A recent Scoping Study by Potash West has determined the Dandaragan trough project has strong economic fundamentals.

Potash West (ASX: PWN) announced the results of its initial Scoping Study into the production of potassium sulphate and other products from its Dandaragan Trough project in January.

The study considered a start-up rate of 2.4 million tonnes per annum (Mtpa), which was identified by the study to be suited to the immediate market demand in the local region.

The results of the study have validated the faith Potash West has shown in the Dandaragan Trough project since the company listed in 2011.

Its intentions back then were clear; to establish a flowsheet and complete a financial analysis for the process of extracting the potash from the glauconite on the Dandaragan Trough.

“To support that financial study we needed a JORC Resource so we had to do that as well,” Potash West managing director Pat McManus told The Resources Roadhouse.

“The budgeted cost to complete those activities was $6 million and we hoped back then to have them completed by the end of 2012.

“We achieved those milestones – the JORC-compliant Resource of 244 million tonnes at 3 per cent potassium oxide with a higher-grade core of 122 million tonnes at 4.6 per cent potassium oxide was announced for the Dinner Hill prospect in October 2012.

“The results of the Scoping Study based on treating that resource were released in January.”

The Capital and Operating costs estimates, and the Marketing and Revenue estimates were carried out by independent experts, Tenova Bateman and CRU respectively.  CRU studies of the market led to a scale of 2.4Mtpa mining rate being chosen as the base case.

At this scale the marketing study determined most of the production would be placed onto the market without much discount.

“We will produce not just sulphate of potash, which is the premium of potash products, but also what will be a high-magnesium sulphate of potash that should find a ready market in the palm oil industry of South East Asia,” McManus said.

“We will also produce aluminium sulphate, which has a reasonable market world-wide in water treatment and super phosphate, as well as a high-quality 70 per cent iron, iron-oxide product.”

At 2.4Mtpa the project has a mine life of more than 60 year mine.

Operating costs per year are $365 million and capital costs are $650 million.

“We believe we have quite a strong project, based on the Dinner Hill resource,” McManus said.

“The very important thing for me to take out of the Scoping Study is the very strong revenue to cash flow, nearly 3 to 1, which indicates a strong operating cash flow.

“Equally important is that the study is based on what is just a very small part of the potential ultimate resource we believe we will be able to establish across our total tenement package.”

The study emerged with three key points concerning the company’s Dandaragan trough project.

The first is that the Dandaragan deposit is positioned to become a very, very big resource.

The company plus-60 years at 2.4Mtpa, currently sitting in the nine square kilometres of the Dinner Hill prospect, which is just one of several mineralised areas Potash West has identified within its nearly 3,000 square kilometre tenement package.

The second point is the company will let the scale of the project be driven by market demand for the products it will produce, a fact Potash West considers to be of great importance as it believes entering the market too early on too large a scale would result in an over-supply and cause soft prices.

The third point is the company will be able to commence production from Dinner Hill at a relatively small scale on a robust project with a calculated Internal Rate of Return of more than 20 per cent and grow that as the markets develop.

Another important element to the Potash West formula has been the development of the company’s glauconite to fertiliser processing technology called the K-Max process.

“K-Max is a process that has been developed by Potash West and our partners Strategic Metallurgy,” McManus explained.

“The process unlocks the value in the very large glauconite deposits that are present in the Dandaragan Trough basically by leaching and controlled precipitation.

“We have lodged a patent for the K-Max process as we feel that is the best way the company can ensure the value of the intellectual property in that process.”

The products produced from glauconite by the K-Max process are:

–    Commodity grade sulphate of potash, used as a fertiliser;

–    A high-Magnesium sulphate of potash, dubbed KMS, used as a fertiliser;

–    High-grade Iron oxide powder/granules, with potential for iron ore sales;

–    Aluminium sulphate, used in water treatment; and

–    An iron-calcium phosphate, used as fertiliser.

“The K-Max process is very much a key component to the strong economics of the project,” McManus said.

“The process we have developed is one that will allow multiple products to be produced from the glauconite and that is the key revenue element in the viability of the project.”

Perhaps the only frustrating part of the Potash West story is how to get the investment community to look beyond its blinkered view of the Australian junior exploration sector and be excited by a project with a large resource, long mine life and robust economics.

Far too many investors look at a map of Australia and see iron ore on the left and coal on the right.

“Potash is not, at this stage of the game, fully understood, or appreciated, by the Australian investment community,” McManus lamented.

In fairness, Potash is reasonably new to the Australian scene, with only a handful of ASX-listed companies working mainly on this commodity.

Potash West, however, is one of even fewer companies working up a project on home soil.

The products to be produced by Potash West from its Dandargan Trough project will emerge into an established domestic agricultural market and into an export market in Asia eagerly looking for a nearby source.

Presently it seems, in terms of the physical market and of the fertiliser business, people just don’t seem to be concerned about where potash comes from.

It is astounding to think all the potash presently consumed in Western Australia, for instance, comes from Saskatchewan in Canada when a substantial resource of the product is situated within that state’s boundaries.

A final piece of food for thought; the potash market is a world-wide market and is currently worth around US$27 billion per year.

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, George Sakalidis, Gary Johnson

MAJOR SHAREHOLDERS
Barclay Wells Ltd                  17.9%
Elsinore Energy Pty Ltd        14.9%
HSBC Custody Nominees        7.0%

SHARES ON ISSUE
52 million

MARKET CAPITALISATION
$12.5 million (at 6/3/13)

WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.

Luiri Gold Limited (ASX: LGM)

The current management team gained control of the Luiri Hill gold project in early 2011, following the Zambian Government cancelling the previous operator’s licence due to non-performance.

In order to satisfy the Government, Luiri Gold has warranted that it will achieve three key milestones by November 2013.

These are completion of a development plan, arranging project finance and commencing site works.

Against a backdrop of challenging markets for project finance, Luiri Gold is implementing a low risk strategy of commencing gold production at a small scale of 10,000 to 13,000 ounces per annum.

This should limit the initial capital cost to a relatively modest US$20 million.

Luiri Gold Limited (ASX: LGM) is focused on gold exploration in Central South Zambia where the company holds two Mining Licenses, 8074-HQ-LML and 14948-HQ-LML, that together cover 277 square kilometres.

The historical Dunrobin and Matala mine workings are within 8074-HQ LML that covers 31.6sqkm.

The company has a strong management team, supported by Coffey Mining for mining studies and resource estimation.

They are implementing a staged growth strategy, with low cost development of a modest sized operation at Dunrobin followed by incremental expansions supported from operational cashflow.

Infill and step-out drilling is expected to add to existing resources at Matala and Dunrobin of 568,000 ounces and 193, 000 ounces respectively.

A resource inventory of 10.53 million tonnes at average grade of 2.2 grams per tonne gold is a respectable start and provides a solid platform on which to build.

Luiri Gold has a Market Capitalisation of around $5.9 millio.

It has no debt and over $2 million cash, giving Luiri Gold an EV of around $4 million.

This appears very cheap given the company’s exploration success and proposed near term transition to producer status.

Recommendation: Speculative Buy

Rox Resources (ASX: RXL)  

Assay results from the first diamond hole at Camelwood delivered 11.4 metres at 2.93 per cent nickel from 282.6m, which included 6.4m at 3.8 per cent nickel including 2.9m at 4.66 per cent nickel.

The assay results compare favourably to the preliminary indications, which were 3.1m of massive to semi-massive sulphides from 282.8m followed by 2.9m of strongly disseminated sulphides.

The next four diamond holes have assay results pending.

Preliminary indications are promising, although the widths of semi-massive sulphides are relatively thin.

The best indication is in the most recent hole (MFED005) which intersected 1.7m of massive sulphides and 2m of disseminated sulphides from 384.6m.

Assay results from RC drilling were also reported with 1m at 2.48 per cent nickel from 126m and 3m at 1.82 per cent nickel from 118m.

RC drilling has been suspended for a week due to a rig breakdown whilst diamond drilling is ongoing but hampered by not being able to step out to the east because of an ungranted exploration license application, which should be sorted out within the next few weeks.

The assay results from the first diamond hole have exceeded expectations and displayed a nickel grade at the high-end of what we anticipated whilst the width of mineralisation is broader than initially indicated (11.4m versus visual indications of 6m).

Whilst follow-up diamond drilling has encountered lesser widths of semi-massive to massive sulphides, there is sufficient encouragement to suggest that Camelwood is a significant discovery.

We believe that the granting of the exploration license application to the east will facilitate the drilling of deeper and more targeted diamond holes.

This should also result in an additional diamond drill rig being deployed.

We retain our speculative buy rating with further assay results due in the next 2 to 3 weeks.

Recommendation:       Speculative Buy

Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.

THE DRILL SERGEANT: Avalon Minerals (ASX: AVI) has released assay results for seven drill holes from the current drill program being conducted on the D Zone prospect at the company’s Viscaria copper project in northern Sweden.

Project location. Source: Company announcement

Intersections from the assays include:

–    34.8 metres at 1.2 per cent copper equivalent (CuEq), including 11.2 metres at 1.6 per cent CuEq;

–    38m at 1 per cent CuEq, including 4.3m at 1.7 per cent CuEq and 8m at 1.5 per cent CuEq;

–    28.25m at 1 per cent CuEq, including 4m at 2 per cent CuEq;

–    15.42m at 1 per cent CuEq, including 3.42m at 2.1 per cent CuEq; and

–    10m at 1.5 per cent CuEq, including 3.6m at 2.3 per cent CuEq.

Avalon said the ongoing drill program will comprise approximately 25,000m of drilling, with the objective of extending the known Mineral Resources at the A and D Zone prospects.

It is also aimed at delivering on the potential increases to the project’s Net Present Value (NPV), which was outlined in a Scoping Study that was completed at Viscaria in October 2012.

“These latest results have extended the known mineralisation at D Zone and are consistent with previous drilling results, which defined two thick, high-grade copper-iron mineralisation zones,” Avalon Minerals managing director Jeremy Read said in the company’s announcement to the Australian Securities Exchange.

“It is a very positive outcome that these thickened higher grade zones are continuing at depth with no sign of diminishing.

“This suggests there is excellent potential for the D Zone Mineral Resource to be significantly extended at depth.

“This would enhance the economics of the D Zone Mineral Resource and deliver the Development Cases A and C, which would result in a $78 million increase to the NPV of D Zone, to $126 million.”

PETER HAYES: Given the exciting start that equities have had in 2013, many small companies will be hoping that it lasts.

April 2011 was the last time both indices were trading above the mystical 5000 point mark and, despite recent glitches, we seem to be holding and extending gains in equities, backed by some better than expected corporate results.

Both CBA and Wesfarmers reported better than expected results, and definitely better than expected dividends.

This new found optimism in the market will hopefully trickle down to the midcaps, and then some of the penny dreadfuls.

Many small company executives will be hoping so, as their lifeblood is equity capital raisings, and as such, so is their salaries.

A report compiled by Alto Capital analyst Carey Smith recently isolates the parlous stage some small speculative stocks have found themselves in.

The tables below show both the cheapest resources stocks as at early February, 2013 and the lowest cash balances.

They also demonstrate Cash, Debt and Shares Outstanding info as of Dec 31, Share price as of the 5th February.

These were tabulated manually so there may be some small mistakes.

25 Cheapest Resource Companies (Enterprise Value)

25 Resource Companies with the Lowest Cash Balance (as of 31st Dec)

Peter Hayes
Investment Manager

Greensense is a global leader in cloud-based sustainability performance monitoring and occupant engagement software. 

GUEST CONTRIBUTOR: Greensense director Peter Tickler looks at how businesses can develop a better understanding of the buildings they occupy and how they can improve the sustainability performance of those buildings.

One of the biggest challenges of any resource efficiency program is deciding where to start.

This can be tough even if you only have one property, but for managers of large portfolios it can be particularly tricky.

Whilst buildings generally share some similarities in their infrastructure – walls, roof, HVAC, lighting, plugs and people – there are often significant differences related to size, occupancy, hours of operation, age and function.

Of course, it’s these differences that can make it hard to come up with a portfolio wide approach to energy efficiency.

If analysed and presented correctly, data can be hugely powerful, both in terms of helping identify where you might begin on your efficiency quest, as well as providing the means to track and quantify performance improvements over time.

So what does all this data tell us when it comes to figuring out where to begin your efficiency efforts?

One thing: Out-of-hours energy use; and here’s why.

To begin with, as the graphic below shows, most buildings are empty for the majority (approx. 70 per cent) of the time over the course of a year.

As obvious as this sounds, it’s a very important consideration when you’re looking at improving efficiency.

Source: Greensense

From a sustainability perspective, in the same way that a busy and productive building will inevitably use energy, there’s nothing wrong with having an empty building, just so long as you’re not consuming any resources while it’s sitting idle.

Unfortunately, that is never the case, far from it in fact.

Most buildings have relatively high levels of “base load”, meaning they continue to consume significant amounts of power even when they’re empty.

We typically see over 50 per cent of the total electricity used over a year going into empty buildings.

That’s from our own dataset of over 1000 commercial buildings.

As always in discussions around building (in)efficiency, when it comes to costs we need to consider both the environmental and the financial implications.

The environmental cost is pretty easy to work out.

In Australia, each kilowatt-hour of electricity poured into an empty building generates around 0.9 kilograms** of greenhouse gas emissions.

Of course you might be subsidising your wasted electricity through some onsite renewables, most likely solar, but remember that the majority of this out-of-hours consumption is going to occur at night when your PV can’t help.

The financial cost is a little trickier to calculate, as it will depend on the tariff for each building.

In order to explore the cost question a little further, and at the same time to illustrate the value in understanding your building’s energy profile, we’ve put together a graphic to illustrate how significant out-of-hours consumption can be to the financial bottom line.

As an aside, it also demonstrates the value of benchmarking and comparison as tools to help you put the performance of your buildings in context.

In the graphic below we compare the average weekly energy consumption for three local government administration buildings.

The buildings are located within a few kilometres of each other in a major Australian city, are of very similar size, have very similar operating hours and perform the same function.

In many ways they are typical examples of commercial office buildings.

Source: Greensense

Despite the similarities, the amount of energy going into these buildings during out-of-hours periods varies hugely, with correspondingly significant implications in terms of operating costs.

Even the ‘best’ performing building here is spending over $100,000 a year powering an empty building!

What the graphic also shows clearly is that, while the benchmarking is useful in putting the after-hours performance of each building in context, the 7-day profile is also crucial in understanding when that energy is being used.

So where is all that energy going?

Exactly where all that out-of-hours electricity is going will vary a bit from building to building but, even without sub-metering data, it’s easy enough to make some informed guesses.

In a typical office building there are three main energy sinks: HVAC (50 per cent), lighting (25 per cent) and plug loads (25 per cent) ***.

HVAC is normally pretty well centralised in most larger offices, although you might still have a few split-system units around the place, and lighting control is increasingly centralised too.

So, while they may be playing a part in the story, it will most likely be plug loads that are the real culprit and must inevitably form the focus of any out-of-hours performance improvements.

It just makes sense

Sometimes it’s important to be pragmatic when you’re looking to roll out environmental programs, and energy efficiency is no different.

There will likely be a number of (often competing) project options, whether it’s covering the building in solar panels or turning up the set point on the A/C.

While many of these projects will have merit, a number will present significant obstacles such as upfront cost (solar panels) or push back from building occupants (A/C tweaks).

By starting your energy saving quest by focusing on out-of-hours use though, you remove most of these barriers.

First and foremost, nobody can deny that pouring energy into an empty building is a dumb and wasteful thing to do.

Secondly, the steps taken to reduce this waste are often relatively uncomplicated.

Why? Because the building is empty for a start.

It’s much easier to affect change in an empty building, as you don’t have to worry about upsetting the occupants.

Coupled with that, the savings you’ll find are often from simple, operational tweaks such as shutting down printers and PCs at night.

For those aspiring to improve the energy efficiency of their buildings, getting to grips with out-of-hours consumption is an obvious, and often rewarding, place to start.

By focusing on one particular element of building performance, it helps bring direction and clarity to your efficiency program.

All you need to get going is some decent quality interval data and the ability to analyse it in a way that helps you determine how much of your precious and increasingly expensive energy is going into empty buildings.

I promise, the results will be startling and should provide all the incentive you need to start tracking down those savings.

Of course, if you’d like some help in your quest then you can always contact the team at Greensense.

*A 365 day year is composed of 8760 hours. Of those 365 days, only around 250, or 2500 hours (assuming a 10 hour operating day), are working days. The rest are weekends and public holiday. This means that the majority of commercial buildings are actually only operating for about 28 per cent of the year. For the other 72 per cent of the time they’re sat empty.

** Based on the 2012 NGA factors
http://www.climatechange.gov.au/~/media/publications/nga/NGA-Factors-20120829-PDF.pdf

*** 2006 review of LEED-NC v2 energy modelling