosCan Chemical Announces Results for Quarter Ended October 31, 2008

TORONTO, ONTARIO--(Marketwire - Dec. 17, 2008) -

(All dollar amounts are expressed in Canadian currency unless otherwise noted.)

PhosCan Chemical Corp. (TSX VENTURE:FOS) announces its financial and operating results for the quarter ended October 31, 2008.

Highlights for the quarter include:

- Ian Pritchard appointed as Executive Vice President, Operations and Projects

- Continued advancement of the Martison Phosphate Project with ongoing work on a Feasibility Study, environmental permitting and stakeholder agreements

- Purchase of land required for the proposed mono-ammonium phosphate (MAP) fertilizer production facility in Brandon, Manitoba

- Shareholders' rights plan adopted by Board of Directors

Subsequent to October 31, 2008, PhosCan announced the following developments:

- Deferral of several tasks at the Martison Project in order to conserve cash; first production at the Martison Project is no longer expected to commence in 2012

- Special meeting of shareholders set for February 11, 2009 to approve the shareholders' rights plan and a reduction in stated capital in order to enable PhosCan to undertake a normal course issuer bid

Financial Results

PhosCan reported a net loss for the three months ended October 31, 2008 of $919,066 compared to a net loss for the same period during the previous year of $253,621. The increase in net loss of $665,445 was primarily due to a $511,972 increase in stock option compensation expense, a $250,008 increase in general and administrative expense and a $68,719 increase in professional fee expense, partially offset by a $84,583 reduction in management fees and $82,757 increase in foreign exchange gain.

The increase in stock option compensation expense of $511,972 during the three months ended October 31, 2008 compared to the same period during the previous year was primarily due to the vesting of 25% of 2,890,000 stock options granted to new and existing directors, officers, employees and a consultant of the Company on March 14, 2008 at an exercise price of $1.25 per common share and the vesting of 25% of 400,000 stock options granted to a new officer of the Company on August 5, 2008 at an exercise price of $1.25 per common share.

General and administrative and professional fee expenses increased by $250,008 and $68,719, respectively, during the three months ended October 31, 2008 compared to the same period during the previous year due to increased levels of corporate and Martison Project development activity.

Management fees decreased by $84,583 during the three months ended October 31, 2008 compared to the same period during the previous year because the President and CEO of the Company became a salaried employee and no longer received management fees.

PhosCan reported a foreign exchange gain of $31,119 for the three month period ended October 31, 2008, an increase of $82,757 compared to the foreign exchange loss of $51,638 reported by the Company for the three month period ended October 31, 2007. The increase primarily arose from the impact of the depreciation of the Canadian dollar versus the U.S. dollar on the Company's U.S. dollar denominated cash balances during the three month period ended October 31, 2008.

Cash and cash equivalents plus short-term investments increased by $44,166,838 during the nine month period ended October 31, 2008 to $75,517,220. At October 31, 2008, cash, cash equivalents and short-term investments consisted of: $1,048,579 of cash held in accounts with the Company's banking institution, $25,090,000 of investment-grade short-term guaranteed investment certificates issued by the Company's banking institution, $49,256,508 of Government of Canada treasury bills and $122,133 of accrued interest on the guaranteed investment certificates and treasury bills. Subsequent to October 31, 2008, PhosCan has invested all of its cash not held in its bank accounts in Government of Canada treasury bills.

At October 31, 2008, PhosCan had working capital of $74,562,407 versus $31,642,631 at January 31, 2008. The increases in cash and cash equivalents plus short-term investments and working capital were primarily due to a private placement completed by PhosCan on June 17, 2008 to raise gross proceeds of $55,100,000.

Included in working capital as part of other current assets as at October 31, 2008 is an initiation charge of $250,000 paid under a contract entered into by PhosCan as part of a drill program planned for winter 2009. As a result of the announcement on December 8, 2008 that the Company is deferring several tasks related to the development of the Martison Project, PhosCan is no longer proceeding with the 2009 winter drill program and the contract was terminated. Under the terms of the contract, some of the initiation charge may be refunded to PhosCan if the contract supplier is able to redeploy the equipment which it had allocated for the performance of the contract.

Capitalized expenditures on the Martison Project were $82,754,336 at October 31, 2008, an increase of $78,024,015 from January 31, 2008. The increase is primarily due to the acquisition of the remaining 50% interest in the Martison Project. The pre-tax fair value of the 50% interest in the Martison Project acquired by PhosCan was $70,378,177.

A future income tax liability of $18,605,698 was recorded on the acquisition of the remaining 50% interest in the Martison Project as a result of the fair value of Baltic's 50% interest in the Martison Project being greater than the carry-forward tax value. This has been recorded as a non-current liability on the Company's balance sheet as at October 31, 2008.

PhosCan had no long-term debt at October 31, 2008 and has met all of its financial obligations. The Company expects that existing working capital will be sufficient to complete the activities under the reduced development program announced on December 8, 2008 and detailed further below. PhosCan will be required to raise a significant amount of additional funds should it elect in the future to proceed with the development and ultimately the construction of the Martison Project.

Operating Results

During and subsequent to the quarter ended October 31, 2008, management and the Board of PhosCan continued to strengthen the Company and advance the development of the Martison Project.

- Ian Pritchard appointed as Executive Vice President, Operations and Projects

- Existing portion of the permanent access road upgraded; this work was completed by a construction company in a joint venture with a local First Nation

- Archaeological, traditional native land use and occupancy, and biological studies completed

- Land required for the proposed MAP fertilizer production facility in Brandon, Manitoba purchased

- Preliminary site layout and process flow diagrams and design criteria for the proposed MAP fertilizer production facility and a portion of the proposed conversion complex completed

On December 8, 2008, PhosCan announced that the Board of Directors had set the date for the special meeting of shareholders to approve the adoption of a Shareholders' Rights Plan for February 11, 2009. The purpose of the Plan is to provide shareholders and the Board of Directors with additional time to assess and evaluate any unsolicited bid for the Company, and to provide the Board with adequate time to identify, develop and negotiate alternatives to any unsolicited bid in order to maximize shareholder value. The Plan is not intended to block takeover bids for the Company that treat shareholders fairly and is not being adopted in response to any proposal to acquire control of the Company. The TSX Venture Exchange has notified the Company that it has no objection to the proposed adoption of the Plan, subject to receipt of shareholder approval and a final executed copy of the Plan upon its adoption.

At the special meeting of PhosCan shareholders on February 11, 2009, shareholders will also be asked to approve a reduction in the stated capital of the Company's common shares in order to enable the Company to undertake a normal course issuer bid.

Outlook

On December 8, 2008, PhosCan announced that, given current financial market and fertilizer industry conditions, it is deferring several tasks related to the development of the Martison Project such as construction of the balance of the permanent road to access the proposed mine site and detailed project engineering. As a result, the Company no longer expects production to begin at the Martison Project in 2012 as previously announced.

The Company intends to remain prudent and disciplined and work to find the right balance between advancing the Martison Project and preserving its cash. In that regard, the following activities are planned under a reduced development program for the balance of 2008 and 2009:

- Class C - Environmental Assessment of the permanent access road extension

- Permitting

- Geophysics at the proposed mine site

- Taking the mine claims to lease

- Purchase of Crown land for the proposed conversion complex

- Biological studies

- Impact and Benefit Agreement with First Nation

- Pilot plant-level ore beneficiation test program

- Rezoning of the Brandon land for PhosCan's use

Upon completion of the reduced development program, PhosCan expects to have approximately $70 million of uncommitted cash on hand. In light of the recent unprecedented changes in financial markets and the fertilizer industry, the Company believes that with this cash it is well positioned to review a broad range of options that have the potential to enhance shareholder value.

About PhosCan

PhosCan is engaged in the development of the Martison Phosphate Project, which consists of the Martison Phosphate Deposit and a planned phosphate mine, beneficiation plant, conversion complex and solid fertilizer production facility. The Martison Deposit is located 70 kilometres north of Hearst, Ontario. If the Martison Project is successfully developed, phosphate ore from the mine will be processed into a concentrate in the beneficiation plant. The concentrate will be transported by slurry pipeline to a conversion complex near Hearst where it will be combined with sulphuric acid to produce phosphoric acid. Sulphuric acid is expected to be sourced either from existing nearby base metal smelters or a sulphuric acid plant which would be built by the Company as part of the conversion complex. PhosCan will further process the phosphoric acid into superphosphoric acid (SPA) and/or mono-ammonium phosphate (MAP) fertilizer which will be sold to fertilizer dealers serving the agricultural regions of western Canada and mid-western United States. The Company's proposed operations will be strategically located in proximity to these target markets with ready access to excellent infrastructure including rail, power and labour.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements with respect to the Martison Phosphate Project, and matters concerning the business, operations, strategy, and financial performance of PhosCan. These statements generally can be identified by use of forward-looking words such as "may", "will", "expect", "estimate", "anticipate", "intends", "believe" or "continue" or the negative thereof or similar variations. Such forward-looking statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations, including that the estimates and projections regarding the Martison Project are realized. Forward-looking statements are based on a number of assumptions which may prove to be incorrect. Unless otherwise stated, all forward looking statements speak only as of the date of this press release and PhosCan does not undertake any obligation to update such statements except as required by law.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • PhosCan Chemical Corp.
    Stephen Case
    President & CEO
    (416) 972-9222