By Alistair MacDonald
Two investment banks have threatened legal action against a
Canadian potash miner for allegedly not paying advisory fees, in an
unusual move sparked by a deal that was once hailed as a potential
harbinger of Chinese investment into the cash-hungry junior potash
industry.
Lawyers for Swiss banking giant UBS AG and Montreal-based
Lockwood Financial Ltd. separately sent letters to Western Potash
alleging nonpayment of fees on the June 2013 deal. China
BlueChemical Ltd. and a Chinese partner took a 19.9% stake in the
Vancouver-based firm, in a high-profile transaction that triggered
hopes of further Chinese investment in the potash sector, where
exploration companies have struggled to raise cash. That increase
in Chinese investment into the sector never materialized and
Western Potash's deal is now the subject of legal complaints.
On Wednesday, lawyers for Lockwood, a boutique firm, sent a
letter to Western Potash alleging breach of contract for not paying
for an introduction to China BlueChemical or for general advice on
raising funds, according to a copy of the letter seen by The Wall
Street Journal.
The firm said it signed an advisory agreement with Western
Potash on September 2010 and that it was terminated in March 2012.
In its letter, the firm alleges that advice and introductions from
that period formed the basis of the agreement with China
BlueChemical, which is a subsidiary of oil giant Cnooc Ltd.
Lockwood said it would pursue legal action unless the situation is
resolved.
Western Potash and its lawyers, Borden Ladner Gervais LLP,
declined to comment. China BlueChemical couldn't immediately be
reached for comment.
In January 2012, Western Potash hired UBS to also advise it on
raising funds. Last September, lawyers for UBS sent a letter to
Western Potash demanding fees for that advice, according to a
regulatory announcement made by Western Potash. The filing said
that fees would be based on certain "triggering events" that didn't
occur, and that UBS's case against the miner was weak.
UBS declined to comment. Western Potash and its lawyers declined
further comment.
Western Potash is trying to develop a potash mine in southern
Saskatchewan. That province has almost half the world's reserves in
potash, but aside from a few established giants such as Potash
Corp. of Saskatchewan, few miners have been able to raise the funds
to mine it. The recent drop in the price of potash, which is used
as an ingredient in fertilizer, has added to the sector's woes as
investors mainly steer clear.
Western Potash shares have lost almost two-thirds of their value
since the company went public in 2008.
Write to Alistair MacDonald at alistair.macdonald@wsj.com
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