18/02/2021 - 08:00

Potash players dig growth potential

18/02/2021 - 08:00

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WA’s fledgling potash industry is making solid steps towards first production.

Potash players dig growth potential
Lake Wells is a low-cost, long-life potash development in WA’s Goldfields-Esperance region. Photo: Australian Potash

Commercial potash production is set to begin in Western Australia after some of the state’s major developers cleared the final hurdles in recent weeks.

Salt Lake Potash, which is developing its $264 million Lake Way project in the Mid West, is set to become the state’s first commercial producer of potassium sulphate, or potash, to be used in fertiliser.

Its project was recommended for approval by the state’s environmental authority at the start of the month, allowing the former uranium business to keep its production schedule for the current quarter.

Another player, Australian Potash, this month received approval from the Environmental Protection Authority to develop its $208 million Lake Wells find in the Goldfields-Esperance region; however, the business isn’t expecting first potash sales until mid-2023.

That’s because Australian Potash did things a little differently from some of its peers, chief executive Matthew Shackleton told Business News.

Interest in the industry has grown in recent years, following confirmation WA’s salt lakes contained a plentiful quantity of potassium, which, in turn could produce sulphate of potash (SOP).

That garnered interest from international agricultural sectors, which, until that point, relied largely on muriate of potash (potassium chloride), which accounts for 80 per cent of the global trade.

Mr Shackleton said SOP was a better form of potash that could increase yields, as it did not contain chlorine, which could have a toxic effect on crops.

“The world would prefer to use potassium sulphate if it had the opportunity,” he said.

Australian Potash made its Lake Wells discovery in 2015, one year after Mr Shackleton joined as executive chairman (before transitioning to chief executive in 2018).

He said the business’s strategy was to complete all its technical work, including pre-feasibility and definitive feasibility studies, before progressing funding arrangements and making a final investment decision, due by March 30.

Construction is expected to start during the second quarter.

A DFS released in August 2019 valued Lake Wells at $665 million and confirmed the project as a low-cost, long-life development expected to produce 150,000 tonnes of SOP per annum.

Its mineral resource was heavily upgraded, from 14.7 million ounces to 18.1moz.

“We’ve been very judicious about the technical side of our project,” Mr Shackleton told Business News.

“We’ve got the largest mineral resource of any of the projects in Australia, and that has taken us a while to get together and make sure that it’s right.

“We could’ve brought it [Lake Wells] in a year faster if we’d chosen a riskier path, but we’ve chosen the least-risky path for development.”

Like Salt Lake Potash, Balcatta-based Kalium Lakes is set to begin production this year.

Kalium faced a number of setbacks before reaching that stage, including an overrun in capital costs associated with its Beyondie SOP development, from $216 million to $248 million, due to design changes on the project’s processing plant and product storage treatment facility.

That was followed by a $61 million capital raising in May 2019 to make up for the costs.

The business, which gained environmental approval earlier that year, had originally planned to begin production in 2020.

Its scheduled start date was pushed back until the third quarter of 2021.

But Kalium last month assured the market it was on track to begin production, with construction at Beyondie now 80 per cent complete.

The project, valued at $606 million, is expected to produce 90,000tpa of SOP over a robust 30-year mine life.

Sector switch

Established as uranium startup Wildhorse Energy, Salt Lake Potash turned its focus towards WA’s unchartered potash industry in 2015.

Salt Lake is now developing a series of projects in the Goldfields, including Lake Way, which is expected to produce 245,000tpa throughout its 20-year mine life.

Lake Way, valued at $696 million, is on track for commissioning this month ahead of first shipments, expected by June 30.

The business was helped by a $US138 million syndicated loan facility with government-owned Clean Energy Finance Corporation and Taurus Funds Management, announced in August last year.

Salt Lake has several offtakes in place, including with Swiss chemical fertiliser business Indagro, Hamburg-based HELM, and Japan’s Mitsui & Co.

The timeframe for Salt Lake’s potash development sits a little outside of the common three- to five-year transition from mineral explorer to commercial developer.

However, Australian Potash’s Mr Shackleton told Business News five years was not considered a long time for resources projects, noting Roy Hill’s decade-long journey from explorer to Pilbara iron ore producer.

He said SOP explorers, including Australian Potash, had moved slowly through the process.

“Bearing in mind that this [potash] is a brand-new industry for Australia, everybody associated with these companies is learning as they go,” Mr Shackleton said.

“We made our original discovery back in 2015, and now we are five years down the track with full environmental approval to proceed to development.

“That’s not a particularly long timeline for the development of a resources project.”

The Lake Wells project sits about 160 kilometres from Laverton, in the Goldfields-Esperance region, where Australian Potash also owns tenements with gold and nickel mineralisation.

Although WA is rich in brine, or salty water, Mr Shackleton said there were high hurdles in developing an SOP project that prevented companies from easily entering the industry.

“If you drill a hole in the ground, the water that comes out will be salty, it just depends on whether or not the saltiness in that water is because of sodium, magnesium or potassium,” he said.

“If you are lucky enough to have a brine that’s got potassium in it, you might be able to make potassium sulphate, or potash.

“So, there is a natural barrier to entry.”

Over the years, Australian Potash has secured five offtake agreements, meaning its 150,000tpa output is now fully under contract.

Like Salt Lake, Australian Potash’s offtake partners include HELM and Mitsui.

HELM has agreed to separate 10-year take-or-pay arrangements for a combined 50,000t of Australian Potash’s K-Brite fertiliser product each year, to be distributed in the US, while Mitsui has agreed to 30,000tpa over five years.

Its other offtake partners are Singapore’s Migao and NSW chemicals and fertiliser distribution business Redox.

Mr Shackleton said competition for offtakes among WA producers shouldn’t be an issue, given continued demand for SOP fertilisers from agriculture industry-predominant areas.

In the case of Australian Potash, its K-Brite product, which recently received organic accreditation from European certifier ECOCERT, will be supplied to farmers in Australia and New Zealand, as well as in China, Europe, North America, and South-East Asia.

“We’re the only [developer] in the position to have 100 per cent of our output under offtake,” Mr Shackleton said.

“We also have a very diverse geographical spread of our product, so we’re not exposed to any one particular market unduly.”

Mr Shackleton noted having solid, tier-one partners would benefit the business when it came to negotiating debt-funding arrangements.

The next step for Australian Potash would be to finalise those arrangements, he said.

The business is in talks with federal government financier Northern Australia Infrastructure Facility (NAIF) about funding a portion of Lake Wells’ development.

NAIF began due diligence on the project in April last year.

“If their due diligence says Lake Wells is a good project … other lenders are likely to step into line as well,” Mr Shackleton said, noting Australian Potash would likely have a market update on its discussions with NAIF in the coming weeks.

A loan would follow recent support given to BCI Minerals for its Mardie salt and potash project on the Pilbara coast, and to Kalium Lakes for Beyondie in early 2019.

NAIF in December last year agreed to invest $450 million towards the construction and ramp-up of BCI’s Mardie project, which is expected to produce 4.4 million tonnes of salt and 120,000t of SOP each year over a 60-year mine life.

BCI was awarded major project status by the federal government four months earlier, following a definitive feasibility study that valued the Mardie project at $1.2 billion.

Its capital costs are estimated to be $779 million, the largest of WA’s current potash developers.

BCI is targeting a final investment decision and construction start for the second quarter, with first salt sales by mid-2024 and first SOP sales by mid-2025.

Kalium was awarded its $74 million NAIF loan to bring forward the construction of a 78-kilometre pipeline and gas-fired power station, which were expected to reduce operating costs associated with its Beyondie project.

Those funds also went towards road and communication infrastructure, an airstrip, and an accommodation village.

Meanwhile, fellow developer Agrimin is seeking NAIF support for its $637 million Lake Mackay project in the Pilbara, where the Nedlands-based business plans to produce 450,000tpa of SOP over a 40-year mine life.

Production is expected to begin in the first half of 2024.

The industry’s trailblazer, Reward Minerals, is developing its $345 million Lake Disappointment SOP project, east of Newman, which is estimated to produce 400,000tpa according to a two-year long PFS released in May 2018.

A review of that study, being undertaken by US engineering company Bechtel, is expected to be completed within months.

Reward, which struck a native title deal with indigenous landowners in 2008, received the federal tick of approval to develop Lake Disappointment in October last year.

Its state approval, received in December 2019, was followed by an appeal to Environment Minister Stephen Dawson from Wetlands Conservation Society, which raised concerns about the project’s potential impact on waterbird breeding grounds, as well as issues related to mine closure and offset requirements.

The appeal has since been resolved, with an additional requirement added to the EPA’s draft conditions.

Australian Potash faced a similar hurdle when, mid-last year, renowned indigenous artist and activist Kado Muir lodged an appeal to the environment minister against the Lake Wells development.

The project is under the Waturta native title claim, with Mr Muir one of the claimants.

Mr Muir argued that, in its proposal, the EPA conducted its assessment without sufficient consultation with the Waturta claimants.

The appeal was resolved last month, with a condition in the EPA’s report amended.

“The appeals convenor asked us [Australian Potash] to make one small change, which was to have the document through which we manage our cultural heritage reviewed by an independent third party,” Mr Shackleton told Business News.

“We have no problem with that, because it gives us greater confidence in that the way we approach cultural heritage is gold standard.”

He said the business’s indigenous stakeholders would be integral in Lake Wells’ development and throughout its 30-year mine life.

Come mid-2023, Australian Potash is expected to join Salt Lake Potash and Kalium Lakes as the state (and the country’s) first potash producers and exporters.

“It’s good to see yet again WA has shown it is rich in minerals, and we’ve got the talent here to develop a brand-new resource industry that will employ a lot of people,” Mr Shackleton said.

“It’s an industry that will earn a lot of overseas dollars for WA.

“These are very good projects for the state.”

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