Date: Wed, 4 Mar 2015 12:46:38 +0100
South Boulder Mines — A Unique and Unrivaled Potash Opportunity
Overview
South Boulder Mines Ltd. (ASX:STB) is currently developing the emerging, world-class Colluli Potash Project located just 75 km from the Red Sea coast in Eritrea, Africa. A large deposit and the world’s shallowest known potash resource, Colluli boasts a uniquely rare composition of three key potassium bearing salts in solid form. Combined, these favorable attributes make Colluli highly amenable to low energy, high potassium yield production of potassium sulphate (SOP).
The Colluli Potash Project is wholly-owned by the Colluli Mining Share Company which is a 50/50 joint venture between South Boulder Mines and the Eritrean National Mining Company.
The JORC 2012 Mineral Resource Estimate for the Colluli Potash Project totals 1.289 billion tonnes _at_ 10.76% K2O for a contained Potassium Sulphate (SOP) of 260 million tonnes. The deposit’s unique salt composition will allow for the production of SOP, a high quality fertilizer with limited production centers globally. In 2014, prices for SOP reached their second highest level on record.
A Prefeasibility Study at Colluli is to be completed in Q1 2015. Definitive Feasibility Study level work is well underway and expected for completion in Q3 2015. The development plan will be based on the principles of modularity, risk mitigation and expandability.
“Colluli is one of the best undeveloped potash and agrichemical resources in the world today and favorably positioned to supply the world’s fastest growing markets. I am confident that we have an exceptionally talented and well-balanced team in place to support the work we are undertaking,” said Managing Director Paul Donaldson.
Investment Highlights
- Large, high grade potassium bearing resource close to surface in an emerging potash province.
- Close proximity to coast and geographically favorable relative to key markets.
- Highly favorably suite of potassium bearing salts for low cost production of SOP.
- Joint Venture with Eritrean National Mining Company is a key enabler to project success.
- 10% of South Boulder shares held by Sprott Asset Management.
- Kam Lung Investment Development Company of Hong Kong is a corner stone investor.
- 1.289 billion tonnes of potassium bearing salts – all of which are suitable for the production of potash fertilizers.
- One of only three major deposits containing kainite salt (key salt for SOP production) in solid form globally.
- PFS competed in Q1 2015; DFS to be completed in Q3 2015.
Mining in Eritrea
The African nation of Eritrea is a stable jurisdiction committed to developing its emerging mining industry. The African Development Bank Group has said that Eritrea’s economic growth in the coming years will be largely driven by growth in the development of its natural resources with copper, gold and potash playing leading roles. There is already one active copper-gold mine (Bisha) and two more mines are in advanced stages of development (Zara gold and Colluli potash).
The Eritrean government recognizes that resource development is an important component of the nation’s economic development, and has a reputation for transparent, mining-supportive policies.
South Boulder Mine’s joint venture partnership with the Eritrean National Mining Company on the Colluli Potash Project has enabled the Company to quickly navigate the exploration licensing and environmental regulation processes. “The Eritrean Government doesn’t compromise their process and legislation, but the red tape is minimal and access to the appropriate government officials is facilitated by the relationship,” said Managing Director Paul Donaldson.
Colluli’s location near the coast in Eritrea means it is favorably positioned relative to key growth markets for potassium bearing fertilizers, specifically Africa, India and China. These regions are experiencing increasing population growth, decreasing land and changing dietary preferences; all key drivers of the fertilizer market.
Key Property
Colluli Potash Project — Eritrea, Africa
The Colluli Potash Project is located in the Danakil Depression region of Eritrea approximately 350km southeast of the capital city, Asmara. The Danakil Depression is an emerging potash province with more than 4 billion tonnes of measured and indicated potassium bearing salts identified to date.
The Colluli resource lies a short 75 km from the Red Sea Coast, making it one of the most accessible potash deposits in the world. South Boulder plans to construct an export facility at Anfile Bay (75km), where deepwater access is suitable for loading vessels up to Panamax size. The project is 180km from the port of Massawa, the nation’s key import/export facility.
Colluli is owned by the Colluli Mining Share Company (CMSC) which is a 50/50 joint venture between the Eritrean National Mining Company (ENAMCO) and South Boulder. CMSC began actively exploring for potash on the approximately 500km² project area in 2009.
The Colluli Potash Project has a 2012 JORC Mineral Resource Estimate of 1.289 Bt _at_ 10.76% K2O (total contained potassium sulphate of 260 Mt K2O). The resource contains 303 Mt @ 10.98% K2O of Measured Resources, 951 Mt @ 10.89% K2O of Indicated Resources and 35Mt @ 10.28% K2O of Inferred Resources.
Large, shallow deposit with unique mineral composition
Colluli is a considerably large deposit and the shallowest known potassium-bearing evaporite deposit globally (mineralization starts at 16m and runs to 150m). It contains a uniquely rare composition of three key potassium bearing salts in solid form: sylvinite, carnallitite and kainitite. These salts are suitable for low-energy, high potassium yield, production of both potassium sulphate (SOP) and potash of magnesia (SOPM).
In the global fertilizer market, primary production is dominated by brine producers which must carry out the energy-intensive work of evaporating the potassium and sulphide rich brines into salts that can be converted into potassium sulphide. At Colluli, these salts are already in solid form.
Colluli’s large deposit size, shallow depth and unique mineral composition present a huge upside for the economics of the project because the fortuitous combination makes the resource highly amenable to low temperature conversion of the salts to SOP by using conventional flotation and mixing. The operating environment is ideal for solar evaporation and a series of evaporation ponds will be integrated into the process plant to further improve potassium yields.
The solid form of the salt composition means mined salt can be immediately processed in contrast with brine operations which may take up to three years to form harvest salts for subsequent processing.
The open cut mining method allows full resource utilisation which is a major advantage over solution mining where up to 40% of the resource may be sterilised to ensure adequate mine ground support. By mining all of the potassium bearing salts in the resource, the open cut mining strip ratio is also kept to a minimum.
“There are very few resources—you can count them on one hand—that have the capability to make potassium sulphate with such low energy and at high yields in a single resource. To make SOP, a higher value product from Colluli, all of the salts must be mined, which lowers mine strip ratio, hence mining cost base. Normally to produce a high margin product you have to invest more operating cost, but in our case you invest less. And that’s one of the great things about the Colluli Project,” Managing Director Paul Donaldson.
SOP niche market: tight supply, heavy demand
Both SOP and SOPM are high quality, rare potash fertilizers with limited production centers globally; hence they carry a price premium over the more common potassium chloride (MOP).
SOP is an important nutrient for higher value crops such as fruits, vegetables, nuts and coffee. The premium fertilizer enjoyed continued price growth throughout 2014 with prices reaching their second highest level on record.
SOP prices are a direct consequence of inadequate supply. There are limited greenfield developments outside of China and none that have coastal access to match Colluli. As population growth expands globally alongside a reduction in arable land and changing dietary preferences, the potassium sulphate market will also continue to grow. Projections estimate SOP demand growth of more than 2 million tonnes over the next decade, and the Colluli project has the potential to meet the requirements of the future and transform to a resource of global significance.
Substantial project upside also exists in higher production capacity and market development for other contained products such as high purity rocksalt, kieserite (magnesium sulphate), gypsum and magnesium chloride.
Prefeasibility and Definitive Feasibility Studies
In April 2014, South Boulder commenced a Prefeasibility Study (PFS)/Definitive Feasibility Study (DFS) work program which has greatly increased the Company’s understanding of the Colluli deposit and how to proceed with the development of the project.
Metallurgical results to date are highly favorable showing commercial grade SOP can be produced from the Colluli salt mix. Flotation tests resulted in recoveries of more than 80% potassium. Overall circuit recovery is expected to be ~ 85% potassium recovery. The PFS work has focused on simplifying and optimizing the project’s development following a comprehensive review of the resource composition, processing options, potential product suite, and operating and capital cost structures. The Company plans to produce SOP using a commercially proven process and simple mineral processing units including flotation and mixing.
The PFS is on track for release in Q1 2015; the DFS, including metallurgical optimization testwork and pilot studies, is expected for completion in Q3 2015.
Environmental Assessments to be completed in 2015
In an effort to fast-track the project to development, South Boulder submitted the first tranche of Baseline Environmental Assessments to the Eritrean Ministry of Energy and Mines in August 2014. The Second tranche of baseline assessments was submitted in February 2015. The third and final tranche of assessments is currently underway, including a complex ocean modelling and a 4-week site investigation program, and is expected to be complete by mid-March 2015.
“Having all of the baseline assessments completed and submitted well ahead of the definitive feasibility study will ensure that we minimize the duration of the approval process for the mining license application,” said Managing Director Paul Donaldson.
Modular approach to development minimizes costs and enhances expansion
South Boulder’s development philosophy at Colluli hinges on the ability to effectively manage risk and cost, optimize production processes, and expand the resource to its fullest potential; hence, the Company is taking a modular, rather than large-scale, approach to development.
“Until you start producing material and putting tonnes on the ship, the PFS and DFS are just estimates on cost structure. From a commercial perspective, by keeping scale down we can minimize exposure to variances in the cost structure and give ourselves the opportunity to get it right,” said Managing Director Paul Donaldson.
The modular approach involves initiating development on a smaller-scale, making it easier for South Boulder to manage risks in terms of workforce size and fundability. Analysis of mining projects shows that the larger the capital investment for developing a project increases the likelihood of a cost over-run. Lower CAPEX projects are typically more manageable and more likely to come in at, or under budget.
Such an approach also allows for more optimization opportunities, enhancing the expandability of the project. Module designs can be further optimized with the combination of data, plant performance, and improved understanding of raw material and processing behavior.
The PFS at Colluli focused on running iterations on module size versus CAPEX to balance project fundability, risk mitigation, market penetration and economic returns for the final DFS design.
Why South Boulder Mines
South Boulder Mines is focused on becoming emerging producer of premium potash and agricultural chemicals from the Colluli potash resource in Eritrea. The shallow depth and large size of the deposit along with the solid form and unique combination of salts differentiate the Company from other potash producers. South Boulder’s modular development approach and close proximity to the coast will allow for significant cost reductions in both the CAPEX and transportation costs compared to other potash producers.
The 2012 JORC Mineral Resource Estimate for the Colluli Potash Project totals 1.289 billion tonnes _at_ 10.76% K2O for a contained Potassium Sulphate (SOP) of 260 million tonnes.
At Colluli, South Boulder plans to produce SOP, an important nutrient for higher value crops. The price of the premium fertilizer reached its second highest record in 2014. There are limited greenfield developments outside of China and none that have coastal access to match Colluli. Demand growth for SOP is projected to reach more than 2 million tonnes over the next decade.
The PFS is on track for release in Q1 2015; the DFS, including metallurgical optimization testwork and pilot studies, are expected for completion in Q3 2015.
South Boulder’s modular approach to development will enable the Company to better manage risks associated with safety, costs and market penetration. Lower CAPEX projects are typically more manageable and more likely to come in under budget. The modular approach also allows for increased optimization of operations and enhanced expandability of the project.
“What attracted me to this Company was the resource size, the shallow depth, the growth fundamentals of the commodity itself, the proximity of the project to the coast, and the fact that it is highly suitable to scalability with the open-pit. I felt that Colluli had all the right fundamentals of a successful project in the long-run,” said Managing Director Paul Donaldson.
Management
Paul Donaldson – Chief Executive Officer & Managing Director
Mr. Donaldson was appointed as Chief Executive Officer in February 2013 and joins South Boulder from a series of senior management roles spanning more than 20 years with BHP Billiton (“BHP”)holds a Masters Degree in Mining Engineering, a Masters Degrees in Business and Technology, and Bachelor of Chemical Engineering degree.
Mr. Donaldson has experience in marketing and distribution, logistics and supply chain management, manufacturing and processing management and large scale open pit mine management. At BHP, Mr. Donaldson was most recently General Manager of the +50 million tonne per annum Area C Iron Ore operation in Western Australia. He was formerly Manager of Technical Marketing based in Asia, contributing to both product suite and product placement strategies for coking coal, manganese and iron ore. Other highly relevant roles include Manager of Port Operations at the Nelson Point Facility in Western Australia, and Manager of Business Improvement and Logistics at the Cannington Mine.
Mr. Cornelius is a corporate lawyer and former partner of one of Australia’s leading international law firms. He specialised in cross-border transactions, particularly in the resources sector. Mr. Cornelius has been based in Shanghai and Beijing since 1993 and brings more than 20 years of corporate experience in legal and commercial negotiations. He has also advised globalcompanies on their investments in China and in recent years advised Chinese state-owned entities on their investments in overseas resource projects.
Mr. Cornelius is currently the Chairman of Buxton Resources Ltd (BUX) since 29 November 2010 and Montezuma Mining Company Ltd (MZM) since 30 June 2011.
John Fitzgerald – Non Executive Director
Mr. John Fitzgerald has an extensive finance background having previously held positions at NM Rothschild and Sons, Investec Bank Australia, Commonwealth Banks and HSBC Precious Metals.
Tony Kiernan – Non Executive Director
Mr. Kiernan has over 25 years of experience in the mining industry and was previously a commercial lawyer. He is currently a corporate advisor and has extensive experience in the administration and operation of public listed companies. He brings particular skills in the areas of Government relations and approvals, corporate strategy and corporate governance, all of which are key areas for the Company as it progresses the development of its key asset, the Colluli Potash Project in Eritrea, East Africa.
Mr. Kiernan is currently the Non-Executive Chairman of BC Iron Ltd (BCI) since 11 October 2006, Non-Executive Chairman of Venturex Resources Limited (VXR) since 14 July 2010 and Non-Executive Chairman of Chalice Gold Mines Ltd (CHN) since 15 February 2007.
Liam Cornelius – Non-Executive Director
Mr. Cornelius graduated from Curtin University of Technology with a BApp.Sc in Geology. Mr. Cornelius has been involved in the exploration industry within Australia, Asia and Africa for nearly 20 years. Whilst originally specializing in gold he has experience with a wide range of commodities including nickel, copper, platinum, uranium and potash.
As a founding member of South Boulder Mines Ltd, Mr. Cornelius has played a key role in outlining areas of interest for the Company. In addition to project generation and fund raising, he also provides guidance to the Board on future directions. Mr. Cornelius has not held any former directorships in the last 3 years.
Amy Just – Company Secretary
Amy is the Company Secretary of the Group and specialises in the provision of corporate advisory, company secretarial and financial management services. She has ten years of experience as a Chartered Accountant and is member of the Governance Institute of Australia.
Amy has acted as the Financial Controller and Company Secretary of numerous domestic and international oil & gas and mineral exploration companies, and has significant ASX compliance, statutory reporting, and corporate governance experience.
James Durrant – Colluli Study Manager
Mr. Durrant joins South Boulder Mines in May of 2014 following nearly 7 years working in various senior engineering, corporate and operational leadership roles throughout BHP Billiton’s iron ore operations in Western Australia. He has been heavily involved with standardisation and simplification of operating procedures and processes across multi-site operations and facilitated the streamlining and standardisation of organisational structures. He has also managed site infrastructure improvement projects and process change projects to enhance mine performance in both safety and optimisation in the key operational functions of Load and Haul, Mine Planning and Drill and Blast.
Mr. Durrant has a BEng in Mechanical Engineering and a MSc in Mining Engineering from the Camborne School of Mines.
Zeray Leake – Eritrean Country Manager
Mr. Leake is a Geologist with over 12 years of experience in the development and exploration of potash, gold, base metals and industrial minerals. Mr. Leake previously worked for the Geological Survey of Eritrea.