by Wally Graham, Resources Roadhouse
Potash West
(ASX:PWN) announced the results of its initial Scoping Study into the production of potassium sulphate and other products from its Dandaragan Trough project in January.
The study considered a start-up rate of 2.4 million tonnes per annum (Mtpa), which was identified by the study to be suited to the immediate market demand in the local region.
The results of the study have validated the faith Potash West has shown in the Dandaragan Trough project since the company listed in 2011.
Its intentions back then were clear; to establish a flowsheet and complete a financial analysis for the process of extracting the potash from the glauconite on the Dandaragan Trough.
“To support that financial study we needed a JORC Resource so we had to do that as well,” Potash West managing director Pat McManus told The Resources Roadhouse.
“The budgeted cost to complete those activities was $6 million and we hoped back then to have them completed by the end of 2012.
“We achieved those milestones – the JORC-compliant Resource of 244 million tonnes at 3 per cent potassium oxide with a higher-grade core of 122 million tonnes at 4.6 per cent potassium oxide was announced for the Dinner Hill prospect in October 2012.
“The results of the Scoping Study based on treating that resource were released in January.”
The Capital and Operating costs estimates, and the Marketing and Revenue estimates were carried out by independent experts, Tenova Bateman and CRU respectively. CRU studies of the market led to a scale of 2.4Mtpa mining rate being chosen as the base case.
At this scale the marketing study determined most of the production would be placed onto the market without much discount.
“We will produce not just sulphate of potash, which is the premium of potash products, but also what will be a high-magnesium sulphate of potash that should find a ready market in the palm oil industry of South East Asia,” McManus said.
“We will also produce aluminium sulphate, which has a reasonable market world-wide in water treatment and super phosphate, as well as a high-quality 70 per cent iron, iron-oxide product.”
At 2.4Mtpa the project has a mine life of more than 60 year mine.
Operating costs per year are $365 million and capital costs are $650 million.
“We believe we have quite a strong project, based on the Dinner Hill resource,” McManus said.
“The very important thing for me to take out of the Scoping Study is the very strong revenue to cash flow, nearly 3 to 1, which indicates a strong operating cash flow.
“Equally important is that the study is based on what is just a very small part of the potential ultimate resource we believe we will be able to establish across our total tenement package.”
The study emerged with three key points concerning the company’s Dandaragan trough project.
The first is that the Dandaragan deposit is positioned to become a very, very big resource.
The company plus-60 years at 2.4Mtpa, currently sitting in the nine square kilometres of the Dinner Hill prospect, which is just one of several mineralised areas Potash West has identified within its nearly 3,000 square kilometre tenement package.
The second point is the company will let the scale of the project be driven by market demand for the products it will produce, a fact Potash West considers to be of great importance as it believes entering the market too early on too large a scale would result in an over-supply and cause soft prices.
The third point is the company will be able to commence production from Dinner Hill at a relatively small scale on a robust project with a calculated Internal Rate of Return of more than 20 per cent and grow that as the markets develop.
Another important element to the Potash West formula has been the development of the company’s glauconite to fertiliser processing technology called the K-Max process.
“K-Max is a process that has been developed by Potash West and our partners Strategic Metallurgy,” McManus explained.
“The process unlocks the value in the very large glauconite deposits that are present in the Dandaragan Trough basically by leaching and controlled precipitation.
“We have lodged a patent for the K-Max process as we feel that is the best way the company can ensure the value of the intellectual property in that process.”
The products produced from glauconite by the K-Max process are:
- Commodity grade sulphate of potash, used as a fertiliser;
- A high-Magnesium sulphate of potash, dubbed KMS, used as a fertiliser;
- High-grade Iron oxide powder/granules, with potential for iron ore sales;
- Aluminium sulphate, used in water treatment; and
- An iron-calcium phosphate, used as fertiliser.
“The K-Max process is very much a key component to the strong economics of the project,” McManus said.
“The process we have developed is one that will allow multiple products to be produced from the glauconite and that is the key revenue element in the viability of the project.”
Perhaps the only frustrating part of the Potash West story is how to get the investment community to look beyond its blinkered view of the Australian junior exploration sector and be excited by a project with a large resource, long mine life and robust economics.
Far too many investors look at a map of Australia and see iron ore on the left and coal on the right.
“Potash is not, at this stage of the game, fully understood, or appreciated, by the Australian investment community,” McManus lamented.
In fairness, Potash is reasonably new to the Australian scene, with only a handful of ASX-listed companies working mainly on this commodity.
Potash West, however, is one of even fewer companies working up a project on home soil.
The products to be produced by Potash West from its Dandargan Trough project will emerge into an established domestic agricultural market and into an export market in Asia eagerly looking for a nearby source.
Presently it seems, in terms of the physical market and of the fertiliser business, people just don’t seem to be concerned about where potash comes from.
It is astounding to think all the potash presently consumed in Western Australia, for instance, comes from Saskatchewan in Canada when a substantial resource of the product is situated within that state’s boundaries.
A final piece of food for thought; the potash market is a world-wide market and is currently worth around US$27 billion per year.
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23 Belgravia Street
Belmont WA 6104
DIRECTORS
Adrian Griffin, Patrick McManus, George Sakalidis, Gary Johnson
