Western Potash Corp. (TSE:WPX) (FSE:AHE) has announced the highly anticipated feasibility study on its Milestone potash property in southern Saskatchewan, eliminating all the technical risks on the project and giving it enough reserves and resources to "potentially mine into the next century".
"The key factor within the report is the fact that we have technically de-risked the project," VP of corporate development, John Costigan, tells Proactive Investors.
"The beauty of the study is that it is a now real catalyst for a partner acquisition - this is our focus now, and we are in negotiations with several potential partners."
The study, completed by AMEC Americas, confirms the asset is of sufficient size and grade to support primary and secondary potash solution mining for more than 40 years, at an ultimate production rate of 2.8 million tonnes per year of potash - a key soil nutrient for growing crops.
The company has said though that the proven and probable reserves alone are enough to support mining at the same rate for almost 50 years - well beyond the mine plan in the current study.
The solution mine has several benefits when compared to conventional potash mines, including a shorter construction timeline, a lower capex and a faster rate of return versus conventional potash mine construction.
After tax, the project, which is due to come online in 2016, is estimated to have a base case net present value of C$2.44 billion, with an 18.6 per cent internal rate of return (IRR) assuming a discount rate of 10 per cent. Pretax, the project yields a net present value of C$3.6 billion, and an IRR of 21 per cent.
"We have already hired a financial institution to help us with the future structuring of potential partner agreements," Costigan says.
"The ideal partner would be a very large player that has the capital to build the mine, that has access to the potash market, and could bring some technical savvy to the project."
"These negotiations are a process and there are time-consuming elements involved."
He adds that the potential partner in question would be able to actually use the product generated from the Milestone mine.
The area in which Milestone is situated 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.
Initial capex for the mine is pegged at C$2.91 billion, with deferred capex of $0.39 billion, and operating costs estimated at $62.28 per tonne at full production capacity. The payback period is projected at just over 5 and half years.
“Our project is in an enviable, low risk geopolitical and regulatory jurisdiction, which is a key advantage for developers that look for long-term investment predictability," Western Potash's president and CEO, Patricio Varas, said in a statement Thursday.
"The lower capital intensity of the project combined with the plant’s efficient operations and high throughput produce a project with attractive rates of return and significant free cash flow.
"These factors, coupled with the detailed scope of project evaluation, the size and grade of the deposit, and the project development expertise of the management team, presents a unique opportunity for investors and developers to secure an economical, reliable and long term supply of potash.”
The study includes all facilities required to operate a potash solution mine, including cavern and wellfield layout, a two-train multiple effect evaporization-crystallization plant, a dry processing plant, product storage, load out and all other necessary site infrastructure.
The design can also accommodate future production expansion, Western Potash said.
The total proven and probable reserves total 137 million tonnes of KCI, while the measured resource stands at 15.71 million tonnes, with 36.84 million tonnes in the indicated category, and 708.18 million tonnes in the inferred category.
As commercial mining is started, information from the ongoing wellfield drilling will be used to further expand the mineral reserves and resources, the company said Thursday.
The project, which has an estimated construction period of 3 and a half years starting in 2013 subject to financing and permitting approval, has easy access to power, natural gas, water and existing rail connections, Western Potash notes.
Late last month, the Vancouver-based company inked a definitive agreement with the city of Regina, securing a long-term source of process water for its Milestone project. Under the agreement, the company will have access to 60,000 cubic metres per day of treated effluent for the first six years, and 42,240 cubic metres for the remaining 39 years.
Today's feasibility study was intended to provide a "high degree of project definition", building on the prefeasibility study completed in September 2011. The preliminary assessment, assuming a discounted rate of 10 per cent, showed a resulting net present value of C$4.14 billion, with an IRR of 22.7 per cent.
"While the numbers went down slightly, they are better numbers. These are feasibility study numbers, and we now have a good handle on costs and on taxes," says Western Potash's Costigan.
Indeed, the latest report included sensitivity modeling, and even with a 10 per cent decrease in the potash price, net present value at the same discounted rate was C$1.79 billion, with a 16.5 per cent IRR. Meanwhile, a 10 per cent increase in operating costs still resulted in a $2.34 billion net present value, and an IRR of 18.2 per cent.
The environmental impact statement for the project has been submitted to the Saskatchewan Ministry of Environment, with a review process currently ongoing. Western said it expects environmental approval in the first quarter of next year.
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