Friday, 17 May 2013

Verde Potash BFS delay has some positives, says Ocean

The announced delay to the bankable feasibilty study for its flagship Cerrado Verde Potash project in Brazil is a "bump" inVerde Potash's (TSE:NPK) development plan, but there are positives, says broker Ocean Equities.
On May 13, the firm announced that engineerFLSmidth, which is designing the rotary kiln for the project, was not able to give a performance guarantee for potassium recovery on a 12,000tpd plant - a pre-requisite for the BFS.
It will guarantee performance on a smaller 3,000tpd kiln but to sign off on 12,000tpd, will need to see a demonstration plant successfully operated.
"We expect Verde over the coming months to decide whether to continue to work with FLSmidth and develop a 200tpd demonstration plant, or potentially engage another engineering partner to start working on the design and provide the performance guarantee over a 12,000tpd plant to fulfil Brazilian Development Bank project financing requirements," said Ocean analyst Adam Lucas.
Verde has said it no longer expects to publish the BFS during the second quarter of 2013.
Lucas notes that a successful demonstration plant will de-risk the project but believes if the firm goes down this route it will will push out the development timetable of the Cerrado Verde project by at least 12 months taking into account the time required for the development of the demonstration plant and six months of successful operation. 
"The demonstration plant route will also allow Verde more time to secure its environmental licenses which are a pre-condition of project financing from Brazilian Development Banks, and ultimately the mining licence for the Cerrado Verde project," he adds.
On a positive note, Veolia HPD, which supplies evaporation and crystallization technologies, had completed all necessary testing and is ready to supply equipment at any scale Verde wants for its commercial plant, noted the broker.
Shares have dropped around 60% to C$1.040 since the news broke.

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