TORONTO (miningweekly.com) – Brazilian potash project developer Verde Potash on Wednesday reported that the Brazilian Development Bank (BNDES) had briefed it on its available lines of credit to construct the 330 000 t/y ThermoPotash (TK) plant that would start as soon as all required permits were in hand.

Verde in March announced that about $105-million in government funding for its Cerrado Verde project, located within the country’s largest agriculture market, had been confirmed after an appeals period had ended.

Verde had submitted its business plan for developing its $113-million Cerrado Verde project and asked for about $105-million from Inova Agro.

This capital would be provided through loans with subsidised interest rates, equity investment and nonreimbursable project investment grants from the BNDES and/or the Financing Agency for Studies and Projects, both of which are branches of the Brazilian government that operate Inova Agro.

According to Inova Agro's parameters and Verde's business plan, the company could access the bank's main line of credit ‘BNDES Finem Inovação’ – a special line of credit for innovative projects that could also generate significant gains across the production chain – the ‘BNDES PSI - Projetos Transformadores’ and the ‘BNDES Proengenharia’, a credit line suitable for engineering investments and studies.

Verde's project fulfilled the requirements for BNDES' lowest cost-of-capital line of credit, the BNDES PSI - Projetos Transformadores, which had an interest rate of 4% a year with a 12-year payback period, including a two-year grace period.

The coupon rates for BNDES' other two lines of credit were about 8% and 10%, respectively. Brazil's benchmark interest rate is currently 11%.

Verde said the funds would become available for drawdown once an environmental licence had been secured – a process that had already started.

“In today's markets, companies are facing chronic uncertainty with regard to the source of their project's construction funding. With the support of the Brazilian government and BNDES, Verde has a clear pathway to secure funds and start construction as soon as it obtains standard regulatory approvals,” Verde president and CEO Cristiano Veloso said.

The TSX-listed firm earlier this year announced the results of a prefeasibility study (PFS), which pointed to robust economics for the project, with a net present value of $145-million. The 1 000 t/d plant would cost about $113.6-million to build, including a $14.7-million contingency, and would have an internal rate of return of 23.5%, with an estimated payback of the initial capital after five years.

Over the 31-year mine life, sustaining capital would be $31.5-million.

The initial TK output would represent only a small fraction of Brazil's potash market and the company's significant mineral resource would allow it to organically grow output, which would reduce shareholder dilution. The Cerrado Verde project has an enormous mineral resource and only a fraction of its total mineral potential was established as proven and probable reserves for the PFS, for a total of 7.02-million tonnes, grading 10.8% potassium oxide.

PROJECT UPDATE

Verde reported that the mine engineering work, comprising mechanical, electrical and civil works, was ongoing and being developed by Brazilian engineering and consulting firm Lima & Zanette. Verde expected this work to be complete by the end of the third quarter.

The company had also hired MDGEO - Serviços de Hidrogeologia, a company specialising in mining, drainage and geotechnical studies, to conduct a hydrogeological study, which was required to identify and, if necessary, measure the mine's impact on groundwater.

The hydrogeological study was started in August and was expected to be complete during the fourth quarter.

Further, Verde had signed a 30-year lease agreement with landowners for the area where the mine and plant would be located.

"Verde has been successful in achieving essential milestones that bring the project closer to production,” Veloso said.

Verde also said it had reduced its monthly cash burn rate to $240 000, down from $500 000 at the end of last year, as part of its cost reduction plan. It had renegotiated most of the monthly expenses, such as office rental rates and consultancy fees, and saw more potential for cost reductions next year, should capital markets fail to improve.

Verde's current cash position was about $8-million and it expected to finish the year with cash on hand of about $6.5-million.