(Yicai) May 13 -- Qinghai Salt Lake Industry, China's largest potash producer, plans to invest around USD300 million to become the controlling shareholder of Australia's Highfield Resources, thereby gaining control of potash projects in Canada and Spain.

The unit of China Minmetals has signed a letter of intent with Highfield, its controlling shareholder, and other relevant parties to take control of the miner, the Southey project in Saskatchewan, Canada, and the Muga project in northern Spain, the Golmud-based company said yesterday. 

China accounts for about a quarter of global potash consumption, but its domestic production is limited, leading to a long-term reliance on imports and the need for foreign acquisitions. Potash, a nutrient form of potassium, is mined especially in Canada mainly for use as a fertilizer.

Qinghai Salt Lake will conduct due diligence and negotiate the specific transaction terms, including price, with the parties involved, the state-owned company added.

The Southey project was being developed by Yancoal Canada Resources, a subsidiary of Yankuang Energy Group, a Chinese mining company. After the transaction, Qinghai Salt Lake will also own Yancoal Canada

This is not the first proposal to acquire Highfield, as Yankuang Energy offered USD376 million to acquire a controlling stake last September. The Jining-based coal miner announced yesterday that it would abandon this plan in favor of supporting Qinghai Salt Lake’s proposal.

Highfield listed on the Australian Securities Exchange in February 2012. Its core asset, the Muga project, is still in the greenfield development stage and will produce one million tons of potash a year. Muga has proven reserves of 104 million tons, with a potassium chloride grade of 16.1 percent, according to the Joint Ore Reserves Committee Code.

Qinghai Salt Lake holds mining rights to around 3,700 square kilometers of China's largest salt lake, Qarhan, with an annual potassium chloride production capacity of five million tons. The company's potash business generated CNY11.7 billion (USD1.6 billion) in revenue last year, accounting for 77 percent of its total, according to the firm’s annual trading report.

Qinghai Salt Lake [SHE: 000792] closed 0.1 percent higher at CNY16.11 (USD2.20) a share in Shenzhen, after rising by as much as 1.9 percent earlier today. Yankuang Energy [SHA: 600188] added 1.8 percent to end at CNY12.63.

Editor: Emmi Laine