June 3 (Reuters) - Shares of Western Potash Corp fell as much as 12 percent on Monday after the Canadian mining company sold a nearly one-fifth stake to a joint venture of two Chinese companies, requiring a new issue of shares.

Western said on Sunday that it had sold 45 million newly issued shares - representing a 19.9 percent stake in the company - to CBC Holding Corp, jointly owned by China BlueChemical Ltd and Benewood Holdings Corp Ltd, for C$31.98 million ($31.05 million), or 71 Canadian cents per share.

The deal is a sign of China's interest, as the world's largest consumer of potash, in producing the crop nutrient outside its borders. China is one of the biggest potash buyers from Canpotex Ltd and Belarusian Potash Company (BPC), which sell the nutrient on behalf of North American and Russia/Belarus producers respectively.

India, another major potash consumer, is also easing into the production side. In January, India's Gujarat State Fertilizers & Chemicals Limited bought a nearly 20 percent stake in Karnalyte Resources, another company trying to raise capital to build a Canadian potash mine.

Vancouver-based Western Potash has been looking for outside capital to develop its proposed 2.8 million tonne-per-year Milestone potash mine in Saskatchewan.

As part of the deal, CBC or a buyer it designates will buy up to 30 percent, or 1 million tonnes, of potash annually from the Milestone project for 20 years.

Western Potash shares dropped nearly 10 percent, or 7 Canadian cents, to 66 Canadian cents in early trading in Toronto.

Laurentian Bank cut its rating on the company to "hold" from "speculative buy" on Monday.