Study confirms viability of Sirius's potash project

High-flying potash development group Sirius Minerals said the detailed scoping study of its York potash project has confirmed the asset's viability.

The primary objective of the detailed scoping study (DSS) was to evaluate the project from a technical perspective to identify a sustainable development concept, estimate capital and operating costs, demonstrate the potential of the project, define the risks and their mitigation and identify further opportunities for optimisation.

The study, carried out with the assistance of numerous third-party consultants, reckons that the phase 1 capital cost of the project will be $2.7bn, which should be enough to get the project producing 1.4m tonnes per annum (mtpa) of sulphate of potash (SOP).

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"The estimated $2.7bn phase 1 capital that is required to become a significant global producer is competitive and we believe financeable," said Chris Fraser, Managing Director and Chief Executive Officer of Sirius.

By 2024 or earlier the project could be churning out up to 4.1mtpa of SOP, the DSS suggests.

The modular and flexible phase 2 build-out of capacity to 4.1mtpa of SOP is estimated to be $3.3bn which could be internally funded from cash generated from sales of potash generated in the phase 1 development.

The study suggests that the cash operating cost, on a free on board (FOB) basis, would be $225 per tonne of SOP, while after accounting for the assumed value of the by-products such as Epsomite (magnesium sulphate), which Sirius could sell, the estimated FOB cash operating cost of $65 per tonne of SOP "could place York Potash towards the bottom of the global potash cost curve," the company said.

These capital and operating cost metrics deliver significant positive free cash flow in 2018, the second year of production, and a current project after tax net present value of more than $6.0bn, the DSS indicates.

Employment created at phase 2 production would be in excess of 1,170 jobs, so although conservationists might not be happy with the prospect of a mine scarring the scenery of a national park on the North York moors, the local job centre should be happy, as the company has pledged to recruit locally.

Sirius has vowed to make the mine as unobtrusive as possible and one of its consultants, Alan Auld Engineering, has suggested that, rather than sinking shafts from the surface, the mine head should be underground, and accessed by tunnels of around 4 kilometres in length.

This system would reduce impact on the surface because the decline tunnel access results in a simple portal entrance at the surface and avoids any need for major structures with significant elevation, because the mine head would be below ground level.

The next milestone for the project is to deliver the maiden JORC (Joint Ore Reserves Committee of Australia) resource statement at the end of May 2012.

JH