What the Brokers say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe
Potash West (ASX: PWN)
Potash West recently released a maiden JORC resource of 244 million tonnes of potassium rich greensands at the Dinner Hill prospect.
Encouragingly, only 20 per cent of the Dinner Hill prospect area (and none of the other nine high-priority targets) have been drill tested to date.
The mineralisation displays strong geological continuity providing scope for additional resources to be delineated with ongoing drill campaigns.
Significant progress has also been made on the processing flowsheet (currently patent pending) which has been developed to extract value from the glauconite within the greensands.
The straight forward process design is a major breakthrough and has major implications on the overall viability of the project.
The extraction of potassium from glauconite contained within the greensands appears to be relatively robust and well supported by over 1,000 bench scale tests undertaken by ‘Strategic Metallurgy Pty Ltd’.
However, processing is yet to be tested on a meaningful scale outside of the laboratory.
The proposed flow sheet is based on the leaching of the glauconite to produce potassium in the form of potassium sulphate.
The other components of the glauconite are also used to advantage and recovered as valuable by-products.
The flowsheet, which is in the process of a patent application, produces the following products from the glauconite:
– Sulphate of Potash;
– A mixed potassium/magnesium sulphate;
– Aluminium sulphate;
– Iron Oxide; and
– Superphosphate.
The ability to produce numerous valuable by-products in addition to the primary sulphate of potash is a significant breakthrough which is likely to greatly affect the economics and overall attractiveness of the project.
A scoping study is currently underway and is due for completion in Dec 2012.
Following the likely positive outcomes of the study, Potash West intends to embark on a more comprehensive feasibility study with the ultimate aim of production by mid-2016.
Breakaway has been further encouraged by the recent unsolicited approach by a private Chinese company seeking to make a strategic investment in Potash West.
Under terms agreed (and yet to be finalised), Potash West will raise A$3 million via the issue of shares at a 35 per cent premium of 33 cents per share.
The funds raised will primarily be used for the upcoming feasibility study.
Recommendation: Speculative BUY
Wolf Minerals (ASX: WLF) (AIM: WLFE)
Wolf Minerals is an ASX and AIM-listed emerging tungsten producer focused on the development of the world class Hemerdon Ball tungsten and tin project, located in Devon, SW England.
Hemerdon currently hosts a JORC resource of 401 million tonnes at 0.13 per cent tungsten and 0.02 per cent tin, placing it as the third largest (known) tungsten deposit in the world.
A Definitive Feasibility Study (DFS), completed in May 2011, indicated robust economics based on a 3 million tonnes per annum (Mtpa) operation over a 9.25 year life of mine.
Production is estimated at approx. 350,000mtu [1mtu=10kg] per annum of a 65 per cent tungsten concentrate and a further approx. 450 tonnes per annum of tin in concentrate at C1 costs of US$105/mtu (after tin credits) versus the 2012 average APT price of US$400/mtu.
The current mining reserves of 26.7 million tonnes at 0.19 per cent tungsten and 0.03 per cent tin are bound only by the constraints of the open pit limits as per the parameters of the granted ‘Planning Permission’.
Significant opportunity therefore exists to extend the mine life should approval for a larger open pit be sought in due course.
Breakaway estimates the total funds required to advance Hemerdon into production to be approx. £130M (A$200M).
Wolf recently secured £75 million though a senior debt facility and retains full flexibility with respect to all of its funding options in terms of funding the balance.
The consensus outlook from respected tungsten commentators suggests ongoing supply side issues are likely to lead to an increase in tungsten prices over the longer term, further enhancing project economics.
Wolf ahead of most peers
The cornerstone of the robust economics outlined in the DFS, is the low estimated C1 costs of US$105/mtu.
This feeds directly into whether a project can attract senior debt to fund (in most cases) significant CAPEX, and thus rules out many of Wolf’s peers.
Meeting the CAPEX hurdle is a major accomplishment and provides confidence for the near term.
Preparing a peer comparison can be troublesome as many of the known projects also host other recoverable minerals such as tin, fluorine and molybdenum as well as additional projects within the portfolio.
Breakaway has compiled a peer comparison for projects with completed DFS’s and has converted the current market cap, and anticipated CAPEX and C1 costs to A$ (at current exchange rates). C1 costs take into account ‘credits’ received for additional recovered minerals.
Source: Breakaway Research.
As demonstrated, Wolf compares favourably.
Recommendation: Speculative BUY