Special Report: Salt Lake Potash (ASX:SO4) has released the results of a scoping study that indicate its Lake Way project in Western Australia will have the lowest operating cost of any sulphate of potash (SOP) operation globally.

A scoping study is the first proper look at whether a resource can be mined economically. In this case, Lake Way is proving early on its potential to be a long-life, low-cost, good cash generator for Salt Lake.

Lake Way, which will produce 200,000 tonnes each year of premium grade SOP, is forecast to have a free-on-board operating cost of $264 ($US185) per tonne.

This places Salt Lake ahead of any other potash player on the global cost curve. See for yourself:

Global FOB SOP Cost Curve. Source: Argus

The project only requires low development capital of about $237m, including a growth allowance of 13 per cent ($32m), and is close to necessary infrastructure.

The Lake Way scoping study delivered “exceptional economics”, according to Salt Lake, with a post-tax net present value (NPV) of $381m and internal rate of return (IRR) of 27 per cent.

NPV and IRR are metrics used to assess the profitability of a project. The higher the NPV and IRR, the more profitable a project will be.

Lake Way, which has an initial 20-year mine life, would provide EBITDA of $90m and after-tax cash flow of $64m each year.

This means Salt Lake could pay back the development capital cost in just 3.2 years from first production.

Salt Lake said the study demonstrated that the Lake Way project provided “exceptional economics even under the most extreme downside pricing scenarios”.

The scoping study used a base price of $US550 per tonne.

And the breakeven pricing scenario is a significant 40-plus per cent decrease in price at $US323/t.

A bankable feasibility study (BFS) is currently underway and due for completion in the third quarter of this year, with plant commissioning slated to begin in the fourth quarter of 2020.

Miners undertake up to four different types of studies when examining whether or not a resource can be mined economically – and the BFS is the most comprehensive of the lot.

Salt Lake raised $20.25 million through a share placement from two groups of strategic investors last week and said in the scoping study announcement it was in “advanced discussions” with a debt provider over a debt funding package for Lake Way.

Leading the potash pack

Salt Lake is one of a handful of ASX-listed companies seeking to pioneer the production of SOP, a premium grade potassium fertiliser, from Western Australian salt lakes.

It is well placed to take honours as the first to achieve commercial production, with construction well under way at Lake Way on the country’s first commercial scale on-lake evaporation ponds.

These ponds will have a capacity of 1.8 gigalitres, enough to capture the total measured brine resource in the nearby Williamson Pit.

At 1.2 gigalitres grading 25kg/m3, this is the highest-grade brine resource in the country.

Once construction of the ponds is complete, they will allow for the dewatering of the Williamson Pit, a process that will accelerate first production at Lake Way.

Salt Lake owns nine large salt lakes in the northern goldfields and has a long-term plan to develop an integrated SOP operation, producing from several, or all, of the lakes.

Value adding

The Lake Way resource contains a significant excess of sulphate, which provides the opportunity for Salt Lake to explore value adding measures.

This includes installing a potassium chloride (KCl) reaction phase to the processing stage, which has shown significant benefits such as a potential increase in annual production and better financial returns to shareholders.

Salt Lake plans to explore this further as part of the BFS.


This story was developed in collaboration with Salt Lake Potash, a Stockhead advertiser at the time of publishing.
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