Organization and Business Operations

6 Months Ended

Jun. 30, 2011

Organization and Business Operations [Abstract]

Organization and Business Operations

Note 1 — Organization and Business Operations

Introduction

Prospect Global Resources Inc. (individually or in any combination with its subsidiaries, “Prospect,” the “Company,” “we,” “us,” or “our”) is an exploration stage company engaged in the exploration and mining of potash in the Holbrook Basin of eastern Arizona incorporated in the state of Nevada. On February 11, 2011, the Company completed a reverse merger and acquired Prospect Global Resources Inc., a Delaware corporation incorporated on August 5, 2010 (“Old Prospect Global”), as further described below. The Company conducts its operations through its wholly-owned subsidiary Old Prospect Global, which owns a 50% operated interest in American West Potash LLC, a Delaware limited liability company (“AWP”), as further described below. All references to “Triangle” in these Notes to Consolidated Financial Statements refer to the Company prior to the merger, at which time its name was Triangle Castings, Inc.

American West Potash LLC

AWP commenced operations on January 21, 2011, when the Company and the Karlsson Group (“Karlsson”) executed the Third Amended and Restated Operating Agreement (the “Operating Agreement”). Pursuant to the Operating Agreement, Karlsson transferred to AWP its ownership of mineral rights, surface rights and title consisting of approximately 31,000 gross acres in the Holbrook Basin in exchange for a 50% equity interest in AWP. Also pursuant to the terms of the Operating Agreement, the Company has contributed $4,200,000 of cash contributions as of August 9, 2011, and the Company must also invest an additional $6,800,000 within 90 days of delivery of a NI 43-101 compliant mineral resource estimate report (the “Reserve Report”), a technical report issued by third party natural resource experts with respect to the potash reserves on AWP’s acreage. The cash contributions totaling $4,200,000 will be utilized to acquire seismic data, drill core holes and prepare the Reserve Report. The Company also intends to prepare its mineral resource calculation in accordance with the SEC Industry Guide 7 as required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

On July 27, 2011, AWP entered into a potash sharing agreement and related mineral leases covering 100 private mineral estate sections on approximately 62,000 acres adjacent or in close proximity to the Company’s existing mineral rights covering 50 mineral estate sections in the Holbrook Basin of eastern Arizona. The sharing agreement provides that AWP will pay the mineral estate owners specified dollar amounts during development of AWP’s mining and processing facility, an annual base rent and a royalty for potash extracted from these estates. The term of the agreement will continue in perpetuity or until the earliest of cessation of operations by AWP for 180 consecutive days or abandonment of the potash mining operation by AWP. The owners of the mineral estates can also terminate the agreement upon specified defaults by AWP, some following cure periods. The mineral estate owners party to the agreement are two Hortenstine family limited partnerships, members of the Spurlock-Lucking family and American General Life Insurance Company. Refer to Note 11 — Subsequent Events for additional information. With this acquisition, AWP controls approximately 93,000 acres, of which approximately 27,000 acres are Arizona State Land Department leases and approximately 66,000 acres are private leases.

The Company is the exclusive operator of the project and will provide the technical resources and mining expertise, which provides it with the authority to manage the exploration, development and production of potash on AWP’s acreage. As the sole operator of AWP, the Company is required to deliver the Reserve Report no later than April 21, 2012. If the Company does not invest into AWP any of the additional $6,800,000 commitment, its ownership interest in AWP will be reduced from 50% to approximately 27%. The Company may elect to make investments in amounts less than those required to maintain the Company’s ownership interest. In such instances, the Company’s ownership percentage will decrease according to the terms of the Operating Agreement, but not below 27%. If the Company does not meet its funding commitments, AWP will be permitted to sell equity to third parties, which could be on terms that are disadvantageous to the Company, and the Company will lose one of its two designated manager positions with AWP.

Merger

On February 11, 2011, the Company, under its former name Triangle Castings, Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”) with its wholly-owned subsidiary Prospect Global Acquisition Inc., Old Prospect Global and Denis M. Snyder. Mr. Snyder was a majority stockholder of Triangle at the time. Pursuant to the terms of the Merger Agreement, Triangle’s wholly-owned subsidiary Prospect Global Acquisition Inc. executed a reverse merger with and into Old Prospect Global, with Old Prospect Global surviving the merger. As a result, Old Prospect Global became Triangle’s wholly-owned subsidiary and Triangle changed its name to Prospect Global Resources Inc.

The merger is treated as a reverse merger for financial accounting purposes. Old Prospect Global has been treated as the acquirer for accounting purposes, whereas the Company has been treated as the acquirer for legal purposes. Accordingly, the historical financial statements of the Company before the merger, under its former name Triangle Castings, Inc., were and will be replaced with the historical financial statements of Old Prospect Global in this and all future filings with the Securities and Exchange Commission. Before the merger, Triangle had 6,735,000 shares of common stock issued and outstanding, of which Denis M. Snyder held 5,000,000 shares. Old Prospect Global had 19,405,305 shares of common stock issued and outstanding before the merger. Old Prospect Global’s stockholders were predominantly the founding stockholders who were comprised of private institutions and individuals. Upon completion of the merger and pursuant to the terms of the Merger Agreement:

• the 5,000,000 shares of Triangle common stock held by Denis M. Snyder were cancelled for no consideration;

• the remaining 1,735,000 shares of Triangle common stock issued and outstanding before the merger remain issued and outstanding after the merger; the merger did not cause any change in ownership of these shares;

• each share of common stock of Prospect Global Acquisition Inc., Triangle’s then-wholly-owned merger entity, was converted into one share of common stock of Old Prospect Global as the surviving corporation; and

• each of the 19,405,305 shares of Old Prospect Global common stock was converted into one share of the Company’s common stock.

The merger triggered the automatic conversion of $1,048,863 of Old Prospect Global’s convertible notes and $26,770 of accrued interest into 358,559 shares of Old Prospect Global’s shares of common stock, which, in turn, were converted into shares of the Company’s common stock upon the completion of the merger. Upon completion of the merger, the Company had 21,498,864 shares of common stock issued and outstanding.