http://www.southbouldermines.com.au/files/140319-Inside-Briefing-ASX-Announcement-Final-ASX.pdf
Attention: ASX Company Announcement Platform
Lodgement of Inside Briefing - 19 March 2014
The Company Announcements Officer
Australian Securities Exchange Ltd
via electronic lodgement
The following is an Inside Briefing interview with South Boulder Mines
Chief Executive Paul Donaldson
In this interview, Paul Donaldson provides an update on South Boulder Mines
(ASX: STB, market capitalisation: ~$25.7m) and its Colluli potash project
in Eritrea.
Mr Donaldson explains the testwork that is about to begin on the various
Colluli processing options, the key cost advantages associated with the
unusually-shallow nature of the resource, the premium product suite which
can be derived from this high-quality resource and the strong outlook for
potash prices.
Inside Briefing: Can you provide an update on the work South Boulder is
undertaking at the Colluli Potash Project to identify the most
effective alternate processing route to that contained in the original
study?
Paul Donaldson:
We are reviewing a short-list of proposals for testwork on various
processing routes. We have developed a hierarchy of preferences based on
the options identified in earlier work. These preferences are based on
capital and operating cost structures that we believe are best-suited to
this project.
All these proposals include contributions from construction contractors,
processing experts and technical involvement to ensure we get the best
outcome. We expect to allocate the work this month and we are keen to get
the program running as quickly as practicable. As part of this, we have
been reviewing our inventory of drilling core to ensure we can deliver
samples to the test facility as soon as the program has been allocated. We
are also collecting water samples from the Red Sea for testing as part of
the program.
Inside Briefing: What are some of the key issues you have been addressing
at Colluli up to this point?
Paul Donaldson:
Our focus has been on identifying the right processing route for the salt
composition in the Colluli resource. The salt is turned into potash via the
processing route and different forms of salt and different processing
routes result in different forms of potash.
This is not a typical resource for a potash project. It consists of both
chloridic and sulphatic potassium salts, which opens the door to a wide
suite of final products. The resource also contains magnesium salts which
can be used to make fertiliser. By using all the different salt types the
project's economics are substantially improved in the mining area
and the product suite is extended beyond potassium chloride, the more
common form of potash.
Our analysis of processing routes is based on existing technologies and
we have assembled a number of conceptual processing options that augment
these technologies to minimise both capital intensity and operating costs.
The sulphatic nature of the salts at Colluli provides the opportunity to
produce potassium sulphate, a potassium fertiliser, or potash (sulphate of
potash), that attracts a price premium relative to the more common form of
potash, potassium chloride (muriate of potash). All the processing options
we have considered allow for the production of potassium sulphate.
Potassium sulphates are produced mostly from brines which in most cases
need to be evaporated to solid form prior to processing. This usually
requires considerable land space, a favourable environment
for evaporation and sufficient time for evaporation to take place. But
Colluli has a significant advantage because the salt is already in solid
form.
Some more recent projects are considering the potential to make potassium
sulphate using polyhalite. This requires high temperature calcination at
almost 500 degrees celsius followed by counter current leaching. Again, we
do not need to do this. Technology also exists to convert the kainite
resource at Colluli to potassium sulphate. The key issue for the
Colluli project is to determine the right conversion path. Given the
significant opportunity this represents, we are seeking to determine this
as quickly as possible.
Inside Briefing: The Colluli deposit is very shallow compared with most of
the major potash deposits around the world. What is the key advantage of
this?
Paul Donaldson:
The mineralisation starts from just 16m below the surface. This brings two
significant advantages. The first is the impact on the capital intensity of
the project. The scale of underground potash mines is to a large extent
driven by their depth. The capital costs associated with sinking deep
underground shafts are high and the deeper the deposit, the larger the
scale of the processing facility required to cover the capital investment.
The shallow mineralisation at Colluli eliminates the need for underground
mining. This means that a lower up-front capital investment is needed to
generate the same production scale. Net present value (NPV) is a function
of capital and cashflow, so operating costs are obviously the other key
part of the equation. The balance between capital expenditure, operating
cost and the scale of the facility has been a key area of focus in our
latest studies. By driving down the operating costs and having the benefit
of a lower capital intensity due to open cut mining, the start-up module
size can be reduced. Given the size of the Colluli resource, this lowers
the relative barrier to entry when compared to a lot of other potash
projects and creates a solid platform for growth over a period of time.
Safety, commercial, resource and capital risks can all be mitigated with a
smaller-scale start- up.
The other significant advantage I see is the scalability. The Colluli
resource has a potential strike length of more than 18km. Open cut mines
are far easier and more economical to expand than underground operations, a
factor which supports the modular growth approach we are now adopting.
Inside Briefing: Do you see any strategic advantages associated with the
location of the Colluli deposit compared with the traditional potash basins
of Canada and Russia?
Paul Donaldson:
Our location brings a number of benefits. First, the deposit is quite close
to the coast. The distance between the mine site and the nominated export
facility is only 70km. This is an important point when comparing operating
cost structures given some operations publish costs on an FOB basis (cost
of loading to ship) and some publish costs at the mine gate. In the
Canadian basin, some of the product is railed more than 1500km with
transportation costs in the order of $50 per tonne of product. At Colluli,
the transportation costs for product to be moved to the port are between $5
and $10 per tonne. When you consider the location of all of the major
potassium fertiliser- producing operations, specifically potassium sulphate
projects, Colluli would be the closest to the coast. Currently the closest
is SQM's Salar de Atacama operations, which are approximately 220km from
the Chilean coast.
The second benefit of the location is the proximity to the key markets.
Compared to the traditional production basins, East Africa is the closest
to India. Almost 70 per cent of India's potash imports currently come from
Canada, Russia and Belarus. Given it is the fourth largest import market
and is expected to demonstrate continued growth, Colluli is well positioned
to capitalize on this market. Colluli is also a comparable freight distance
to northern China compared with Canada and a slight advantage to southern
coastal areas.
Inside Briefing: The potash market has been quite soft over the past 12
months with potash prices sliding to just over $300 per tonne on an FOB
basis. How do you see the market outlook?
Paul Donaldson:
The fundamentals for potash demand are well established. The equation for
increasing demand is quite simple - growing population, less arable land
and changing dietary preferences all add up to continued growth for
fertiliser demand. Potash cannot be substituted.
The current market turbulence is the result of the additional capacity
developed over the past few years and a change in the industry structure on
the supply-side. This capacity will be consumed in the future and prices
will return to higher levels, otherwise there will be another price spike
in the future due to a supply shortage. We are quite confident the price
won't remain at this level.
One of the advantages of the new product suite under consideration for
Colluli is that potassium sulphate is produced. It is currently selling at
an FOB price in the order of $580 to $600 per tonne and given the
restricted number of production centres for this product, the price is not
likely to drop as severely as in the case of potassium chloride.
Inside Briefing: What do you see as the key milestones for Colluli once the
processing testwork is allocated?
Paul Donaldson:
Once the processing testwork is underway, we will look to appoint an
environmental consultant to facilitate the baseline assessment submissions
to the Environment Ministry in Eritrea, initiate material characterisation
testwork to support the completion of mining work to DFS level and resume
work on costing the infrastructure. We are also looking at bringing much of
the work that was initiated with overseas partners back to Perth.
It is easier to manage and we have an abundance of experts in Perth
who can do the required work. We believe it will be a much more integrated
approach that will ultimately deliver faster results.
The other key activity that we are about to initiate is defining the rock
salt resource at Colluli. We have an abundance of rock salt sitting on top
of the potash and the initial quality looks quite good. We see this as a
potential de-icing product. This rock salt will be removed as part of the
open cut mine. We are defining that resource and will look for partners
that would like to participate in a rock salt business once we have
established the grades and volumes.
- ENDS -
Further information: South Boulder Mines Ltd Paul Donaldson
Chief Executive
T: +61 8 6315 1444
Investor Relations
Paul Armstrong / Nicholas Read
Read Corporate
T: +61-8 9388 1474
E: paul_at_readcorporate.com.au
Received on Wed Mar 19 2014 - 10:58:39 EDT