Monday, 15 October 2012

Western Potash sees “Milestone” work in Canada’s resource-rich Saskatchewan

Vancouver-based Western Potash Corp. (TSE:WPX) (FSE:AHE) is a stock to watch as it is on the cusp of constructing a potash solution mine in the resource-rich Canadian province of Saskatchewan that is expected to break ground in 2016. 
The area has seen plenty of activity in the potash sector, as along with junior miners in the planning stages, both BHP Billiton (LON:BHP) and K+S AG have recently started work on potash mines in Saskatchewan. 
The region is also home to Potash Corp (NYSE:POT) (TSE:POT) - the world's biggest producer of the crop nutrients. 
The Milestone project is due to come online in 2016, with strong projected economics. A preliminary assessment of economics done by AMEC, assuming a discounted rate of 10 per cent, showed the resulting project net present value is C$4.14 billion, while the internal rate of return is 22.7 per cent.
A feasibility study is still on track for mid-November, says Western Potash's VP of corporate development, John Costigan. 
The solution mine, which is expected to produce 2.8 million tonnes of potash, a key soil nutrient for growing crops, has several benefits when compared to conventional potash mines. 
This includes a shorter construction timeline, a lower capex and a faster rate of return versus conventional potash mine construction. 
"Our Milestone project is a solution mine that can in general be built in 4 years. In reality we're just building a processing plant on surface," says Costigan.
The initial capital expenditure estimate for the plant is $2.76 billion, including allowances for port infrastructure, a water supply pipeline, and off site railway. Unit operating costs were estimated to be $62.35 per tonne at full production capacity.
The preliminary economic study gave a time frame of three years for construction, six years to full secondary production and a payback period of five years.
Milestone is located approximately 30 kilometres southeast of Regina and 80 kilometres southeast of Mosaic's (NYSE:MOS) Belle Plaine Mining Lease, home to one of the largest producing potash solution mines in the world.
Last month, it was reported that Western Potash's assets were attracting the likes of India's Rashtriya Chemicals and Fertilizers, among others, with conversations about a potential investment or joint venture still ongoing, Costigan says. 
India is the world’s number two buyer of potash, and its major suppliers include Potash Corporation of Saskatchewan (TSE:POT),Mosaic Co. (NYSE:MOS), and Agrium (TSE:AGU)(NYSE:AGU). The country meets its entire potash requirement through imports.
"The process as you can imagine, is lengthy, as parties may have regulatory issues with banks or other considerations they need to attend to before an agreement is signed," he adds. 
"Nobody has come in and looked at our company and said forget it. All the commercial conversations we have had with the interested parties are still ongoing. 
“As a matter of fact, there are new parties expressing interest as we continue to de-risk the Milestone project.”
The potash miner continues to work toward finalizing a deal with a strategic partner. 
It also announced last week that it plans to raise $15 million in a non-brokered private placement financing, negotiating to sell up to 31.25 million units at a price of 48 cents each.
The new funds, the company says, will be used to complete the feasibility study for its Milestone project, for environmental and permitting expenses, as well as for general working capital. 
Western Potash submitted an environmental impact statement to the Saskatchewan government for its flagship project on September 5. Following a technical review by regulatory agencies, the report will be available for public review for a 30-day comment period, and will be available on the company's website - expected sometime in the fourth quarter. 
The environmental report details features designed to minimize the potential impacts of the project to the environment, while "optimizing social and economic benefits" to the local and regional communities.
Under NI 43-101 guidelines, the Milestone project holds 66.6 million tonnes of measured recoverable resource, 186.9 million tonnes of indicated recoverable resource and 708.2 million tonnes of inferred recoverable resource.

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