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Elemental Minerals Starts Key Potash Feasibility Studies

Elemental Minerals (ASX:ELM) has started the key Bankable Feasibility Study for the Kola deposit and Pre-Feasibility Study for the Dougou deposit at the Sintoukola Potash Project in the Republic of Congo.

This follows the selection of international engineering company Hatch as the lead consultant for both studies.

The Kola BFS is planned for completion in Q3 2016, with the start of construction foreseen in Q2 2017.

The Dougou PFS and ESIA (environmental and social impact assessment) are both scheduled to be completed in Q2 2016.

Mobilisation of equipment and fieldwork has commenced with drilling of the Kola shaft barrel test-hole to start in October 2015 and Dougou metallurgical test-work drilling to commence in September 2015.

Further capital cost savings are being targeted through further integration of BOOM4 partners (power supply, gas supply, marine facilities and transshipment, the overland conveyor belt, underground mining and the employee facilities) into the project operation and by adopting a "fit-for-purpose" design strategy.

John Sanders, chief executive officer, commented:

"The commencement of the BFS at Kola, our flagship project, marks the final phase of project development for the company before construction, and is a major milestone achieved in what is clearly a difficult macro economic environment.

"We are delighted to have selected Hatch as our lead consultants for our projects, especially as they have a formidable track record in the design and construction of potash mining and infrastructure projects.

"Their comprehensive experience in the implementation of both potash projects and African pit-to-port mining projects should assist the company to ensure that the studies are prepared to the highest quality from a bankable perspective.

"Fieldwork for the Kola and Dougou studies has also started.

"We expect the BFS for Kola to further highlight the exceptional quality of this sylvinite project and its ability to support very attractive returns on investment and an operating cost that is unparalleled, underpinned by the quality, shallow depth and location of the deposit.

"Similarly, we anticipate excellent results from the PFS for Dougou, taking advantage of the low gas price in the RoC and the suitability of this deposit to solution mining.

"Kola and Dougou are planned to produce a combined total of 3.2 Mtpa in the long term and should be the leading projects in an emerging and important potash province.

"In addition we are progressing our strategic partnership discussions with various entities for offtake and sizeable investments in the company, being at terms sheet stage with those that are more advanced."

Feasibility Studies

The current studies will build on the PFS and Phased Implementation Study for Kola, and the Scoping Study for Dougou.

There will be an effort to further reduce the capital cost for Kola while maintaining operating costs that are expected to be the lowest globally.

The Phased Implementation Study for Kola determined a Life of Mine (LOM) operating cost of US$90 per tonne of MoP while the Dougou Scoping Study estimated an LOM operating cost of US$68 per tonne MoP.

Both studies will incorporate BOOM infrastructure partners, thereby reducing the project start-up capital.

Expressions of interest in this regard have been received for the power supply, gas supply, marine facilities and transshipment, the overland conveyor belt, underground mining and the employee facilities.

These will be further developed to commercial terms during the Kola BFS in conjunction with the Hatch project team.

In addition, Hatch and Elemental have already identified opportunities for start-up capex reduction by adopting a fit-for-purpose design strategy.

To date, both the Kola and Dougou economic models have been unlevered.

The BFS for Kola will enable the incorporation of an appropriate level of debt into the project finance, which could improve the IRR for equity holders.

Hatch was selected following a rigorous four month selection process including the development of full and detailed scopes of work.

It has an enviable track record in designing and implementing mining, energy and infrastructure projects in Africa.

Hatch also has extensive experience in potash projects across four continents having successfully executed major potash expansions, and Hatch is currently involved in the development of several additional major potash projects.

Elemental will leverage off Hatch's wealth of knowledge and experience in the design and construction of some of the world's largest potash operations.

The Kola BFS is planned for completion in Q3 2016, with a subsequent front end engineering and design (OTC:FEED) period in parallel with project financing completed in Q2 2017. Construction is expected to start thereafter.

The Dougou PFS and Environmental and Social Impact Assessment (ESIA) are both scheduled to be completed in Q2 2016, culminating in the application for a mining license.

Study work at Dougou begins with the ESIA and drilling of hole for the retrieval of core for metallurgical testwork, then a drillhole at the planned production shaft at Kola, for hydrological and geotechnical testwork.

Potash Projects

The Kola and Dougou deposits are located within the 1067 kilometre Sintoukola Permit.

Kola is a large sylvinite deposit with Proved and Probable Reserves of 152 million tonnes of sylvinite ore with an average grade of 31.7% KCl.

Dougou is a large carnallitite deposit just 15 kilometres southwest of Kola. It has a Measured and Indicated Potash Resource of 1.1 billion tonnes grading 20.6% KCl.

Both projects are conveniently located to access the available infrastructure in the greater Pointe Noire region.

Analysis

Elemental Minerals has hit two key milestones with the start of a BFS for Kola and PFS for Dougou, which together could produce of 3.2 million tonnes per annum of potash.

This will also bring later price catalysts.

Including a level of debt into the project finance mix should significantly improve the IRR, a plus for potential project partners.

With term sheets in place with companies involved in the fertiliser sector for investment and off take, brings further price catalysts to Elemental in coming months of 2015.

Elemental's Kola and Dougou deposits rank as first and second highest grades respectively, when compared with peer potash companies. Third highest is Karnalyte Resources' (TSX:KRN) while Allana Potash's Dallol has the fourth highest grades.

Allana was recently acquired by US$8.7 billion market cap Israel Chemicals Ltd (NYSE:ICL).

Dougou has estimated EBITDA margin of US$248 per tonne while Kola has an estimated margin of US$232 per tonne.

This compares to US$171 per tonne for Dallol and US$208 per tonne for Mag Industries' (NYSE:MAA) Mengo Potash Project.

The company is also extremely well funded with $8.57 million in cash as at 10th July 2015.

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