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South Boulder Mines Starts key Metallurgical Testwork at Colluli Potash Project

Program aimed at reducing costs and optimising economics by processing all the different salt types which make up the Colluli resource

Metallurgical test program underway as part of South Boulder’s revised strategy for developing the Colluli Potash Project. The tests aimed at confirming that each of the three salt types which make up the +1Bt Colluli resource can be processed since previous strategy was based on processing just one of the salt types

Metallurgical test program underway as part of South Boulder’s revised strategy for developing the Colluli Potash Project. The tests aimed at confirming that each of the three salt types which make up the +1Bt Colluli resource can be processed since previous strategy was based on processing just one of the salt types

By Proactive Investors,

SOUTH Boulder Mines’ (ASX: STB) shares are expected to climb as the company commences testwork focused on processing all salts from the world-class Colluli Potash Project in Eritrea, which is aimed at reducing costs and optimising economics.

A “game-changer” for South Boulder and the Joint Venture Company (Colluli Mining Share Company) which owns the project, could be the production of potassium sulphate, a premium potassium fertiliser which currently carries a price premium of approximately $300 per tonne compared with the more common potassium chloride. 

This, in combination with the reduction in mining costs, is likely to have a major impact on the economics of the project.

In March 2013, South Boulder indicated its orginal development path would have an IRR in the order of 15% based on the production of production of potassium chloride only. Since that time the company’s focus has shifted to processing all salts.

Mining work completed last year demonstrated mining cost reductions of over $50 per tonne of product by processing all salts. The production of potassium sulphate represents further economic enhancement of the project.

Of significance is the support of the Eritrean joint venture partners, ENAMCO, who have endorsed the path forward.

Berhane Habtemariam, general manager of ENAMCO said: “ENAMCO welcomes this new approach and is very much looking forward to the results of the test program.

“The Colluli Mining Share Company has revised and endorsed the path forward and we are all focussed on working together to get the best outcome for the project.”

This relationship will be a key enabler for the project development and value creation.

South Boulder Mines and ENAMCO finalised the terms of a Joint Venture partnership in November 2013. Under the joint venture arrangement:

Prior to first production

The joint venture company will seek to borrow up to 70% of development costs from a third party bank or lender with the required equity funds being contributed by South Boulder.

Of this equity funding, 50% shall be preferentially paid back from 50% of the available funds after annual payment obligations to third parties have been satisfied. The remaining 50% will be available for profit distribution to shareholder.

After first production

Funds where required shall be financed by the Colluli Mining share company either through its own internal cash or from debt funding decided by the board

South Boulder has three of the five board seats in the Colluli Mining Share Company and the board held its first meeting in March 2013.

It appears that since finalising the terms of the joint venture agreement, South Boulder and ENAMCO are now constructively working together on the development of the project.

Colluli is located in the Danakil Depression region of Eritrea, and is just 65 kilometres from the coast comprising around 400 square kilometres. It is positioned favourably relative to the key growth markets for potassium fertiliser.

The start-up capital cost for Colluli is one of the lowest in the industry, supported by cheap expansion capability through open pit mining methods, with excellent infrastructure and location.

The project is the world’s shallowest potash deposit.

Metallurgical test work

The key metallurgical test work has now commenced at the project, which is aimed at reducing costs and optimising economics by processing all the different salt types which make up the Colluli resource.

The work is focussed on confirming that all the salt types can be processed to make potash.

Paul Donaldson, chief executive for South Boulder, said that the ability to use three types of mineralisation will unlock the immense value of Colluli, while the approach cuts costs and increases the product suite.

This then has the potential to lift revenue per tonne of product generated and extend the mine life significantly.

“The end result will be a project that is significantly more attractive from both a funding and shareholder return perspective”, said Donaldson.

Testwork focus

The tests are aimed at confirming that each of the three salt types which make up the +1 billion tonne Colluli resource can be processed, compared to the previous strategy which was based on processing just one of the salt types.

Highlighting the potential of the new strategy – under the previous development strategy for Colluli, only the salt type known as sylvinite which makes up just 16% of the resource, was to be processed.

The ability to produce high-value potassium sulphate is a “game-changer” for the project and the company, and will drive improved economics.

Lycopodium Minerals to conduct the work

The work will be undertaken by engineering and processing consultant Lycopodium Minerals in conjunction with Global Potash Solutions Principal, Don Larmour. It will take place in the Saskatchewan Research Council’s Minerals Processing Facility.

Larmour has extensive experience in potash processing and specialises in crystallisation and brine chemistry, both of which are key aspects of the Colluli test work.

Larmour has also developed base-case plant designs capable of processing all Colluli’s potassium-bearing salts in a single processing circuit.

Lycopodium will deliver an estimate on the capital and operating costs for the project using the results of the metallurgical test work.

These calculations will be conducted to pre-feasibility study levels, giving South Boulder clear technical and financial forecasts in preparation for the start of a full definitive feasibility study, which is now expected to be completed by mid-2015.

Donaldson added, “Lycopodium not only has a vast amount of experience in African projects, they also have Eritrean experience, having completed the definitive feasibility study for Chalice gold in 2010.

“I am confident that having a potash consultant of Don Larmour’s experience and calibre working with the team will give us a successful outcome.”

Colluli resource

The JORC/NI43-101 Resource for Colluli now stands at 1.08 billion tonnes at 18% KCl for 194 million tonnes of contained potash.

Substantial project upside exists in higher production capacity and market development for other contained products.

Engineering Scoping Study (ESS) results were favourable, proving that an economic 2 million tonne p.a. potash mine can be built at a materially lower cost than typical potash development.

The resource breakdown is a Measured, Indicated and Inferred Resource of 1,079.00 million tonnes at 17.97% KCl or 11.35% K2O (total contained potash of 194.09Mt KCl or 122.61Mt K2O).

The resource contains 261.81 million tonnes at 17.94% KCl or 11.33% K2O of Measured Resources, 674.48 million tonnes at 17.98% KCl or 11.36% K2O of Indicated Resources and 143.50 million tonnes at 18.00% KCl or 11.37% K2O of Inferred Resources.

Milestones for testwork

Now with the testwork underway, South Boulder will look to appoint an environmental consultant to facilitate the baseline assessment submissions to the Environment Ministry in Eritrea, initiate material characterisation testwork to support the completion of mining work to DFS level and resume work on costing the infrastructure.

South Boulder will be looking at defining the rock salt resource at Colluli. There is an abundance of rock salt sitting on top of the potash and the initial quality appears good.

This rock salt will be removed as part of the open cut mine, hence they will to define a resource and also look for joint venture partners that would like to participate in a rock salt business once the grades and volumes are established.

One of the advantages of the new product suite under consideration for Colluli is that potassium sulphate is produced.

It is currently selling at an FOB price in the order of $580 to $600 per tonne and given the restricted number of production centres for this product, the price is not likely to drop as severely as in the case of potassium chloride.

Analysis

The key enabler for the project to move forward is co-operation between South Boulder and the Eritrean Government.

ENAMCO, the Eritrean joint venture partner, are supportive of South Boulder’s new strategy and the improved outcomes for all stakeholders.

With testwork underway which will assist in delivering an estimate on the capital and operating costs for the project, South Boulder is on the path to potentially unlocking value from the world’s shallowest potash deposit.

The company is well funded with around $10 million in cash.

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- who has written 2181 posts on TesfaNews.

TesfaNews is an independent online magazine with quality news, views and information materials on Eritrea.

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  • Joshua

    To whom it may concern:

    Can someone please change the Eritrean map on the front page of this posting, as it doesn't reflect the actual international borders of Eritrea.

    Thanx!!!

  • http://twitter.com/MussieGebreab @MussieGebreab

    Good News, (aini Hasad Weyane airaya Ertra)

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