Potash players primed for slice of growing market

23/05/2019 - 15:16

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SPECIAL REPORT: As land and population pressures drive the need for more productive farming, WA finds itself at the centre of a new mining race.

Potash players primed for slice of growing market
Brett Hazelden (left) and Mal Randall believe Kalium Lakes will be the first commercial producer of SOP in Australia. Photos: Gabriel Oliveria.

As land and population pressures drive the need for more productive farming, WA finds itself at the centre of a new mining race.

Interest and specialist knowledge around sulphate of potash was scarce in Australia when Brett Hazelden and Brent Smoothy co-founded Kalium Lakes in October 2014.

“No one really knew much about potash in Australia, Brent and I did some sampling, and we just suddenly fell into it and have been learning ever since,” Mr Hazelden, now Kalium’s managing director, told Business News.

At first glance, you may not be able to tell Mr Hazelden has been venturing into uncharted waters, with development of Kalium’s flagship Beyondie project.

The Balcatta-based outfit has rapidly progressed its 90 tonnes per annum sulphate of potash (SOP) operation, with plans to eventually ramp up to production of 180,000tpa and significantly offset existing SOP imports into the Australian market.

(click here to see a PDF version of this full special report)

The project, located approximately 160 kilometres south-east of Newman, has a capex of $216 million, and has received commitments for around 91 per cent of its funding.

German bank KFW has locked in $102 million, $74 million is coming from the Northern Australia Infrastructure Fund, and $20.8 million from UK-based private equity firm Greenstone.

It has also signed a 10-year offtake agreement with German salt and potash miner K+S, the biggest producer outside of China.

In April, it became the first potash project in Australia to receive Environmental Protection Authority recommendation for approval and, after a final investment decision is made this half-year, the company expects it will be the country’s first commercial producer of potash as it ramps up towards nameplate production during next year.

SOP, also known as potassium sulphate, is a fertiliser product and a premium version of muriate of potash (MOP).

Compared with MOP, SOP produces higher yields per hectare, encourages increased water retention in crops and raises its resistance to the elements and diseases.

Currently in Australia, only about 75,000tpa of SOP is used each year, as it is all imported, primarily from Germany, Canada or Russia.

However, after domestic production starts and drives the price down for Australian farmers to purchase the product, Integer Research estimates that between 100,000tpa to 200,000tpa will be required to meet demand in the country.

There is also a potential international opportunity.

A United Nations report has revealed the world has lost about 30 per cent of arable land in the past 30 years, a large portion of this occurring in Asia. It also estimates Asian populations will grow by two billion people in the next 30 years.

Even in Australia this trend is evident. According to World Bank Group, from 1967 to 2016 the hectares of arable land per person in the country fell from around 3.5 to 1.9.

Investor demand for SOP projects increased in Australia as this trend became more widely acknowledged.

Several other potash projects have sprouted in WA and started to gain momentum, while Kalium has methodically ticked off project milestones.

But there are several prospective producers hot on Kalium’s heels, including Australian Potash, with its Lake Wells project, 180 kilometres north of Laverton, scheduled for first production by the end of 2020.

The two-stage, $338 million project is awaiting a green light from the EPA.

Salt Lake Potash is set to release a mineral resource for its Lake Way project this quarter, which is situated approximately 300 kilometres west of Lake Wells near Wiluna, and it is seeking to rapidly ramp up development for a targeted first production in late 2021.

Lake Wells is the most developed prospect within Salt Lake’s broader Goldfields Salt Lake project, which is comprised of 11 lakes stretching across around 615 kilometres.

Reward Minerals was initially the trailblazer in the potash industry after it struck a native title deal with Indigenous land owners in 2008 for its Lake Disappointment SOP project, located approximately 320 kilometres east of Newman.

But, the Nedlands-based junior has been hampered by an inability to attract significant capital, with net cash of just $3.2 million at the December quarter, and several delays at its project.

Most recently it had to suspend an infill drilling program that was 66 per cent completed at the lake in September, after its amphibious machines became bogged and sometimes succumbed to complete mechanical failure.

Reward did make a positive step in late January, when it was granted approval to have Lake Disappointment assessed by the EPA.

There are three SOP projects in the state which exist below Geraldton, however all three are currently early-stage exploration plays.

Parkway Minerals and Brisbane-based ActiveEX kicked off initial studies and drilling on their projects in 2011 and 2009, respectively, with little advancement made on them over the years.

Trigg Mining, which is due to list on the ASX next month, will be hoping its $4.5 million initial public offering will give it momentum to get its Laverton Links development up and running.

The Keren Paterson-led Trigg initially tried to list in 2018, but a weak capital market forced the company to temporarily shelve those plans.

Outside of WA, Verdant Minerals is the most notable SOP player, with its Karinga Lakes and Lake Amadeus projects in the Northern Territory, but both projects are yet to surpass the feasibility study stage.

Mr Hazelden said all this activity was to be expected.

“There’s obviously the normal rush as soon as there’s something that looks good, people are quick to jump on the bandwagon,” he said.

“But I think in the grand scheme of things there might be a couple of us who will get up and running, some of the others – it’s like any other mine around the place, it might be too low grade, too far away from infrastructure, and they’ll just never get through the normal hurdles.”

Location, location?

Kalium chairman Mal Randall believes project location is a key indicator of success.

“There’s a lot of questions asked along the lines of what’s the difference between us and the others, and really it’s a tyranny of distance,” he told Business News.

“You can have the best gold mine, the best iron ore resource on the planet, but if it’s in the middle of nowhere – it’s not going to happen.”

Mr Hazelden said Beyondie, which is situated on a 2,400-square kilometre site next to the Great Northern Highway just south of Newman, can effectively use all the back haulage trucks going up to the town and coming back empty.

“One of our other benefits is we sit close to the Goldfields gas pipeline and it’s a short route for us to go in there,” he said.

BCI Minerals managing director Alwyn Vorster agrees with sentiment around the importance of location, and takes it a step further, suggesting the project’s distance from port is the most crucial factor.

“All the other SOP projects currently being developed in Australia are between around 800 kilometres and 1,200 kilometres to the closest port,” Mr Vorster told Business News.

“So do the basic maths on 800 kilometres (of transport costs) … in some cases there aren’t good roads either that are being developed in those areas.

“Our Mardie project is right on the coast, with a planned jetty right next to SOP and salt plants, that would save between $50 and $100 per tonne in logistics costs.”

Mardie is both a salt and SOP project, with SOP as a by-product of salt production, and is located approximately 80 kilometres south-west of Karratha.

Mr Vorster worked with Mr Hazelden and Mr Randall at Iron Ore Holdings, which BCI was formerly known as when it was iron ore-focused.

But after the iron ore bubble burst, Mr Vorster said the company set out to diversify in order to avoid another near-death experience.

“For the next one-and-a-half to two years, BCI considered many, many opportunities, predominately in the industrial minerals space, before we decided in 2018 that the highest-value, long-term opportunity was our own Mardie project on the Pilbara coast,” he said.

The pre-feasibility study in June 2018 outlined a $248 million investment to produce 3.5 million tonnes per annum of salt, along with an $87 million capital cost for 75,000tpa of sulphate of potash.

BCI has a $35 million cash balance and receives royalties from the Mineral Resources-operated Iron Valley iron ore project, as the commodity’s market recovers, which generated royalty earnings before interest, tax, depreciation and amortisation of $5.6 million last financial year.

The project is still some way off in order to accommodate both the salt and SOP operations, with first production scheduled for at least 2023, meaning BCI is not near the front of the pack for first SOP production in Australia.

But with an enviable location and financial position, Mr Vorster is confident BCI will not face the same “serious challenges” many of the other producers will encounter to get their projects up and running efficiently.

One project which does not have the benefits of a prime location, is Agrimin’s Lake Mackay, which is located approximately 785 kilometres south of Wyndham Port near the Northern Territory border in sparse desert.

It is a remote location, even by WA mining standards.

But Agrimin managing director Mark Savich said the project, which is the largest undeveloped potash-bearing salt lake in the world and the largest salt lake in Australia, will generate significant cost savings in production and transport as the SOP product makes its way to Wyndham port.

“This involves loading very high tonnages, we’ll be able to load quad road trains with 140 tonnes, there’s a lot of economies of scale in tonnages that big that allow us to get the costs down,” Mr Savich told Business News.

“We’re using public infrastructure and we have a dedicated trucking fleet, which minimises rehandling.”

The $587 million project is expected to yield 426,000tpa of SOP and is slated for first production in the final quarter of 2022.

The large scale of the project meant Agrimin was one of the biggest winners from the state government’s changes to the rental rates of potash projects, announced in December.

Due to the scale and long-life of potash projects, the existing mining lease rental rate of $18.70 per hectare was reduced to $2.32 per hectare for the first five years of the lease and $4.64 per hectare from year six onwards.

Spanning around 5,000 square kilometres, Agrimin will save $8 million in lease fees in its first year alone.

Mr Savich is hoping to penetrate the existing Chinese market, the biggest market in the world, with a more premium product.

He said there was room for all of the WA producers in the current market, but the potash boom would not be limited to Australia, which could create oversupply.

“There are supply gaps in the global market in excess of a million tonnes a year and, if you combine all of the potential Australian producers, you might be getting close to that,” he said.

“But there are also comparable peers in Ethiopia and Eritrea which have very large projects, bigger than what we’ve seen in Australia.”

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