THE INSIDE STORY: When Potash West (ASX: PWN) listed on the Australian Securities Exchange in 2011, its key focus was production of phosphate and potash products from the company’s Dandaragan Trough project, located north of Perth in Western Australia.
Potash West had identified a growing market was emerging for fertiliser, not only within Australia, but also into Asian markets.
With statistics showing the amount of arable land per person worldwide decreasing (currently around 0.25 hectares per person and expected to be approximately 0.15 by 2050), the company believed the fertilizer market had a potential global reach rather than regional.
On a regional basis Western Australia has no domestic production of potash, while south-east Asia currently imports nearly all of its phosphate and potash needs.
Western Europe is also a net importer of potash and with that in mind 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 attraction for Potash West was the application by East Exploration’s 100 per cent-owned subsidiary, East Exploration Gmbh, (EEG) for two exploration licences Küllstedt and Graefentonna, for potash in established potash producing areas in South Harz, Thuringia, Germany.
These licences, covering approximately 450 square kilometres, were granted to EEG earlier this year by the Thuringian Mining Authority for a period of five years, with the option to renew for a further three years.
A review of available geological data for the Küllstedt licence was conducted by consultancy ERCOSPLAN, an internationally recognised potash exploration company that was associated with exploration drilling in the South Harz region in the 1970s and 80s and has access to most of the summary exploration data.
The results of the review indicated large tonnages of high-grade potash material present in the Küllstedt licence area, allowing for the calculation of an exploration target of between four and five billion tonnes at 7 per cent to 25 per cent potassium oxide, to contain between 292 and 1,285 million tonnes of potassium oxide.
There were two potash mines established on Küllstedt in the 1910s that were subsequently shut down in the 1920s, only to be rehabilitated in the earlier part of this century.
“There are around 35 existing holes drilled on this tenement, which for potash is quite a large number,” Potash West managing director Patrick McManus told The Resources Roadhouse.
“The data chain is, however, incomplete, so there is some twinning of these holes required in order to calculate a JORC 2012 compliant resource.”
The next stage for this project is to plan and permit two or three exploration drill holes, this will be completed over the coming months”.
“We are excited by the potential of the South Harz project, it shares similar attributes to the Dandaragan Trough, with great infrastructure in place, low sovereign risk and located in a region that is a nett importer of our products,” McManus said.
“But our main focus will remain on our domestic projects, in particular the Dinner Hill project in the Dandaragan Trough, its phosphate potential and its ground-breaking extraction technologies, the 100 per cent-owned K-Max technology and the 25 per cent-owned Li-Max technology.”
The 22 square kilometre Dinner Hill prospect, which is just one of several mineralised areas Potash West has identified within the Dandaragan Trough tenement package, has emerged as the front runner for development.
Potash West recently announced a substantial increase to the potash and phosphate resources at the wholly-owned prospect.
Using a cut-off grade of 1.45 per cent phosphate, the company established an Indicated Mineral Resource of 250 million tonnes at 2.9 per cent phosphate.
One important aspect of the recent increase in the Dinner Hill Resource is that the phosphate resource increases in grade to the north within an area that had not been drilled previously.
The new Resource will form the basis of pit design and mine scheduling studies Potash West will conduct as part of a feasibility study into phosphate production at Dinner Hill, which is scheduled for the third quarter of 2015.
Of particular note is that the principal potash (K-Max) mineralisation occurs within Molecap Greensand, which is now estimated to contain 175 million tonnes at 4 per cent potassium oxide, representing a 43 per cent increase in tonnes.
Apart from delivering the Resource upgrade, the recently-completed drilling program achieved further objectives, including:
• Identification of the extent of mineralisation to allow the definition of the deposit in order to delineate a mining area, for permitting purposes; and
• To obtain samples so the company can complete metallurgical and process development testwork, for future feasibility studies.
These were all achieved while leaving a substantial area of the Dinner Hill tenement to be explored.
Potash West updated its development plan for the Dinner Hill project in January, using the previous Resource, which looked at integrating the K-Max potash and phosphate projects that had been considered as independent operations.
The integrated project recognised synergies of using a common mining and beneficiation plant and lower operating costs associated with a larger scale operation.
The financial evaluation was based upon a mining rate of 4.2 million tonnes per annum for a 20-plus year life-of-mine operation.
In the first five years only the phosphate-rich part of the ore sequence would be mined to produce single superphosphate (SSP) while the potassium-rich glauconite layer will be exposed, but not mined initially.
The study assumed the K-Max plant and an upgraded phosphate plant will be constructed after five years, providing benefits of:
Lower Capex of $136 million to start Stage 1, using well known technology, so reducing financial and technical risk.
Areas of exposed K-Max ore will allow low mining costs for first few years of Stage 2; and
Free cash flow from Stage 1 operations can contribute to the feasibility study for stage 2 and the equity component of an anticipated $590 million Stage 2 capital cost.
By the time Stage 2 kicks in, operating costs move from Stage 1 of US$19 per tonne of ore to US$44 per tonne with revenue shooting up from US$35 per tonne to US$110 per tonne respectively.
“We have two Resources in the K-max potash and the phosphate, which overlap,” MacManus said.
“We can start off with the phosphate project, operate that for five years, which will help fund the commencement of the K-Max potash project.
“It’s a good, strong project with a very strong operating margin.”
Recent development work by Potash Wests’ technology partners, Strategic Metallurgy, has established an innovative process to extract lithium from micas. Potash West owns 25 per cent of this IP.
“We are committed to working with Strategic Metallurgy to demonstrate the strong value of these technologies and their potential to exploit micas with high contents of lithium and potassium” McManus said.
Potash West (ASX: PWN)
…The Short Story
23 Belgravia Street
Belmont WA 6104
Ph: +61 8 9479 5386+61 8 9479 5386
Fax: +61 8 9475 0847
Adrian Griffin, Patrick McManus, Chew Wai Chuen, Gary Johnson
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