Advanced potash explorer with two projects that have production potential, the first in Western Australia where there is a vast resource base, and the second involves an advanced farm-in opportunity in Germany.
| Corporate Details |  |
| Status: Emerging Producer | |
| Size: Small Cap | |
| Commodity Exposure: Potash | |
| Share Price: $0.06 | |
| 12-month Range: $0.033 – $0.098 | |
| Shares: 174m, Options: 13m | |
| Top 20: 48% | |
| Net Cash: $1m | |
| Market Value: $10m |
| Key Parameters | Rating (✓out of 5) | Quarterly Statistics |
| Management Quality | ✓✓✓✓✓ | Q2 2014 Exploration Spend: $0.210m |
| Financial Security | ✓✓✓✓ | Q2 2014 Admin Spend: $0.332m |
| Project Quality | ✓✓✓✓✓ | Exploration Spend 39%, Admin Spend 61% |
| Exploration / Resource Potential | ✓✓✓✓✓ | Q3 2014 Forecast Exploration Spend: $0.3m |
| Project Risk | ✓✓✓✓✓ | Q3 2014 Forecast Admin Spend: $0.2m |
Potash West is an emerging potash producing company that we introduced to our Portfolio during August. The company has been the sole emerging potash exposure within our coverage for the past few years and we have followed its progress closely. Potash West has to this point been solely focused on its Dandaragan Trough fertiliser project in Western Australia’s Perth Basin, where it has identified a large-scale resource. More recently the company has farmed into an even more advanced potash opportunity in Germany.
The company’s Dandaragan Trough project has the potential to be a large-scale producer of potash for the burgeoning food production industry, both domestically and throughout Asia. Increasing population pressure means demand for commodities like potash that can enhance overall food production levels, are set to grow. The Dandaragan Tough project is well situated in relation to infrastructure, with close access to rail, power and gas, whilst the potential resource extends for 150km along strike and 30km in width.
Potash West has just recently announced an expansion of its interests by earning into an advanced potash project in Germany, where it has the right to earn up to a 55% stake in a joint venture by funding early exploration at a modest cost of just $0.35m. It has the potential to accelerate its move to production status via a project with an advanced exploration history, situated in a historic production region with abundant infrastructure. The market has pushed its share price up from a recent low of $0.033 to $0.06 presently.
Recent Activity
German Farm-in Project
I had the opportunity to meet recently with Potash West’s Managing Director, Patrick McManus and Corporate Affairs Head, Peter Nesveda. The rationale for the meeting was to provide an overview of the company’s strategic farm-in to an advanced potash opportunity in Germany. Potash West has the right to earn up to a 55% stake in the joint venture project by funding exploration activity.
The Joint Venture group (East Exploration Pty Ltd [EE] and its 100%-owned subsidiary, East Exploration Gmbh, [EEG]), have applied for exploration licences in the South Harz potash district, a historic region where potash has been mined since 1896 – and importantly is still being produced. In fact, more than 500 million tonnes of potash ore has been extracted from the South Harz region, in turn producing more than 100 million tonnes of potash fertilizer.
The joint venture has applied for two exploration licence areas, both of which have historical drilling that intersected potash mineralisation over large areas. The drilling was carried out prior to the reunification of Germany in 1990 and potash production ceased in these areas during 1992, driven largely by depressed potash prices. Since then, potash prices have risen more than three-fold.
Potash West has paid $100,000 to earn a 25% stake in EE, and a further $200,000 will be paid to earn a further 25% stake. Those funds will be used to gain the licences and allow Ercosplan and EE to review the significant amount of geological data that exists from work carried out in previous decades. Potash West then has the right to proceed to 55% ownership via the payment of a further $50,000.
PWN will keep the market updated as to the progress and status of the application and further work being conducted by ERCOSPLAN.
The farm-in deal provides the ideal opportunity for Potash West to expand its global presence by establishing a foothold in the European potash market. Germany has a long and successful history of potash production, being a pioneer of extraction from buried evaporite beds. ERCOSPLAN is a world-recognised consultant in potash and has had an association with the South Harz field dating over 50 years. They are the logical partners for EEG to develop an exploration and operating project in the region.
Dandaragan Trough Project
The German farm-in development complements the company’s very large 2,600 sq km Dandaragan Trough project in Western Australia. The project is focused on exploiting the large greensands deposits present within the Dandaragan Trough, which commence less than 100km to the north of Perth. The objective is to produce potash and single superphosphate fertilizers, along with a range of valuable by-products, from the glauconite and phosphate present within the greensands.
The Dandaragan Trough project has unique advantages of excellent connectivity to transport facilities, infrastructure and proximity to local and regional markets. The project is well situated in relation to infrastructure, with good access to rail, power and gas. The Dinner Hill resource is located less than 200km from two major bulk export ports, Kwinana and Geraldton and is well situated in relation to major project infrastructure.
The greensands within the Dandaragan Trough are widespread and the most prospective and advanced area, Dinner Hill, covers approximately 60 sq km in the north-west of the project area. Within the project area the company has established an exploration target of 1,000Mt to 1,500Mt of fresh greensand at a grade of between 4.0% and 4.8% K2O, 8% and 10% Al2O3, 12% and 14% Fe2O3, and 2.0% and 2.4% MgO. Included within the Exploration Target is 300 – 600Mt of phosphate mineralisation at a grade of between 1.5% and 3% P2O5.
An area of approximately 9 sq km within Dinner Hill has been drilled to establish Indicated and Inferred Mineral Resources for potash (K-Max) and phosphate. The higher-grade portion of the K-Max resource occurs within the Molecap Greensand. Nodular phosphate mineralisation at Dinner Hill occurs within a chalk unit, the Gingin Chalk and in upper and lower greensand units, the Poison Hill Greensand and the Molecap Greensand.
The updated Scoping Study that was released during April 2014 featured a reduction in operating costs from $285/t of product to $241/t and increased EBITDA from $33 million to $48 million annually, which in turn increased project NPV from $218 million to $331 million.
The current time frame for commercialisation of the Dandaragan Project is:
- Upgrade a significant portion of the current Indicated and Inferred Mineral Resources to the Measured category by April 2015
- Completion of a Feasibility Study by December 2015
- Completion of construction during Q4 2017
- Start-up of full-scale production during mid-2018
Importance of Potash
The term ‘potash’ refers to a group of water-soluble potassium salts that are mined for use primarily in fertiliser production. Potassium is one of three key fertiliser ‘macro-nutrients’ essential for healthy soil and plant growth. It is generally used in combination with the other two macro-nutrients, nitrogen and phosphorus, to produce a range of fertilisers, the type used being dependent on the soil to which it will be applied. Such fertilisers must be used annually, since nutrients are depleted from the soil with the harvesting of crops. Thus, demand for these products is ongoing.
Potassium is essential to the workings of every living plant cell. It not only plays an important role in plants’ water utilisation but also helps regulate the rate of photosynthesis. In addition, potassium promotes the growth of strong stalks, protects plants from extreme temperatures and enhances their ability to cope with stress; further, it extends the shelf life of agricultural products. Importantly, there is no substitute for potash. Although potash ore reserves have been identified in 21 countries worldwide, in only 12 is the economic extraction of potash currently practised (principally in Russia and Canada).
Summary
Potash West continues to make steady progress in terms of highlighting the vast resource potential that lies within its Dandaragan Trough project in Western Australia. The attraction of its new German farm-in project is that it has the potential to accelerate the company’s transition to production status, as infrastructure is abundant in a historic potash producing region and any product produced would be consumed within the domestic European market. We retain our Speculative Buy recommendation on the company around $0.06.
