Outstanding economics cement Salt Lake’s position at front of the potash pack
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Special Report: A bankable feasibility study (BFS) on Salt Lake Potash’s Lake Way sulphate of potash (SOP) project has delivered improved economics, further marking the project as the outstanding large-scale development opportunity in the burgeoning Western Australia SOP sector.
Salt Lake Potash (ASX: SO4), which is headed by former Fortescue Metals Group executive Tony Swiericzuk, handed down the Lake Way BFS this morning, only four months after completing a scoping study on the project.
While the scoping study gave a good insight into Lake Way’s potential, the BFS has reinforced it, delivering significant improvements in a number of key areas including capital intensity and Net Present Value (NPV), a key measure used to determine the profitability of resources projects.
“Significant work has been undertaken by the company since the Lake Way Scoping Study, which has further strengthened the project fundamentals,” Swiericzuk said.
“The BFS demonstrates the ability to significantly increase the production rate and optimise development capital while maintaining our position as a low-cost producer.”
Importantly, the BFS envisages Lake Way producing premium grade SOP at an increased rate of 245,000 tonnes a year (scoping study 200,000tpa) for an initial period of 20 years.
The change in processing methodology to accommodate the production of potassium chloride and the higher production rate have translated to a slightly higher capital cost than in the scoping study ($254 million versus $237 million) and higher operating costs ($302 a tonne versus $264 a tonne).
But the operating costs remain firmly in the lowest quartile for global SOP producers and the capital intensity under the new production scenario is much improved ($1,038 a tonne versus $1,185 a tonne).
Post-tax NPV using a discount rate of 8% has also increased significantly, going from $381 million in the scoping study to $479 million. The internal rate of return, the other key metric used in determining profitability, has risen from 27% to 28%.
As the name suggests, the BFS is typically a key document used in initiating project funding discussions with banks and other financiers.
In Salt Lake’s case however, Taurus Funds Management has already agreed to provide a debt facility of up to US$150 million for Lake Way, a large chunk of the capital required to build the project.
In today’s BFS announcement, the company said it had commenced draw down of an initial US$30 million tranche of the facility and that it was working with Taurus to finalise documentation to access the full facility.
Development at Lake Way is already significantly advanced, with 125 hectares of evaporation ponds completed and filled with high grade brine (25kg SOP/m3) pumped from the nearby Williamson pit as part of the first stage of construction.
Salt Lake Potash anticipates commissioning the processing facilities at Lake Way in the December quarter next year, utilising salts from the Williamson pit brine.
Going by that timeline, it will potentially be the first company in Australia to produce SOP, a premium grade potassium fertiliser, on a commercial scale.
Salt Lake Potash shares gained 7.5c to 86.5c on Friday, capitalising the company at $221.5 million.