South Boulder Mines (ASX: STB) has completed an Engineering Scoping Study (ESS-2) for its Colluli Potash Project in Eritrea, demonstrating the potential to mine and process the underlying carnallite mineralisation.
Importantly, this could mean an expansion above the initial targeted production level of 1 million tonnes per annum outlined in the Definitive Feasibility Study (NYSE:DFS) under the right economic conditions.
Key points from the new study include a longer mine life of 26 years versus 17 years for the mining of sylvinite only, higher recoveries of 90% versus 80% and lower average life of mine C1 operating costs of US$187 per tonne versus US$263 per tonne.
Lorry Hughes, managing director, told Proactive Investors today with the second study South Boulder had proved that the operating cost is reduced substantially.
The previous Engineering Scoping Study (ESS-1), released in November 2011, focused on the sylvinite mineralisation only, which forms the basis of the current DFS scheduled for completion in 2013.
The results of the new study have provided South Boulder with significant encouragement to conduct further assessment into the economic viability of open pit mining and processing of the carnallite mineralisation to produce muriate of potash.
Hughes said the results of ESS-2 clearly demonstrate the potential of the Colluli Project to expand above the initial targeted production level of 1Mtpa outlined in the DFS.
"The study shows that there are suitable technologies to extract potash from carnallite mineralisation and the project could expand under the right economic conditions.
"However, given the significant additional capital requirements of introducing carnallite processing and current market conditions, the company has decided to pursue a staged approach to development where carnallite expansion options are only reviewed in more detail following completion of the current DFS."
Hughes said South Boulder is still focused on a 1 million tonne production start-up to achieve the lowest capital start-up.
"The approach we've taken is the staged approach, where we want to get established as a producer in the quickest, cheapest, easiest process route, and also for marketing the product in the fertiliser business.
"The product we're planning to make is standard MOP potash out of sylvinite. 95% of all the potash that is traded in the world is MOP potash from sylvinite so we know we've got a good market, and it's also the easiest and cheapest process."
The scope of the current DFS will remain focused on mining and processing only the sylvinite at a production rate of 1Mtpa of muriate of potash, as this will have lower capital intensity and a greater prospect of attracting finance.
The previous Engineering Scoping Study estimated pre-production capital of US$740 million, including a 15% contingency, to mine and process sylvinite compared to US$1.52 billion estimated for the mining and processing of sylvinite and carnallite.
Hughes said: "Key findings from ESS-2 will be used and applied to the DFS to design stockpiling of waste and tailings from sylvinite mining and processing operations so as to retain maximum optionality to pursue future expansion opportunities."
Further work on these options is planned after completion of the DFS.
"I am comfortable that South Boulder is taking a prudent approach by focusing on the 1Mtpa project configurations in the DFS," Hughes said.
"This allows a more achievable development size and more aggressive project timelines. ESS-2 has shown the scalability of the Colluli Potash Project and, in addition to the current DFS, South Boulder is focused on defining the scale of the Stage 1 development to find the optimum mix of capital expenditure versus commercial potash production.
"The Colluli Project is one that could evolve over many decades to include potential production from different potash minerals.
"However, at this stage South Boulder is firmly focused through its DFS on the definition of an economically viable mine over the short to medium term which is capable of being financed on competitive terms."
Positive technical aspects
ESS-2 has identified a number of areas that demonstrate positive technical aspects that could allow economic mining and processing of carnallite to produce muriate of potash as part of a potential future expansion of the Colluli Project.
- Carnallite can be processed utilising solar decomposition and standard froth flotation to produce standard muriate of potash;
- KCl recovery rates of up to 90% may be achieved;
- If both carnallite and sylvinite are mined and processed together, the waste-to-ore strip ratio can be significantly reduced;
- Access to carnallite could allow a significant increase in muriate of potash production above the planned 1Mtpa; and
- Port and transport infrastructure can be expanded to allow increased capacity.
At Colluli, there is also substantial Kainitite mineralisation of 597 million tonnes at 19.8% KCl.
The Kainitite resource is subject to an ongoing study to determine the most effective method of processing and marketing to produce either a K-Mg-SO4 fertilizer or potassium sulphate.
Production of potassium sulphate from Kainitite remains a longer term prospect, requiring a technical solution to enable processing of the ore into a saleable product.
South Boulder is working towards developing the world's first, modern, open pit potash mine, with initial production scheduled for 2016 or sooner.
The Colluli Potash Project hosts a total JORC resource of 1.08 billion tonnes at 17.97% KCl or 11.35% K2O for total contained potash of 194 million tonnes KCl or 123 million tonnes K2O.
This includes higher grade sylvinite of 114.6 million tonnes at 28.56% KCl or 18.04% K2O.
The current resource is included in an exploration target of 1.25 to 1.75 billion tonnes at 18% to 20% KCl.
South Boulder is continuing negotiations with the Eritrean National Mining Company (ENAMCO) regarding the company's participation interest in the Colluli Potash Project.
In March 2012, South Boulder provided ENAMCO with a proposal for ENAMCO to acquire a 30% paid participating interest in the Colluli Potash Project (in addition to ENAMCO's right to a free-carried 10% interest).
During the course of the negotiations and the ongoing development of the Colluli Potash Project, it became apparent to both the Eritrean Ministry of Energy and Mines (MOEM) and South Boulder that Colluli is a strategic and significant asset.
As a consequence, South Boulder has agreed to submit an alternative proposal for ENAMCO to participate in the project by way of a 50/50 profit share, where South Boulder would pay 100% of the development costs.
The company said ENAMCO has made it clear that it fully supports the development of the Colluli Potash Project by South Boulder and is keen to conclude negotiations to enable licensing and development to proceed in a timely and expeditious manner.
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