Tuesday, 22 January 2013

Western Potash hires UBS to help in securing financing for Milestone development

Western Potash Corp. (TSE:WPX) (FSE:AHE) says it has hired UBS Securities Canada to assist the company in looking at ways to secure financing for the development of its Milestone property in southern Saskatchewan. 
"Now that the company's Feasibility Study for the Milestone Project has been released, our focus is on identifying and reviewing various alternatives in order to secure the financial commitments required to proceed with the Project, including mine construction," said president and CEO, Patricio Varas, in a statement Tuesday.
"We believe Milestone is a compelling project that's attracting global attention. UBS brings considerable experience in arranging and structuring financial solutions for companies with major capital-intensive projects."
The feasibility study, completed by AMEC Americas last month, 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, however, 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.
In a research note last week, Fundamental Research's analyst, Nicole Engbert, noted that the feasibility study showed attractive economics, and that the company is ready to seek a partner. 
The analyst said that the primary catalyst over the next six to 12 monhts will be the potential for an acquisition or joint venture agreement for the project with a fertilizer company in India or China, as potash projects are capital intensive. 
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.
The feasibility study, which includes an updated reserve and resource estimate, has now been filed on SEDAR.
Commerical production at the potash mine is expected to start in 2016, with the company anticipating environmental assessment approval this quarter.

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