Anglo-Australian mining giant BHP Billiton has decided to exit from a potash development in Ethiopia region of Dankil depression in the next few months citing unsuccessful exploration programs unlike similar projects undertaken in neigbohring Eritrea by Australian South Boulder Mines at the Colluli Potash project.
On an internal note it released on June 13, the company was saying it would exit its early stage Dallol based potash project in September of this year.
Joel Jackson, an analyst at BMO Capital Markets, said that according to local sources BHP is believed to have decided to withdraw from the potash project in the African country. The company is reportedly closing down the camp at the site and is in the process of auctioning off equipment, Mr. Jackson said in a research report.
Analysts, however, have a different perspective of the situation specially taking into consideration that South Boulder’s (ASX: STB) flagship project in neighboring Eritrea is getting in to a world class Potash Fertilizer Project besides becoming the worlds’ first modern open pit potash producer with the lowest CAPEX per tonne in the industry.
The unmatched geological and resources advantages South Boulder has coupled with modern mining law and unreserved support from the Eritrean government might set an unpresedented and unfair competetive field for BHP and other regional potash producers.
But what does South Boulder has as a geological and economics advantage over its competitors in the region that might contribute to their early withdrawal from the lucrative potash competition market. Here are some of the facts about South Boulder Mines and its Eritrea Potash Project:
1) South Boulder Mines is now on track to become the world’s first modern open pit potash producer.
2) Unlike other Potash producing companies in the world and the likes of Allan and BHP in Ethiopia, the potash project in Colluli of Eritrea has the lowest CAPEX per tonne in the industry (US$740m), with an enormous potential to improve economics.
3) Coulluli potash has a mine life in excess of 50 years, producing both MOP and Sulphate of Potash which currently hosts a Measured, Indicated and Inferred JORC Resource of 1.08 billion tonnes at 18% KCl for 194 million tonnes of potash, and has a near term 1.25-1.75 billion tonne Exploration Target.
4) The defining factor for Colluli is its strategic location / position, ideally located to sell potash into the world’s largest growth market – Asia.
5) With all the above advantages South Boulder has against its competetors, it is now declared a company with the cheapest development cost in the Potash Industry. South Boulder has economics of $736 US$/tonne of KCl Capacity, and when compared to some of the major names such as BHP Billiton (Blur) $1,030, Verde Potash (Cerrado Verde) $1,090 and BHP again (Jansen) $1,505 – South Boulders economics become even more compelling.
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SOUTH BOULDER MINES’ COLLULI POTASH HAVE LOWER CAPITAL COSTS
By John Phillips,
South Boulder Mines’ Colluli Potash Project’s economics may have just got a lot better due to preliminary findings from the Definitive Feasibility Study.
All important CAPEX and operating costs could be reduced the study has revealed, becoming more attractive to financiers and paving the way for more rapid development and the start of production and cash flow.
Findings have also identified the benefits including processing of Carnallite as well as Sylvinite, which will result in reduced mining costs due to stripping ratios being less than those used in the Engineering Scoping Study.
Another major plus to move the project forward is that strong technical support is emerging for an expansion of potash production capacity beyond the planned start-up capacity of 1Mtpa – due to the ability to process Carnallite mineralisation efficiently.
Lorry Hughes, managing director, commented on the very positive findings: “The economics of this already-robust project continue to improve as the technical studies progress.
“The increased resource and the positive findings from additional studies are indicating a mine life significantly longer than indicated it the scoping study. We are confident that the DFS will show Colluli to be a highly attractive investment proposition for financiers, paving the way for rapid development and the start of production and cash flow.”
Colluli currently hosts a Measured, Indicated and Inferred JORC Resource of 1.08 billion tonnes at 18% KCl for 194 million tonnes of potash, and has a near term 1.25-1.75 billion tonne Exploration Target.
A Feasibility Study is underway targeting 1Mtpa production by 2016, and with low forecast CAPEX of US$0.74B – there is enormous potential to improve economics.
The defining factor for Colluli is the strategic position, ideally located to sell potash into the world’s largest growth market – Asia. Negotiations are also underway with Eritrean Government to sell 30% equity stake and complete approvals.
The current Colluli resource currently contains 194 million tonnes of potash, of which around 20% is attributed to Carnallite mineralisation.
Importantly – this represents substantial upside for the project because mining and processing of the Carnallite was not included in the Engineering Scoping Study.
Early investigations conducted by lead consultants Ercosplan indicate that a simple solar decomposition circuit can be added to the processing route to allow potash to be extracted from Carnallite mineralisation in the same processing facility.
South Boulder said that indications are that processing costs for Carnallite will only be marginally higher than the corresponding processing cost for the Sylvinite mineralisation, which is very encouraging.
SOUTH BOULDER POTENTIAL NOT LOST ON NORTH AMERICAN INVESTORS
The potential of Colluli can not be underestimated, and no doubt this upside is why North American investors are taking the opportunity to increase their exposure to the project.
Colluli has the lowest CAPEX per tonne in the industry, with the potential for a mine life in excess of 50 years, producing both MOP and Sulphate of Potash.
Earlier in the week South Boulder raised A$9.5 million via a share placement at $0.95 cents to North American investors – and to private equity group Meridian Capital International Fund. Each share has a one-for-two free listed option exercisable at A$1.50 within two years of issue.
The funds will be used to complete Definitive Feasibility Studies and to start early access works, while also providing working capital. The placement will be made under South Boulder’s 15% placement capacity.
Discussions with potential strategic partners are also underway.
VALUATION – CHEAPEST DEVELOPMENT COST IN THE POTASH INDUSTRY
Where the story becomes even more interesting for South Boulder is that the company has among the lowest development costs in the Potash Industry.
South Boulder has economics of $736 US$/tonne of KCl Capacity, and when compared to some of the major names such as BHP Billiton (Blur) $1,030, Verde Potash (Cerrado Verde) $1,090 and BHP again (Jansen) $1,505 – South Boulders economics become even more compelling.
Highlighting the opportunity of South Boulder and the demand for potash, Asian and South American countries are the biggest importers of potash due to limited domestic production, with China importing almost three quarters of their needs, with India and Brazil almost solely relying on imports.
And with Colluli being only one of the few Greenfields potash deposits developed in the next 10 years – investors may not be able to enter for the stock at current low levels for too much longer.
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