Salt Lake Potash Ltd (ASX:SO4) (LON:SO4) (FRA:W1D) (OTCMKTS:WHELF) has delivered an “outstanding” bankable feasibility study (BFS) for the commercial-scale development of the 245,000 tonnes per annum Lake Way Sulphate of Potash (SOP) Project in Western Australia.
The BFS demonstrates that the project will generate outstanding returns through strong financial results, low capex and opex costs, a significant ore reserve, a premium product and a fast-tracked production scenario.
Low operating costs
It is estimated that the project, in the Northern Goldfields region, will have one of the lowest operating costs of any SOP operation globally with a C1 cash cost of A$302/tonne (US$205/tonne).
Shares are up almost 9% in ASX trading to A$0.86 after hitting a new 12-month high of A$0.95 late last month.
“Outstanding economic results”
SO4 chief executive officer Tony Swiericzuk said, “We are extremely excited to release the Lake Way Project BFS with such outstanding economic results.
“Significant work has been undertaken by the company since the Lake Way scoping study which has further strengthened the project fundamentals.
“The BFS demonstrates the ability to significantly increase the production rate and optimise development capital while maintaining our position as a low-cost producer.
“SO4 has completed the first stage of on-lake construction and will continue with progressive development of remaining commercial-scale evaporation ponds planned from Q4 2019.”
The BFS demonstrates estimated project post-tax NPV8 of A$479 million (pre-tax NPV8 of A$696 million) and post-tax IRR of 28% (pre-tax IRR 38%).
Steady-state project EBITDA is calculated at A$111 million annually and average annual after tax-free cash flow at A$78 million and A$83 million during the first five years.
Strong cash flow and low capital costs are expected to result in an early payback period of 3.5 years.
A high-grade probable ore reserve of 5.4 million tonnes of SOP, including 2.4 million tonnes of contained potassium at an initial grade of 6.8 kilograms per cubic metre, underpins a 20-year life of mine.
An increase in the paleochannel basal sands resource estimate of approximately 57% to 6 million tonnes of SOP in Total Porosity (2.2 million tonnes in Drainable Porosity) supports additional production bores.
Excess sulphates at Lake Way enables annual production of an estimated 245,000 tonnes of premium grade SOP with the addition of 42,360 tonnes of potassium chloride (KCl).
The existing Mining Leases on the Lake Way tenements provide an advanced permitting pathway for early development activity.
Completion of the first stage of evaporation ponds has enabled dewatering of super-saturated brine from the Williamson Pit to start.
Plant commissioning is forecast for Q4 2020 utilising salts from Williamson Pit brine.
Key project infrastructure and tenements.
Low capital and operating costs
- First quartile operating costs for global SOP producers with a C1 cash cost estimate of A$302/tonne (US$205/tonne).
- Low development capital requirements of approximately A$254 million (US$173 million), including contingency of A$21 million, which is supported by the close proximity to infrastructure.
- Very high-grade potassium (>53% K2O) product confirmed, with a low chloride(<0.1% Cl) and insoluble particle (<0.1%), content and dissolution rate of 95% in one minute.
- Premium grade specifications from pilot plant test work support premium pricing.
- BFS completed using a modelled sales price of US$550/tonne.
The BFS incorporates a number of changes to the previous scoping study, including a revised processing methodology to include the addition of KCl which has increased the annual production rate to 245,000 tonnes and delivered improved economic outcomes.
While the addition of KCl to the process plant has increased the C1 cash cost from the previous scoping study estimate, SO4 estimates it will achieve better capital intensity and maintain its position as a low-cost producer at US$205/tonne while significantly improving project economics.
Development has advanced
SO4 has significantly advanced development of the project since the scoping study, including completion of 125 hectares of evaporation ponds which are now filled with high-grade from the Williamson Pit.
The optimised capital expenditure plan has considered a staged approach to pond construction that aligns with the plant ramp-up schedule and steady-state production requirements, enabling some initial capital expenditure to be deferred for a period of up to 12 months.
Market analysis by CRU Consulting and Argus Media Group, supported by internal SOP sales and marketing expertise, indicates a significant opportunity for SO4 to capture additional pricing upside associated with the premium potassium grade and solubility properties of the specifications produced during pilot plant test work.
The BFS demonstrates that, even in the most extreme downside pricing scenarios, the project continues to deliver robust economic returns.
The breakeven pricing scenario of US$307 per tonne is at a significant decrease to the current SOP price.
With completion of the BFS, SO4 will accelerate development of the full commercial scope for the project.
The company is quickly advancing on multiple fronts with several key developments over the coming months:
- • Detailed design and documentation have commenced with the appointment of GR Engineering Services for the process plant; Coffey Tetra Tech, Tetra Tech Proteus and Cardno for on-lake infrastructure;
- • Continued construction on Lake Way with the commencement of the next stage of evaporation ponds and brine extraction infrastructure;
- • Procurement of long-lead items; and
- • Execution of key offtake agreements with preferred partners.