Wednesday, March 13, 2013

Positive economic assessment of proposed potash mine

Passport Potash released highlights of the Preliminary Economic Assessment of their Holbrook basin potash project that appear to be very positive.  [Right, land holdings of Passport and their partner.  Petrified Forest National Park in light green.  Credit, Passport Potash] The report projects an underground mine, using room and pillar recovery, producing 2.5 million tonnes per year.   [Total U.S. production is only about 1 MT per year currently, with the rest of demands being imported].   The cost to develop the mine is estimated at $1.95 billion. The total operating expenditures average $114 per tonne, which the company says would make it one of the lowest cost new mines being developed anywhere in the world.   The full announcement from Passport is posted below:

Passport Potash Inc. is pleased to announce the receipt of a positive preliminary economic assessment on its Holbrook Basin potash project (the “PEA”), prepared in accordance with National Instrument 43-101 standards of disclosure for mineral properties. The independent PEA was prepared by ERCOSPLAN Ingenieurgesellschaft Geotechnik und Bergbau mbH (“ERCOSPLAN”), a consulting and engineering firm, specialized in the potash and salt industry, headquartered in Erfurt, Germany. The key findings of the report include the following:

Pre-tax NPV@12%
$3.25 billion USD
Pre-tax IRR (30% income tax rate)
After-tax NPV@12%
$2.19 billion USD
After-tax IRR (30% income tax rate)
Estimated Total Capital Expenditures
$1.949 billion USD
Estimated Total Operating Expenditures (includes sustaining OPEX)
$114/tonne KCl USD
Payback Period (from start of production)
8 years

Discount Rate for Project Related Risks
Potash Price for 2013 (standard MOP)
$430/tonne USD

Measured Mineral Resources (including Passport and Hopi properties)
34.77 MT
Average Measured KCl Grade
Indicated Mineral Resources (including Passport and Hopi properties)
363.17 MT
Average Indicated KCl Grade

Annual Production (60% minimum K2O)
2.5 MT MOP
Life of Mine
26 years
Mining Method
Conventional Underground
Room & Pillar
Processing method
Hot Leach
Plant Recovery Rate (KCl)
Estimated Employees (Mining, Production, Management)

*Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Passport’s President and CEO Joshua Bleak commented, “We are extraordinarily pleased with this robust report for our Holbrook Basin potash project. We feel that the strong fundamentals of this report validate everything we have believed about this project, and are confident that the strength of this report will allow us to gain traction, even in the face of a moribund resource market.  The CAPEX of US$1.95 billion for a 2.5 MTPA mine makes this one of the best values in the potash industry.  A good metric for judging the value of a potash project is the CAPEX cost per tonne of finished production.  Using this metric, the Holbrook project is one of the lowest cost projects of all the greenfield potash projects currently being developed.  When you couple these factors with the estimated OPEX of US$114/tonne, the Holbrook project has potential to be one of the highest return potash projects in the world. Based upon the recommendation of ERCOSPLAN we will move forward with our Pre-feasibility Study which we plan to release at the end of 2013, and our Feasibility Study which we plan to release at the end of 2014. We are excited to take this report to the strategic partners with whom we have had discussions over the past year, and be able to show them the value that is in this project.”

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