Friday, December 23, 2011

Preliminary economic assessment for Holbrook basin potash mine

Prospect Global Resources has released the Preliminary Economic Assessment for the American West Potash LLC potash resources in the Holbrook basin of eastern Arizona. The 79-page report expects 2 million tonnes per year of finished product, a mine cost of $1.334 billion dollars, a workforce of almost 390, with hourly wages of $25 and management/supervisory salaries of $80,000. At the projected production rate and value of potash, they calculate a 39.7% internal rate of return that would pay off their investment in 2.1 years. [Right, prelimary mine plan for AWP property. Credit, Prospect Global Resources]

We'll be reading the report in more detail over the coming days, which includes an analysis of world potash demands and production, mine operations, mineral processing, salt tailings storage, hydrogeology, and environmental and permitting issues.

From the report conclusions:

The resource will be mined by conventional underground mining methods accessed by shaft which will allow for the production of 2,000,000 tonnes per year of finished product. In order to achieve this production target it is estimated that 13.5 MMT of mineralized material (sylvinite) are required to be mined. The estimated life of the mine, considering both indicated and inferred, is approximately 40 years.
Tetra Tech prepared an economic analysis for the Holbrook Basin Project based on assumed design preparation and cost estimates. The analysis was prepared for a 13.5 Mtpy production scenario. The project operating costs are estimated at US$97/tonne. Total estimated initial capital cost for the Holbrook Basin Project, including indirect and contingency costs are estimated at US $1,334 million, over the initial 3 year pre-production period. Additional, incremental operating or sustaining capital will be required over the 40 year mine life and is estimated at a total cost of approximately US $643 million. Project economic analyses were performed on a before tax basis, with a base case assuming 85% mill recovery rate, an MOP
price of US$496/tonne ($450/ton) and a 10 percent discount rate. This base case resulted in a net present value (NPV) of US $3,818 million, an internal rate of return (IRR) of 39.7% and a payback period of approximately 2.1 years.

Project economics are most sensitive to variances in potash price. At a price of US$397/tonne ($360/ton) the project NPV declines to US$2,413 million compared to the base case NPV of US$3,818 million. On the other hand at a 20 percent higher price (US$595/tonne) the project NPV increases significantly to US$5,223 million.

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