Organization and Business Operations

3 Months Ended

Jun. 30, 2012

Organization and Business Operations

Organization and Business Operations

Note 1—Organization and Business Operations

Introduction

Prospect Global Resources Inc., a Nevada corporation (individually or in any combination with its subsidiaries, “Prospect,” the “Company,” “we,” “us,” or “our”), is engaged in the exploration and development of a large, high-quality potash deposit located in the Holbrook Basin of eastern Arizona, which we refer to as the Holbrook Project. We hold our interest and control the Holbrook Project through our 50% ownership of our subsidiary, American West Potash, or AWP. On August 1, 2012 we purchased the remaining 50% interest in AWP from The Karlsson Group. Through AWP, we hold potash exploration permits on 38 Arizona state sections and leases for the mineral rights on 109 private sections which, in total, cover approximately 90,000 acres. See Note 11 — The Karlsson Group Acquisition for more information relating to our acquisition of the remaining 50% interest in AWP.

Our strategy is to increase shareholder value through our focus on the exploration, development and production of potash from our Holbrook Project. Since 2011, we have conducted drilling, geological work and various other technical and prelimin

ary economic assessments to advance and expand our mineralized material base at the Holbrook Project. At this time, we are not focused on any acquisitions outside of the Holbrook Basin.

Purchase of Unowned 50% Interest of AWP from The Karlsson Group

We entered into an agreement with The Karlsson Group on May 30, 2012 to acquire the 50% of AWP that we did not own for an aggregate purchase price of $150,000,000, or the equivalent of approximately $2.52 per share, before consideration of warrants, royalties and potential contingent payments. The transaction closed on August 1, 2012 at which time we assumed full ownership and control of AWP.

As of May 30, 2012, we had paid The Karlsson Group a non-refundable deposit consisting of (a) $6,000,000 cash, of which $5,500,000 was credited against the purchase price, and (b) a warrant to purchase 5,605,834 shares of our common stock for $4.25 per share. At closing, (a) we paid The Karlsson Group an additional $19,500,000 in cash, which was funded from the proceeds of the public offering that closed on July 5, 2012, (b) Old Prospect Global issued The Karlsson Group a senior secured $125,000,000 promissory note and (c) AWP granted The Karlsson Group a royalty of 1% of the gross sales received by AWP from potash production from the real property over which AWP currently has leases, licenses and permits for mining purposes, capped at $75,000,000. In the event of a sale of at least 50% of AWP or a merger of AWP with or into an unaffiliated entity within four years of the closing date, we have agreed to pay The Karlsson Group an additional payment equal to 15% of the net proceeds received from the transaction, capped at $75,000,000. In addition, at the closing, AWP received an option to purchase approximately 5,080 acres in Apache County, Arizona from an affiliate of The Karlsson Group for $250,000 which is exercisable for 150 days after payment in full of the promissory note. At closing, the stockholders of The Karlsson Group agreed not to compete with AWP within the Holbrook Basin of Arizona for three years from the closing date.

The Holbrook Project

The Holbrook Project consists of permits and leases on 147 mineral estate sections spanning approximately 90,000 acres in the Holbrook Basin of eastern Arizona, along the southern edge of the Colorado Plateau. In January 2011, The Karlsson Group contributed to AWP its ownership of mineral rights, surface rights and title consisting of approximately 31,000 gross acres covering 50 mineral estate sections in the Holbrook Basin, and we contributed mining expertise and industry knowledge, together with a cash investment of $11 million, each for a 50% ownership interest in AWP. In July 2011, AWP entered into a Potash Sharing Agreement covering 101 private mineral estate sections and related mineral leases on approximately 63,000 acres adjacent to or in close proximity to AWP’s existing mineral rights. In May 2012, we divested ourselves of four mineral estate sections covering approximately 2,500 gross acres, which were non-contiguous with our remaining sections. The Potash Sharing Agreement provides that AWP will pay the mineral estate owners specified dollar amounts during the development of AWP’s mining and processing facility. The related agreements with each counterparty to the Potash Sharing Agreement include an annual base rent and a royalty for potash extracted from these estates. The term of the Potash Sharing Agreement is perpetual or until the earliest of cessation of operations by AWP for 180 consecutive days or abandonment of the potash mining operation by AWP.

During calendar year 2011, AWP acquired approximately 70 miles of 2D seismic data and completed the drilling and coring of 12 holes. This was combined with the historic information of approximately 58 holes in our project area, the results of which was used to delineate the potash resource potential on AWP’s acreage. As part of our ongoing exploration and development work, in 2011 we engaged third party technical consultants, North Rim Exploration Ltd. to complete a NI 43-101 mineral resource estimate, which we refer to as the Resource Calculation, and Tetra Tech, Inc. to complete a preliminary economic assessment, or PEA. In June 2012, we completed the drilling and coring of an additional 10 holes and are currently analyzing the core samples from these holes. Once this analysis is complete, the additional information will be included in an updated resource calculation, as further described in Note 12 - Subsequent Events under Updated Mineral Resource Report.