Potash West's (ASX: PWN) Scoping Study has demonstrated the technical and financial viability of single superphosphate production at its Dandaragan Trough Project in Western Australia's mineral-rich Mid-West region.
Key takeaways from the study, which is based on the Dinner Hill phosphate resources supporting production of 340,000 tonnes per annum of SSP for over 20 years, are:
- Ability to produce commodity grade SSP confirmed;
- Average revenues per year of A$131 million;
- Estimated average total annual cash costs of A$97.6 million;
- IRR of 26%;
- NPV8 of A$218 million;
- Low capital costs of $144M, inclusive of indirect costs; and
- Payback in under four years.
Managing director Patrick McManus told Proactive Investors the company will likely push the independent superphosphate project at Dinner Hill given that it has no technology risk, a large resource with strong upside and a small capital requirement.
"All of which is more palatable in this investment environment," he added.
"This doesn't mean we'll abandon the K-Max project, which produces Potash and Alum as well as phosphate, but we will look to progress it in parallel.
"An advantage is that the two projects would share a common front-end, with identical mining and primary beneficiation plants.
"So we could build the phosphate project and later add the K-Max chemical plant, essentially treating part of the reject stream from the Phosphate concentrator."
McManus noted that while the K-Max project, which would produce potash, phosphate, alum and iron oxide, had a much higher NPV with great opportunities to grow the output, it would also require higher capex to get started.
He had said in a statement that capturing the full value of the phosphate allows a viable independent phosphate facility to be considered, in addition to providing major improvements to the economics of a K-Max plant.
"For a small company like Potash West, the lower capital requirement and proven established process technology required for the superphosphate plant will provide a route to positive cashflow that will reduce dilution for existing shareholders," he added.
"Our next steps are to move quickly to a definitive feasibility study on the phosphate resource."
The company added there opportunities for metallurgical recovery improvements and scope to increase the scale of the project as operations are established and markets grow in the region.
It could also build a combined phosphate plant and K-max plant to produce potash and alum products from the same feed material, which would increase phosphate production by more than 50% while having lower capital and operating costs compared to two separate plants.
Future work and upside potential
McManus said the main work programs will now revolve around engineering studies to improve Capex and Opex, permitting and market analysis.
He added that while the current Indicated Resource will need to be upgraded to the Measured category for the Feasibility Study, it would require just wide-spaced and low cost aircore drilling.
"The Dandaragan Trough has numerous thick intersections of Greensands, so the potential to increase the resource is very large," McManus noted.
"Within Dinner Hill the K-Max resource and the phosphate resource are virtually co-incident and cover only 10 square kilometres.
"The prospective area at Dinner Hill is about 60 square kilometres and the independent geologist has announced an exploration target of 1 billion to 1.5 billion tonnes on the remaining 50 square kilometres, about 10 times the existing high grade K-Max resource which, in turn lasts over 60 years at the scoping study scale.
"We don't know the target for the phosphate resource, but we are confident the resource will grow."
Scoping Study details
The Scoping Study is based on the JORC Indicated Resource of 90 million tonnes at 2.65% P2O5 and 3.6% K2O at the Dinner Hill deposit, which is just a small part of the Dandaragan Trough project area.
Strategic Metallurgy, which was tasked with developing a process to produce single superphosphate from Dandaragan greensands, had provided a process package that formed the basis of the scoping study.
This would treat 3.8 million tonnes per annum of Poison Hill and Molecap Greensand to produce 342,000 tonnes per annum of single superphosphate using low cost and simple processing that includes scrubbing, screening, de-sliming, magnetic separation and flotation as well as acidulation.
The processing plant is assumed to be located between the towns of Moora and Dandaragan in Western Australia, both of which are about 170 kilometres north of Perth.
It will be well positioned with respect to road and rail access and located within 30 km of the electricity utility corridor.
With most of the Poison Hill Greensand and the Molecap Greensand covered by a superficial mostly sandy cover averaging about 11 metres, mining is expected to be straightforward.
Mineralisation will be mined by a bulldozer, which feeds an in-pit slurry unit.
McManus added the deposit is free-running sand with phosphate present as coarsely liberated nodules.
The greensands contain significant amounts of glauconite and also significant phosphate content in the form of apatite nodules.
The capital cost consists of $72.9 million for the processing plant, $34.7 million for infrastructure and $36.7 million for indirect costs including contingency.
Operating costs are estimated to be about $285.19 per tonne of product, which is expected to be sold at a discounted rate of $350 per tonne in the first year to achieve market penetration before increasing to about $389 per tonne from the sixth year on.
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.
It has a Resource of 244Mt at 3% K2O and 1.6% P2O5 as of October last year while a Scoping Study in January 2013 demonstrated the technical and financial viability for the proposed development of a K-Max facility producing a range of commodities.
The project is close to local markets as well as infrastructure that will ease the road to development and provide access to export markets.
The Scoping Study has highlighted what Potash West has long believed, that its Dandaragan Trough Project represents an attractive project with ready access to infrastructure and markets.
The proposed independent superphosphate operation at Dinner Hill will enjoy low capital costs - making it more palatable to financiers, low mining costs, a simple processing route, acceptable recoveries and cheap acid supply.
Attention must also be paid to the considerable scope to enhance the project metallurgical recovery improvements and construction of a combined phosphate plant and K-max plant to produce potash and alum products from the same feed material.
This will not only result in higher phosphate production, but also lower costs.
Taken together, this provides the company with the confidence to move forwards towards a Definitive Feasibility Study.
Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.