The first phase of the mine is expected to have a capacity to produce 625,000 tons a year and the capacity could increase to 2.125m tones per year after the completion of the mine.
As per the agreement, GFSC will bear the costs for the construction of the first phase and buy 56% of the production at market price for 20 years.
GSFC senior vice-president and CFO Vishvesh Nanavaty said: "This ground-breaking deal structure demonstrates GSFC’s long term commitment and desire to secure supplies of key natural resources through investment structures that are aligned with the values of Canadian shareholders.
"I believe this financing will serve as a template for future investment by Indian companies in Canada and will strengthen relations between our two countries for years to come."
Currently, global potash prices trade below $300 per tone compared to a peak of $900 per tone hit in 2008.
Karnalyte founder and president Robin Phinney said the poor demand in the market is not a "concern" for Karnalyte’s Wynyard project, adding that the demand is estimated to rise in 2016.
Phinney said: "We are extremely pleased to have entered into the Agreement in Principle with GSFC which is expected to enable Karnalyte to develop its significant potash resource.
"The Agreement in Principle provides for a comprehensive financing package to fully fund Karnalyte’s 625,000 tpy potash mine while enabling shareholders to maximize their investment in Karnalyte’s secondary minerals and unexplored lands."
Phinney said the first phase of mine could around 300 construction jobs, with 80-90 permanent jobs.
The production in the first phase is also likely to help in financing the construction of second and third phases, he added.
Karnalyte had received positive feasibility study for the project in 2011 to produce higher grade granular potash.
GSFC had made its first investment of $44.7m through private placement in the project in 2013, taking a 19.98% stake.
