Tuesday 16th September 2014

Resource Clips


In pursuit of potash

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“They bring to the table very deep pockets and a commitment to fund future exploration programs on this property and other acquisitions as long as we continue to be successful,” Blady says. In addition the company might apply for exploration funds from the Brazilian Development Bank, which has increased its funding for agricultural and fertilizer products tenfold.

To complement the Brazilian project, Pacific has some Brazilian expertise in Andre Costa, the exploration geologist who helped discover Potash Brazil’s deposit, Luis Silva, Pacific’s country manager, and William Freire, “one of the best mining lawyers in Brazil.”

The exploration team is currently compiling and reviewing the property’s data prior to setting drill targets for a program to start in late September or October.

Western Potash TSX:WPX chart for the month ending May 16, 2013

Western Potash TSX:WPX chart
for the month ending May 16, 2013.

In Saskatchewan, meanwhile, Western Potash has distinguished itself as “the most advanced junior potash development story,” says Western VP of corporate development John Costigan. The company cleared its last hurdle with April’s environmental assessment approval. “Even those of our peers who have environmental approval have contingent approvals only,” Costigan emphasizes. “Nobody’s quite where we are.”

The approval followed December’s feasibility study, which used a 10% discount rate to calculate a pre-tax net present value of $3.6 billion and a 21% internal rate of return. After taxes the numbers show a $2.44-billion NPV and an 18.6% IRR. With a $2.91-billion initial capital cost, the operation would produce 2.8 million tonnes of potassium chloride a year over its 40-year life, based on proven reserves of 35.84 million tonnes and probable reserves of 101.44 million tonnes KCl. Payback would take 5.6 years.

Even those of our peers who have environmental approval have contingent approvals only. Nobody’s quite where we are.—John Costigan, VP of corporate development for Western Potash

A number of advantages brought Milestone this far. Among them is solution mining, in which water is pumped into underground caverns and then pumped out as potash-rich brine. With a construction phase that can be completed in three and a half years, the method offers much lower capex, says Costigan.

As for the water supply, it’ll come from the city of Regina, which signed a 45-year agreement to supply the company with treated effluent.

And with Regina only 30 kilometres away, Milestone enjoys an enviable location. Roads, power lines and two railways run right through the property. “We have agreements in place ready to be executed for electricity, rail and the port,” says Costigan.

While the company’s stock has trended favourably over the last month, Western conducts talks with potential joint venture partners.

The market looks favourably on early-stage Pacific Potash, advanced-stage Western Potash

Corn production relies on potash-based fertilizer,
as do soybeans, rice, sugar and a variety of
fruits and vegetables.

“Our contribution would be the project,” Costigan explains. “Our partner would match that, depending on what the percentage is. If it’s 60/40, they’d put 60% in, which would be more than the value of our project, and that would be the first equity contribution to the project. Then together we could raise the debt, which we’d repay from operations down the road.”

Western already has mine-building expertise on board. Project director Richard Lock has also served as project director for the Resolution copper mine, now in pre-feasibility, and brought Rio Tinto’s Diavik diamond mine into production. “Those are larger operations under much more difficult conditions,” points out Costigan. “It’s a slam dunk for Richard to build a potash solution mine in Saskatchewan.” Additionally, “We’ve been in the Basin six years and we probably have better geological knowledge than anyone out there.”

With Western Potash discussing a potential JV for a Saskatchewan mine and Pacific Potash preparing for early-stage Brazilian exploration, the two companies might be a study in contrasts. But, if all goes well, they could both play a part in helping feed generations to come.

(Update: On June 2, 2013, Western Potash received a $31.9-million investment and 20-year off-take agreement. Read more here.)

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