Kore Potash PLC announces the outcomes of the Kola Potash project definitive feasibility study

Highlights:

• Business case highlights potential of the Kola asset.
• Post-tax, NPV10 (real) of US$1.452 million and a real ungeared IRR of 17% on an attributable basis at life-of-mine average Muriate of Potash prices for granular of US$360/t CFR Brazil and standard of US$350/t CFR Brazil.
• Operating cash margin averaging 75%.
• Average annual EBITDA of approximately US$585 million.
• 24% annual free cash return on invested capital.
• Average annual free cash flow, post-tax, post commissioning of approximately US$500 million.

• 4.3-year post-tax payback period from first production.

Industry leading operating costs and cost of sales

• Mine gate operating cost (pre-transshipment) averaging US$61.71/t, which is in the lowest cost quartile globally based on equivalent CRU market data.
• Kola forecast to be lowest cost potash supplier CFR Brazil based on CRU market data.
• Significant competitive advantage via low mine gate costs and short shipping distance to Brazil and West African markets.
• Average cost of MoP delivered to Brazil of US$102.47/t.

Long life and high quality asset

• Nameplate production target of 2.2 million tpy MoP over a 33 year life, with a scheduled life of 23 years based primarily on ore reserves and including 6% Inferred Mineral Resource and a further 10 years based entirely on Inferred Mineral Resources (in each case, reported in accordance with the JORC 2012).
• There is a low level of geological confidence associated with inferred mineral resources and there is no certainty that further exploration work will result in the determination of indicated mineral resource or that the production target itself will be realised.
• Kola Project ore reserves of 152.4 million t with average KCl grade of 32.5%, reported in accordance with JORC 2012.
• Ore reserves grade is in top quartile of all operating potash mines and potash development projects globally.

Upside Potential

• Review of the DFS by Kore and its third party independent consultants have identified opportunities to further improve and optimise the project indicating that the work completed to date by the FC has not fully optimised the Kola Project.
• These potential improvement opportunities are not included in the DFS economic evaluation and include:
• Opportunities to reduce the technical capital cost by US$117 million.
• Further opportunity to reduce the capital costs noting that the DFS capital intensity lies in second quartile relative to MoP industry peers and, in comparison to other projects, Kola has shallow shafts, low insolubles, high KCl grade, and is next to the coast and the planned export jetty.
• Potential to improve KCl recovery in the process plant by 0.9% to 92.8%.
• Potential to reduce the construction schedule by 6 months from 46 to 40 months.
• Potential to extend the life or scale of the project provided by the Sylvinite Mineral Resources at the nearby Dougou Extension deposit; 232 million t at 38.1% KCl.
• Due to high operating margin and high free cash return on invested capital, the company’s financial advisors (Rothschild & Co) has indicated that the project has a debt carrying potential of up to US$1.4 billion.
• Further work will be required to optimise the project and there is no certainty that the identified improvement opportunities can be realised.

Next Steps

• The French Consortium, who undertook the DFS, are contracted to deliver a proposal for an engineering, procurement, and construction (EPC) contract within 3 months of DFS completion. The FC have advised Kore that they expect to provide an EPC proposal to Kore within this quarter. Upon receipt of an EPC proposal, the existing contract between the parties provides up to two months for Kore and the FC to conclude the terms of an EPC contract.
• Kore has ability within the existing contract with the FC to seek competitive EPC proposals from European companies.
The company continues its engagement with the FC and Kore’s consultants and technical experts with a view to further optimising the project. The DFS was delivered to Kore for review by the FC later than contracted, and the review of the DFS by consultants engaged by Kore indicates that the project design and capital cost can be further improved to reduce the capital cost. As a result, Kore has in accordance with the contractual terms, issued notices of deficiency to the FC seeking to address these matters.
• The company will continue to work with the RoC government to conclude the approval of the amended ESIA, while noting all other conventions, permits, and rights to operate are in place.
• The Mining Convention requires transfer to the RoC Government of 10% of the shares in the local company that holds the Kola mining licence. The process to effect this transfer has not yet been clarified and Kore will progress this with the Government.
• The company and its financial advisors will continue discussion with potential financiers to further the financing of the project.

Read the article online at: https://www.worldfertilizer.com/potash/29012019/kore-potash-plc-announces-the-outcomes-of-the-kola-potash-project-definitive-feasibility-study/