Vancouver-based Western Potash Corp. (TSE:WPX) (FSE:AHE) has inked a definitive agreement with the city of Regina, securing a long-term source of process water for its Milestone potash project in Saskatchewan.
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.
Western said this amount is enough to satisfy the requirements for the solution mining process during the entire life of its proposed mine.
"Executing the definitive agreement with the City of Regina is a critical deliverable in progressing the Milestone project," saysWestern Potash Corp. president and CEO Patricio Varas.
"Securing a long term, reliable water supply is a key component of the feasibility study and crucial to advancing the project on schedule."
Indeed, Vancouver-based Western Potash Corp. 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 for the property is expected to wrap up later this month, after which it will release the results to the markets. It also anticipates the release of an updated resource and reserve statement when it reports the feasibility study.
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.
Under NI 43-101 guidelines, the Milestone project currently 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.
As part of the deal with the city of Regina, Western paid the city a $500,000 commitment fee, with annual payments to the city to be worth more than $200 million throughout the agreement's term.
The company will fund the construction of the pipeline and associated infrastructure to the deliver the effluent to the mine site, which is located around 30 km southeast of Regina.
"This mutually beneficial agreement is another step towards Regina's vision of a sustainable community," said Regina Mayor Michael Fougere.
"The City of Regina will be compensated for treating a waste product while helping facilitate economic growth in one of Saskatchewan's key sectors - potash development."
Western Potash also said Tuesday that it remains involved in ongoing negotiations with "numerous parties", any of which could lead to equity and debt financings, joint ventures, takeovers, or other types of merger transactions to advance the Milestone project.
Recently, the company closed a financing to help with the development of its project, raising $9.6 million in proceeds.
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