Why BCI Minerals thinks it can do better in salt and potash
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BCI Minerals sees a strong future for salt and potash and thinks the two commodities will be good cash generators for the now diversified miner.
BCI (ASX:BCI), formerly known as BC Iron, struggled in the past to keep its lights on after a steep drop in the iron ore price. To improve its odds, the company diversified into salt, sulphate of potash (SOP) and gold.
“We believe that salt and SOP both have a very attractive long-term outlook,” Steve Abbott, GM iron ore & industrial minerals, told investors and mining execs at the Association of Mining and Exploration Companies (AMEC) Convention in Perth.
In the next 10 years there will be a supply gap of about 26 million tonnes of high-grade salt driven largely by increasing demand from China, estimates market researcher Roskill.
“Although there’s likely to be a 15 million tonne up-kick in existing operations and another 17 million tonnes in new projects, that still leaves a 26 million tonne deficit, which is equivalent to about seven times the project size we’re looking at developing.”
SOP, meanwhile, is also expected to witness a strong increase in demand due to a growing population.
SOP is a fertiliser for chloride sensitive crops like avocados, coffee beans and cocoa.
The global potash market is estimated to be around 75 million tonnes.
Demand is set to increase as the global population grows to around 8 billion by 2023.
“With the increase in population and increase [in demand] for high-grade food sources, we believe … there is going to be a strong demand for this product as we move into the future,” Mr Abbott said.
While muriate of potash (MOP) is the more commonly used fertiliser because it is cheaper, it contains chloride which can harm certain crops.
“Given the price of SOP over MOP is around about $200 we see a very attractive proposition there,” Mr Abbott said.
Although BCI has struggled to turn a profit with falling iron ore revenues and the cost of investing in new projects, the junior miner thinks salt and SOP will help boost its earnings down the track.
BCI’s share price has fallen 30 per cent from its 52-week peak of 20c in late July last year, closing at 14c on Wednesday.
The company wants to produce 3.5 million tonnes of salt and 75,000 tonnes of SOP each year from its Mardie project in Western Australia.
A recently completed pre-feasibility study estimates this will generate $102 million in EBITDA – or earnings before interest tax, depreciation and amortisation – annually.
BCI forecasts it will fetch roughly $US30 ($39.64) per tonne for its salt and $US500 for its SOP.
“Given our [operating expenditure] of $20 per tonne for salt and $250 a tonne for the SOP, the metrics are looking very positive,” Mr Abbott said.