Agriculture to feast on Dinner Hill potash
THE INSIDE STORY: Mining and Agriculture are two sectors that, it could be said, make strange bedfellows and very rarely do they find themselves the dual focus of one company.
Perth-based Potash West (ASX: PWN) is doing all it can for Mining and Agriculture to attain dynamic duo status with the two-stage potash and phosphate development of the company’s Dinner Hill prospect in Western Australia and the East Exploration potash project in Germany.
The company recently updated its Scoping Study into the production of single superphosphate (SSP) from the Dinner Hill project, within the 100 per cent-owned Dandaragan Trough project, 225 kilometres north of Perth in Western Australia.
The economics of a proposed $205 million WA phosphate mine have been boosted by the results, which considered an average mine production rate of 3.8 million tonnes per annum to produce an average of 400,000 tonnes of SSP per annum over a 40 year mine life.
Key outcomes are from the updated Scoping Study include:
Mining rate at an average 3.8 million tonnes per annum;
Mining grade, average 3.5 per cent P2O5;
Mine life of 40 years;
64 per cent of the mining plan consumed over 40 years;
Average revenues per year around $128 million;
Average operating cash costs per year around $76 million;
In June 2015 Potash West announced a new indicated phosphate resource at Dinner Hill of 250 million tonnes at 2.9 per cent phosphorous pentoxide (P2O5), an increase of 108 per cent from its previous reported resource.
There are plenty of reasons to believe there will be a worldwide increase in the demand for fertilisers
World population is forecast to grow to somewhere between 9.5 and 10.5 billion people by 2050 from its current base of around seven billion.
Much of that growth is expected in countries developing very quickly, such as China, India and Brazil.
As population increases, the arable lands available are not predicted to follow at the same rate with arable land per person falling from a quarter of a hectare to around 0.15 of a hectare.
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Combining these factors, most food experts believe that by 2050 we will need to produce more than twice as much food as we currently do.
One of the most cost effective ways of increasing production per hectare is the more effective and greater use of fertilisers.
Potash West anticipates the Dinner Hill project to become a supplier into the global fertiliser market, which is estimated to be worth US$172 billion this calendar year.
Nitrogen will account for approximately half of that at around $85 billion, phosphorous at 30 per cent, or $50 billion, and Potash is the smallest market – about 20 per cent of the industry – roughly $30 billion.
“In the fertiliser business there are three elements the Agriculture sector uses hundreds of kilograms per acre every year to get maximum output from the soil,” Potash West managing director Patrick McManus explained to The Resources Roadhouse.
“These are Nitrogen (N), phosphorous (P), and potassium (K) and they each have separate benefits and you cannot substitute one for the other, so to get maximum output you require the correct amount of each.
“Most soils around the world now are deficient in N, P and K with different crops needing different amounts of each element to grow.”
Phosphates are mined widely around the world, with most international trade focused on two areas: Morocco, and Saudi Arabia.
There is not much production in our region, which means Western Australia and South East Asia are large import markets for phosphates.
This provides an opening for a much-needed domestic source and opportunities don’t come more domestic than Potash West’s Dandaragan Trough, which is located just north of Perth.
“This is a wonderful region for producing phosphates,” McManus said.
“All the infrastructure is already in place: we have rail lines within 30 kilometres of the deposit; we have high-voltage power; roads; towns; water supply; everything we need.”
The phosphate potential of Dinner Hill began to emerge as Potash West progressed its exploration program in early 2015.
Defining a new resource, which basically doubled its inventory estimate this year, from new drilling programs, led the company down the path to taking the decision to revise and update the existing scoping study findings for Dinner Hill.
“The drilling program identified a significant high-grade section of the deposit,” McManus said.
“The high grade start-up delivers 5.5 per cent P2O5 ore for the first five years, 90 per cent higher than the resource average.”
McManus explained these factors had led to a number of changes being made to the project plan, which include the installation of a sulphur burning acid plant that, while increasing the initial capital cost, substantially reduces operating costs as well as doubling the mine life predicted by earlier estimates.
The updated Scoping Study has reinforced Potash West’s belief in the Dinner Hill project and that its phosphate resource will provide a long term supply of single superphosphate to agriculture across Western Australia and the local region.
The company’s confidence is understandable given the project will make the most of the advantages of low cost mining, low sovereign risk, world class infrastructure in place, and a short logistic chain to end users.
“All these factors combine to make the economics of this project compelling,” McManus continued.
“Our plan is to develop this phosphate project as Stage 1 of a plan to ultimately produce potash, phosphates and alum from the extensive greensand deposits at Dinner Hill.
“In particular, the new 40-year project mine life uses only 64 per cent of the current mine plan resource defined to date at Dinner Hill, indicating that there are expansion options available.”
Potash West has commenced a preliminary feasibility study, including new metallurgical testwork, and in addition to the process design for single superphosphate will continue to investigate potential for rock phosphate production.
Earlier this year Potash West entered into an agreement with private interests to earn 55 per cent interest in a German Joint Venture with East Exploration Pty Ltd, which is developing high-grade potash deposits in Germany.
The deal brought with it two exploration licences Küllstedt and Graefentonna, located in established potash producing areas in the South Harz region.
“By examining the existing exploration data on Kullstedt we have been able to report an exploration target of four to five billion tonnes of ore,” McManus said.
“Because the data is all from good-quality Soviet era drilling, we only need to drill a small amount of holes ourselves to bring it up to an Inferred Resource.”
McManus said the company’s next move for East Exploration will be to take its 55 per cent of the project and its partner’s 45 per cent and vend into an ASX-listed company, called Davenport Resources, which is currently undergoing an IPO.
“The plan is for that to be completed by Q1 2016,” McManus said.
“Potash West will eventually own around 29 per cent of that company.
“We hold under the Potash West umbrella three extremely exciting opportunities.
“The main objective of the company, for now, is to continue the development of the Dinner Hill project.”
Potash West (ASX: PWN)
…The Short Story
HEAD OFFICE
Suite 3
23 Belgravia Street
Belmont WA 6104
Ph: +61 8 9479 5386
Fax: +61 8 9475 0847
Web: www.potashwest.com.au
Email: info@potashwest.com.au
DIRECTORS
Adrian Griffin, Patrick McManus, Chew Wai Chuen, Gary Johnson
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