September 30, 2015
Revised scoping work at Potash West’s Dinner Hill phosphate prospect in Western Australia has doubled the expected mine life to 40 years and improved net present value by 14%
Revised scoping work at Potash West’s (ASX:PWN) Dinner Hill phosphate prospect in Western Australia has doubled the expected mine life to 40 years and improved net present value by 14%.
Dinner Hill’s pre-tax NPV now totals A$378 million, compared to the previous estimate of $331 million.
The life extension and value growth delivered by the scoping study have encouraged Potash West to immediately begin a prefeasibility study including new metallurgical testwork.
So far, an average mine production rate of 3.8 million tonnes per annum to produce an average of 400,000 tonnes per annum of single superphosphate (SSP) over the 40-year life has been considered. SPP is a versatile and widely marketable fertiliser.
A fall in global oil costs and a weakening of the Australian dollar since the Dinner Hill’s previous financial assessment have contributed to a number of more streamlined metrics at the project.
Beyond the doubled mine life and increased NPV, these improvements include a 10% drop in operating costs to $190 per tonne of product and a 24% rise in EBITDA to $52 million per annum.
Capital costs for the project remained at $205 million, including $66 million for the process plant. New plans to install a sulphur burning acid plant (along with lower oil prices) have substantially contributed to the lower operating cost estimates.
The move to revisit Dinner Hill’s scoping results was based on a 108% increase in June for the project’s resource to 250 million tonnes grading 2.9% phosphorus pentoxide.
This was followed by confirmation in July that the company had raised $1.8 million in an oversubscribed placement ensuring funding for the advancement of Dinner Hill. Although a significant portion of these funds is now expected to remain outstanding, the reduction of the raising will have no impact on the project’s development progress.
Dinner Hill – which is part of the larger Dandaragan Trough project north of Perth – has already demonstrated positive metallurgical and processing results, with an overall recovery of 61.3%.
Flotation and magnetic separation recovers 88% of the phosphate from the flotation feed to the phosphate concentrate and acidulation recovers 100% of the phosphate from the phosphate concentrate to the SSP product.
Dinner Hill is expected to be in operation by 2019.
Germany sale offers tighter focus
Potash West will be able to concentrate attention more directly on Dandaragan and Dinner Hill after finalising a recent move to offload its prospective but less developed South Harz potash project in Germany.
The deal will result in the sale of the company’s East Exploration subsidiary, which has a 55% in South Harz, to Arunta Resources (ASX:AJR). Arunta’s subsidiary Davenport Pty Ltd will hold the project and plans to list on the Australian Securities Exchange subject to raising at least $4 million and meeting regulatory requirements.
Upside for Potash West includes continued exposure to a growing project via the acquisition of about a 28% stake in Davenport, assuming Davenport realises a $4 million IPO. This newly listed company will be a more focused developer for the property.
The transaction will also bring with it the funds needed to complete a South Harz drill program targeting verification holes on the projects’ Kullstedt licence. The program, along with updates of historical records, is aimed at defining a JORC resource in the area.
Potash mineralisation has been demonstrated in relatively shallow depth of between 500-600 metres to the north of Kullstedt.
Analysis
Optimisation of Dinner Hill’s financial metrics, even at this early stage, represents a meaningful enhancement of the project’s prospectivity, especially considering the considerable opex savings in combination with a long extension of mine life.
The new project mine life indicates that expansion options exist at the site as the current plan uses only 64% of the mine plan resource defined to date.
Dinner Hill’s great infrastructure, already in place, and close proximity to bulk ports allows a low capital start-up and low logistical and operating costs.
The South Harz sale is a win for Potash West as it allows for a more concerted focus on development of the project’s Kullstedt area, which the company will benefit from via its interest in Davenport. The sale also allows the company to more fully dedicate its efforts on Dinner Hill pre-feasibility work.
The global fertiliser business is expected to value US$172 billion this year.
South Harz and Dinner Hill projects are both large projects, providing diversity in commercialisation potential with different end-markets and potentially different investors.
Potash West also stands to benefit from a 21% interest in mineral processing technology company Lepidico Pty Ltd, which has recently achieved some major milestones in its bid to profit from increasingly commercial trends in long-life lithium-ion batteries.
Redgum Village Dandaragan
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