WPSHF... Positive feasibility study.
December 6 th , 2012, Vancouver BC – Western Potash Corp. (WPX: TSX) (FSE: AHE) (“ the Company ”) is pleased to announce the receipt of a positive Feasibility Study (the “Study”) from AMEC Americas Limited (“AMEC”) on the Company’s 100% owned Milestone property in southern Saskatchewan (the “Project”). The Study confirms that the asset is of sufficient size and grade to support primary and secondary potash solution mining for more than forty years at an ultimate production rate of 2.8Mt/yr. The Study included detailed CAPEX and OPEX estimates with a production start up in 2016.
The Study reports that the resulting after-tax project Net Present Value (“NPV”) is $2.44B CAD, with an Internal Rate of Return (“IRR”) of 18.6 % assuming a nominal discount rate of 10%. On a before tax basis, the Project yields an NPV of $3.6B CAD and an IRR of 21%.
Patricio Varas, President and CEO commented “Our Project is in an enviable, low risk geopolitical and regulatory jurisdiction, which is a key advantage for developers that look for long-term investment predictability. The lower capital intensity of the Project combined with the plant’s efficient operations and high throughput produce a project with attractive rates of return and significant free cash flow. These factors, coupled with the detailed scope of project evaluation, the size and grade of the deposit, and the project development expertise of the management team, presents a unique opportunity for investors and developers to secure an economical, reliable and long term supply of potash.”
Key Highlights of Study
|
Initial CAPEX 1 |
$2.91B CAD |
|
Deferred CAPEX 2 |
$0.39B CAD |
|
Contingency and Escalation included in CAPEX |
$0.55B CAD |
|
OPEX 3 |
$62.28 CAD/t at full production capacity |
|
Sustaining CAPEX |
Wellfield =$28.49 CAD/t, Plant & Site =$17.99 CAD/t at full production capacity |
|
Rail and Port Cost 4 |
$59.00 CAD/t |
|
Accuracy of Study |
+15% to -10% |
|
After-tax NPV 10 |
$2.44B CAD |
|
IRR |
18.6% |
|
Payback Period |
5.6 years |
|
Proven and Probable Reserves 5 |
137 Mt KCl |
1 includes water supply CAPEX.
2 includes all CAPEX required to produce at full nameplate production capacity
3 includes estimates for labour, maintenance, power, natural gas, water, consumables, diesel, and uncapitalized well field operations. Natural gas price =$4.00/GJ.
4 cost includes port operator return on capital
5 represents recoverable tonnes KCl
The economic analysis performed in the Study was based on the following assumptions:
|
Base case |
100% equity, 10% discount rate, nominal cash flow |
|
Mine life |
40 years |
|
Production rate |
2.8 Mt/yr |
|
Maximum Primary Mining Production |
2.0 Mt/yr |
|
Construction Period |
3.5 years commencing 2013 subject to financing and permitting approval |
|
Mining Start-up |
2016 |
|
Production ramp up period |
2016-2022 |
|
Plant Recovery |
93.5% |
|
Product Specification |
K62 (98.1% KCl) |
|
Closure Cost Allowance |
10% of CAPEX included at end of mine |
|
Product Split |
80% granular, 20% standard |
|
Potash Price FOB Vancouver |
$450 USD/t for standard grade1, $470 USD/t for granular grade, weighted as per product split |
|
USD:CAD Exchange Rate |
1:1 |
|
Inflation |
2% applied to potash price and costs |
|
Taxes and Royalties |
Crown Royalty, Corporate Capital Tax Resource Surcharge, Potash Production Tax, and Income Tax included in model |
1 Source: CRU Strategies. 2012 weighted annual average standard grade potash price.
The Study includes all facilities required to operate a potash solution mine, including: cavern and wellfield layout, two-train multiple effect evaporization-crystallization plant, dry processing plant, product storage, load out and all other necessary site infrastructure. This design, which was detailed to a sufficient level to allow the capital cost estimate to conform to AACE “Class 3” standard, can accommodate future production expansion.
Table 1 and 2 evaluate the key economic sensitivities of the Project. Since the analysis is based on a cash flow estimate, actual financial results may vary from these predictions.
Table 1. Project Potash Price, OPEX, and CAPEX Sensitivities
|
NPV10 ($CAD billions) |
IRR (%) |
|
|
Base Case Discounted Nominal Cash Flow Model |
2.44 |
18.6 |
|
10% Increase/Decrease in Potash Price |
3.09/1.79 |
20.5/16.5 |
|
10% Increase in OPEX |
2.34 |
18.2 |
|
10% Increase in CAPEX |
2.25 |
17.3 |
|
NPV 9 |
NPV 10 |
NPV 11 |
|
|
Nominal After-tax NPV ($CAD billions) |
3.09 |
2.44 |
1.91 |
The Project has excellent access to all infrastructure, utilities, services, and is supported by a world class potash Reserve. Power, natural gas, water, and existing rail connections are readily available near the Project. All major technical and execution project risks have now been mitigated. Non-technical project risks, such as environment and political concerns, remain low.
The Study was intended to provide a high degree of project definition, building on the Prefeasibility Study completed in September 2011. The Study included a solid set of engineering deliverables from AMEC, and consolidated input from other expert consultants including Whiting Equipment Canada Ltd (Process Design), Agapito Associates Inc. (Geology and Solution Mining), Impact Oilfield Management (Wellfield), Golder Associates (Environment and TMA), and KGS Group (Water Treatment). The Company was assisted by Novopro Projects Inc. who provided engineering oversight.
AMEC is a leading international engineering and project management company that currently manages multiple potash development and expansion projects in Saskatchewan with a capital value of several billion dollars. AMEC was chosen to carry out the Study because of their technical expertise as engineers and EPCM contractors, as well as their experience in potash mine construction, potash processing and their expertise in producing potash feasibility studies.
Summary of Reserve and Resource Update
The Company is pleased to further announce that as a result of the mine plan and favorable economic results developed and presented in the Study, a portion of the previously reported Measured and Indicated Resources have been upgraded to Proven and Probable Reserves respectively.
A summary of the results for Proven and Probable Reserves, and Measured, Indicated, and Inferred Resources within Crown and Leased Freehold Areas are presented in Tables 3 and 4.
A detailed break-down of the Reserves and Resources will be included with the NI 43-101 report to be filed as required by Canadian securities regulators. Agapito Associates Inc. (“AAI”) have made estimates of the Resources and Reserves based on a Radius of Influence (ROI) similar to that applied by mine operators and peer group explorers working on solution mining properties in the region. The Resource and Reserve estimate was prepared in accordance with the requirements of NI 43-101 of the Canadian securities regulators. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Table 3. Proven and Probable Reserves within Crown and Leased Freehold Areas*
|
Reserve Category |
KCl Reserve (Mt) |
|
Proven Reserves |
35.84 |
|
Probable Reserves |
101.44 |
|
Total |
137.28 |
* Search Radius of 800 m used for Proven and 1.6 km outside radius, 2.5 km inner radius (between drill holes) used for Probable; Mt = million tonnes; K2O cut-off grade = 15%; Density = 2.08 t/m 3 , KCl = 1.58303 K2O. Accounts for known geologic anomalies, unknown geologic anomalies (5% for Proven, 9% for Probable), and recoverable tonnages of KCl contained in caverns within the search radius. Accounts for 87.3% cavern, and 93.5% plant KCl recoveries.
Table 4. Measured, Indicated and Inferred Mineral Resource (exclusive of Reserves) within Crown and Leased Freehold Areas.*
|
Resource Category |
Average KCl Grade (%) |
In-Place Tonnage (Mt) |
In-Place KCl Tonnage (Mt) |
KCl Resource (Mt)** |
|
Measured Resource |
21.11 |
226.37 |
47.79 |
15.71 |
|
Indicated Resource |
21.66 |
529.97 |
114.77 |
36.84 |
|
Inferred Resource |
25.96 |
10,513.16 |
2,729.00 |
708.18 |
* Search Radius of 800 m used for Measured, 1.6 km outside radius, 2.5 km inner radius (between drill holes) used for Indicated, and 8.0 km radius used; for Inferred; Mt = million tonnes; K2O cutt-off grade = 15%; Density = 2.08 t/m 3 , KCl = 1.58303 K2O.
**Accounts for known geologic anomalies, unknown geologic anomalies (5% for Measured, 9% for Indicated, 25% for Inferred), extraction ratio (34.6%) and appropriate buffer zones around towns and plant site.
The total Proven and Probable Reserves are sufficient to support mining at an annual rate of 2.8 Mt of KCl for 49 years, well beyond the mine plan contemplated in the Study. As commercial mining is initiated, the geological information from the ongoing wellfield drilling will be used to further define and expand the mineral Reserves and Resources. The Project Reserves and Resources have the potential to support an ongoing mining operation well into the next century.
The updated Resource and Reserve estimate was prepared by AAI of Grand Junction, Colorado. AAI’s experience includes work for Intrepid Potash Inc. in the US, Rio Tinto and Vale at the PRC project in Argentina, and work for several prospective potash projects located in Saskatchewan.The Qualified persons for the Resource and Reserve Estimate were Dr. Michael P. Hardy, P.E (US), P.Eng. (SK), and Dr. Douglas F. Hambley, P.E. (US), P.Eng. (SK), P.G. (US).
The Company will file an updated NI 43-101 Technical Report with Canadian securities regulators within 45 days of this release and will be available on SEDAR at www.sedar.com , and also on the Company's website at www.westernpotash.com .
EIS Update
Further to the news release issued on September 5, 2012, the Company wishes to provide an update on its Environmental Impact Statement (“EIS”) for the Project. The EIS was prepared and submitted to the Saskatchewan Ministry of Environment (“MOE”) in conformance with the Government of Saskatchewan’s “Environmental Assessment Act.” A review process of the EIS by the regulatory agencies is ongoing. Following a satisfactory technical review, the EIS will be posted on the MOE’s website and available for public review. The Company anticipates Environmental Assessment approval in the first quarter of 2013.
About Western Potash Corp.
Western Potash Corp. is a development company engaged in the evaluation, exploration and development of potash mineral properties in Western Canada. The Company intends to develop a world-class potash deposit in an ecologically sustainable, economically efficient and socially responsible manner.
The in-house qualified persons for the purposes of NI 43-101 guidelines are J. Patricio Varas, P. Geo and Dean Pekeski, P. Geo, both of whom have reviewed and approved the contents of this news release.
For more information on Western Potash Corp.’s projects, please visit the Company’s website at:
