TORONTO (miningweekly.com) – Canada’s Passport Potash on Wednesday announced results of a preliminary economic assessment (PEA), which placed a $3.25-billion pretax net present value (using a 12% discount rate) on its Holbrook Basin potash project, in Arizona.
Passport said the capital cost (capex) of $1.95-billion for a 2.5-million-ton-a-year mine made this one of the best values in the potash industry.
"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,” Passport president and CEO Joshua Bleak said.
The independent PEA, prepared by Germany-based potash and salt industry specialist consulting and engineering firm Ercosplan Ingenieurgesellschaft Geotechnik und Bergbau, had found the project held a National Instrument 43-101-compliant measured resource of 34.77-million tons at a potassium chloride (KCl) grade of 14.38%, and an indicated resource of 363.17-million tons grading 14.68% KCl.
The proposed underground mine would have a life of 26 years, with a capex payback period of eight years. The mine is expected to have an after-tax internal rate of return of 27.08%.
Mining would take place using the room-and-pillar method and ore would be processed using a hot leach process.
Bleak pointed out that a good metric for judging the value of a potash project was the capex cost per ton of finished production, and by using this metric, the Holbrook project would be one of the lowest-cost projects of all the greenfield potash projects currently being developed.
“When you couple these factors with the estimated opex [operating expenditure] of $114/t, the Holbrook project has potential to be one of the highest-return potash projects in the world,” Bleak said.
Fundamental Research analyst Siddharth Rageev told Mining Weekly Online on Thursday the metrics indeed looked favourable for a low-cost operation, although he pointed out the information released on Wednesday was not as comprehensive as it could have been.
He pointed to the projects IRR of 27% being particularly attractive, as most of the Saskatchewan potash projects have an IRR ranging between 15% and 20%. He added the capex was comparatively low at $1.95-billion, owing to the deposit not being located as deep underground as Saskatchewan projects are.
Rageev speculated the company would need a partner to help develop the project, and pointed to rival Prospect Global Resources, which was also developing a potash project in the basin, as being a suitable candidate to form a joint venture with or for a merger.
Alternatively, he said the PEA put the project on the map for a potential deal with an Indian or Chinese partner, countries that had in recent months showed renewed interest in start-up projects.
Passport said it would now move forward with its prefeasibility study, which it plans to release at the end of the year, as well as a feasibility study, which it plans to release at the end of 2014.
Passport holds a strategic position in the Holbrook basin with landholdings totalling more than 121 000 acres. Passport had entered into a joint-exploration agreement with the Hopi Tribe to work towards developing about 13 000 acres of contiguous privately held Hopi land.
The company’s TSX-V-listed stock closed at 24 Canadian cents apiece on Thursday.