Saturday 10th December 2016

Resource Clips


Western Potash slashes costs

Update: $80-million investment puts Milestone on the road to potash production

by Greg Klein

Update: On July 6 Western Potash announced an $80-million strategic investment from private equity firm Beijing Tairui Innovation Capital Management. Read more.

 

Showing a dramatic cut in capital and operating costs, Western Potash TSX:WPX revived its Milestone potash project with a preliminary economic assessment announced July 2. Taking advantage of improvements in horizontal drilling and selective mining, the company now proposes an initially smaller but upwardly scalable approach to solution mining for the southern Saskatchewan property. With an offtake agreement already in place and amid a backdrop of potash M&A activity, Western expects the new plan to attract a wider range of investor interest.

To be sure, the new PEA proposes a more modest project than originally envisioned. A December 2012 feasibility study projected 40 years of production, but at a capex of $2.44 billion. The following summer saw the Uralkali/Belaruskali breakup, ending a cartel-like partnership that kept prices around $450 a tonne. Obviously Milestone needed a re-think.

Western Potash slashes capex and opex with a new plan for Milestone

By providing a key ingredient for fertilizer, Western Potash’s
Milestone project could help feed a hungry world.

That came with a scoping study for a downsized but scalable pilot project. The new calculations assume a potash price of US$315 per tonne FOB Vancouver. Capex now comes to $80.6 million, opex to $80 per tonne and transportation costs to $70 per tonne (all prices Canadian, except where noted). Using a 10% discount rate, the PEA calculates a net present value of $56.7 million and a 25.2% internal rate of return after taxes and royalty.

Those streamlined numbers result from a different approach to solution mining. The new plan calls for simultaneous operation of three caverns. They’d be injected with a sodium chloride-saturated brine that would dissolve potassium chloride. Once brought to surface, it would be recovered through a simplified process that wouldn’t produce salt tailings. The result would be about 145,600 tonnes of standard grade muriate of potash (potassium chloride) per year over a 12-year lifespan.

“We looked around the world at what others were doing, not just in potash but in soluble salts and soda ash, and what other processes were being done,” project director Richard Lock tells ResourceClips.com. “One of the key advantages was the advance of directional drilling. We could use that to establish the cavern and then focus only on selective mining or secondary mining. Instead of the conventional process of opening up a primary cavern and taking out both KCl [potassium chloride] and NaCl [sodium chloride], we just take out the KCl.”

“Obviously when you don’t have to bring the NaCl to surface and separate it from the solution, you have a major capital cost saving. That’s the real critical issue here—that by taking basically half the process plant away you get that major capital cost saving.”

With 25 years’ experience in mine development, Lock adds, “When we apply those technologies to the Saskatchewan resource it’s in some ways easier than other projects I’ve done around the world.”

Lock began his career with De Beers in South Africa before working with Rio Tinto NYE:RIO to take the Northwest Territories’ Diavik diamond mine into production. Lock also finished an Alberta oilsands project for Canadian Natural Resources and served as project director for Arizona’s Resolution project, an engineering marvel that could become North America’s largest copper mine.

Western’s 100%-owned Milestone has two continental railways cutting through its 35,420 hectares and a deal with the city of Regina, 30 kilometres away, to supply the mine with treated waste water.

Milestone’s PEA comes with a new resource using a 15.8% KCl cutoff to show:

  • measured: 7.17 million tonnes averaging 39.5% KCl

  • indicated: 11.56 million tonnes averaging 39% KCl

  • inferred: 1.77 million tonnes averaging 39% KCl

“We’d be starting with a small facility to prove up the technology,” Lock explains. “There’s no question there’ll be some fine-tuning of our methodology and processes as we develop these three test caverns, but we’re very confident that we can apply this technology to Saskatchewan. The endgame isn’t 150,000 tonnes, it’s a million tonnes plus. So once we’ve demonstrated this mining methodology we hope to quickly expand to a full-scale million-tonne-plus facility.”

The endgame isn’t 150,000 tonnes, it’s a million tonnes plus. So once we’ve demonstrated this mining methodology we hope to quickly expand to a full-scale million-tonne-plus facility.—Richard Lock, project director
for Western Potash

He sees the pilot project happening without a feasibility study. “Depending on raising the funds, we’d go straight into engineering and construction.”

Still in effect is a June 2013 offtake agreement with a joint venture of Benewood Holdings and China BlueChemical, the latter a majority-owned subsidiary of China National Offshore Oil Corp, China’s largest offshore oil and gas producer. With a 19.9% interest in Western, the JV has agreed to buy or designate a buyer to purchase the lesser of either 30% of Milestone’s production or one million tonnes of potash annually.

“Obviously we’ve shared everything we’ve done with them and they’re very excited by what this could mean,” Lock says.

The PEA comes amid heightened potash M&A activity, with the world’s largest producer, PotashCorp of Saskatchewan TSX:POT, trying to woo Germany’s K+S AG with a reported US$8.5-billion offer. A few weeks earlier Israel Chemicals Ltd NYE:ICL scooped up TSX-listed explorer Allana Potash for $137 million.

Milestone’s neighbours consist of K+S, BHP Billiton NYE:BHP, Vale NYE:VALE and a JV of Rio and North Atlantic Potash.

As for the revamped project, “We’re very confident we’ll be attractive to some mining investors who are looking for a good entry into the potash space,” Lock says. “I think this really opens up the field of investors to those who can see the game-changing advantage of what we’re proposing.”

 

Update: On July 6 Western Potash announced an $80-million strategic investment from private equity firm Beijing Tairui Innovation Capital Management. Read more.

Disclaimer: Western Potash Corp is a client of OnPage Media Corp, the publisher of ResourceClips.com. The principals of OnPage Media may hold shares in Western Potash.


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