TORONTO (miningweekly.com) – Potash project developer Gensource Potash has published a preliminary economic assessment (PEA) for its flagship Vanguard project, in Canada’s potash-rich province of Saskatchewan, saying the report indicates that there is “good potential” for an economic potash operation using small-scale techniques.

The Saskatoon, Saskatchewan-based company on Tuesday reported that the assessment had calculated a base-case scenario assuming a $300/t price for potash product with an after-tax net present value, at an 8% discount rate, of $212.7-million. The internal rate of return came to 16.86%, also on a post-tax basis, the company advised.

“The fact that a strong return on investment is indicated – even when using very conservative inputs like today’s low potash price, and a real and rational sustaining capex [capital expenditure] programme – supports Gensource’s business plan as a marketable approach to becoming a new and independent potash producer,” commented president and CEO Mike Ferguson.

Gensource had early in April entered into a C$2.48-million asset purchase agreement with Yancoal Canada Resources, under which it would acquire about 25 820 ha split under two exploration permits. Conditions precedent to closing the acquisition included Gensource being able to convert the two permits to mining leases and executing a definitive offtake agreement between the partners.

TSX-V-listed Gensource advised that the PEA, completed by consulting engineering firm Innovare Technologies, in conjunction with Saskatoon-based ENGCOMP Engineering and Computing Professionals, formalised the conceptual engineering design for the Vanguard project and would become the prototype for Gensource’s small-scale production facilities, with a target production rate of 250 000 t/y.

Gensource planned to use the latest techniques and technologies to build “a potash facility like no other” in the province – one that would have a small environmental footprint and community impact.

According to the PEA, which was based only on an inferred resource of 64-million tonnes, the C$247-million mine could have a life spanning a century, producing potash with a minimal purity of 96% potassium chloride.

The company planned to mine the resource through selective dissolution using horizontal caverns and processing ore through cooling crystallisation, incorporating advanced energy-efficiency measures.

The planned operation would be able to produce potash at an operating cost of C$52.39/t, providing leverage to the greenback in which it would denominate sales at an exchange rate of C$1.30.

Gensource had an eye on selling its potash to Chinese customers through the offtake agreement with Yancoal, comprising all of the mine’s output, and had allowed a cost-and-freight China transportation allowance of $95/t in the PEA.

According to Gensource, it would be able to complete the development phase of the project in about eight to ten months, with construction expected to take place over an 18-to-20-month period.

The PEA suggested that Gensource’s next steps included upgrading the resource from inferred to measured and indicated classifications through a geological confirmation campaign and to begin a preliminary feasibility study.

The company’s business strategy entailed vertical integration with the market to ensure that all production capacity was directed to a specific market, eliminating market-side risk, while technical innovation was expected to allow for a small and economic potash production facility. Its business plan was focused on ensuring that the product was presold before it developed the project to any great extent, stating that potash could be easier made than sold in the current market.

The potash market had in recent quarters been under significant pressure as lower demand and weaker prices had placed major operations at risk. Emerging market currency weakness relative to the US dollar had also weighed on the fertiliser market.

Meanwhile, significant potash projects were in the pipeline in Saskatchewan, including BHP Billiton’s $2.6-billion Jansen potash project, K+S Group’s $4.1-billion Legacy project, which was expected to start producing late in 2016, and other significant projects coming on stream across the Pacific Ocean.