Potash West (ASX:PWN) has confirmed the technical and commercial viability of potash production at its Dandaragan Trough project in Western Australia, with the scoping study identifying a net present value of $808 million.
The study shows that the resources at Dinner Hill supports a 2.4 million tonnes per annum operation over a 60 year mine life, with average revenues per year of $365 million.
The estimated average annual cash costs are at $137 million, while Potash West is expecting an internal rate of return of 21%.
Importantly, the IRR could be further boosted as the scoping study is based on the JORC compliant resource outlined at Dinner Hill, which is only a small part of the Dandaragan Trough project area.
Dinner Hill is estimated to have a total resource of 244 million tonnes with 241 million tonnes indicated resource of 3% K2O and 1.6% P2O5.
The mineral resource at Dinner Hill deposit is estimated on the basis of the currently drilled portion of about 10 square kilometres. An aircore drilling programme was done last June on a 400 metres by 400 metres grid, with a small area of infill drilling on 200 metres by 200 metres spacing.
Potash West is is planning further work on the Dinner Hill resource this year that will result in an increased resource that will be achieved by extension drilling to the south and east of the current resource.
A measured resource over part of the deposit will underpin the Definitive Feasibility Study, which the company is progressing towards.
The scoping study considered two production rates namely 4 million tonnes per annum and a smaller start up case of 2.4 million tonnes per annum. The latter was considered to be more suitable to immediate market demands for products in the local region.
Dandaragan Trough project
The Dandaragan Trough project is Potash West's flagship project in the Perth Basin and is believed to be one of the world's largest glauconite deposits. Potash West holds exploration licences and applications in 15 tenements covering an area of 2,905 square kilometres.
Last October it defined a JORC compliant Indicated Resource of 241 Mt at 3.0 % K2O including 120 million tonnes at 4.6% K2O.
The project has access to infrastructure with the scoping study assuming the processing facility to be sited between the towns of Moora and Dandaragan, both 170 kilometres north of Perth.
Both towns are well positioned for rail and road access and located within 30 kilometres of natural gas (Dampier-Bunbury gas pipeline) and electricity corridors.
Western Power's Mid West Energy project is likely to expand electrical capacity in the mid west from the current 150 megawatts to 680 megawatts by 2018, which could provide additional power for future expansion of plant capacity.
Proprietary processing plant
Potash West's prospects are also aided by its proprietary fertiliser processing technology called K-Max process, for which it has applied for a patent. The products that can be produced from glauconite by the K-Max process include fertilisers such as commodity grade sulphate of potash (NYSEARCA:SOP); a high magnesium SOP and iron-calcium phosphate.
The process also can yield high grade iron oxide powder, with potential for iron ore sales, aluminium sulphate used in water treatment.
Potash West's scoping study has confirmed the technical and financial viability of the Dandaragan Trough project, and paves the way for a definitive feasibility study.
Based on a recommended small scale 2.4 million tonnes per annum project, the mine life would be 60 years with average revenues of $365 million per year and a net present value of $808 million, which would be bumped up to $1,163 million for an expanded 4 million tonnes per annum project.
The project would have a capital cost of $650 million for the smaller scale project and an IRR of 21%.
But while the scoping study is based on only the JORC compliant Dinner Hill deposit resource, there is further upside once the project is expanded.
It is also aided by access to local markets where fertiliser is in much demand and once production capacity is expanded, exports markets can also be readily tapped with access to transportation infrastructure.
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