Four months after nailing a 25-year licence to mine potash in the Republic of Congo in Equatorial Africa, MagIndustries (MAA-V, MAAFF-O) has filed an updated resource estimate for its Kouilou project.
The Kouilou potash deposit, 25 km east of the Atlantic port city of Pointe-Norte, one of West Africa’s best deepwater ports, is owned by MagIndustries’ subsidiary, Mag-Minerals Potash Corp.
The National Instrument 43-101 technical report replaces an earlier version completed in February.
New rock mechanical modeling has redefined the mineable Horizon 4 carnallitite layer resulting in a larger thickness available for mining and a hexagonal cavern configuration, which allows closer cavern spacing.
In the first technical report, proven reserves were estimated to be 17.9 million tonnes of potassium chloride or potash, with probable reserves of 3.1 million tonnes.
In the revised estimate, proven and probable reserves have grown to 33.5 million tonnes of potash. That amount is enough to support 28 years of production at a rate of 600,000 tonnes of K60-grade potash for the first two years and 1.2 million tonnes per year for the remaining 26 years.
At a production rate of 600,000 tonnes per year, the prospective mine’s potash reserves are adequate for a lifetime of 54 years. At a production rate of 1.2 million tonnes of potash per year, the reserves are adequate for a project lifetime of 27 years.
The reserves have been defined on just 18% of MagPotash’s 136-sq-km Mengo exploitation permit. The company also holds rights to an additional 1,472 sq km through its Makola exploration permit.
The potash deposits occur in the form of carnallitite rock, which underlies most of the Makola exploration permit area. The carnallitite rock occurs in multiple, horizontal horizons. Four horizons at depths of between 400 meters and 800 meters are being considered for commercial development.
The new technical report was based on 13 drill hole results, 23 km of seismic surveys, and down-hole geophysical surveys.
Based on a conservative potash price forecast that was published by Fertecon Ltd in 2007, which implies an average net realized price to MagPotash of US$464 per tonne for the first five years of the project, financial modeling indicates that even for pessimistic cases tested in a sensitivity analysis the project is capable of servicing its debt and breaking even, MagIndustries noted in a press release.
For the base case, Kouilou’s internal rate of return is estimated at 19% and at a discount rate of 12%, the net present value is forecast to be about US$1.2 billion.
Payback on the total project costs of US$1.4 billion is believed to be about six years from the cumulative cash flow from operations from 2011 to 2016.
At a full production capacity rate of 1.2 million tonnes a year, the company will reach payback in about four years, according to Rich Morrow, a company spokesman. The project is expected to move into production in 2011 and reach full capacity of 1.2 million tonnes per year in 2014.
MagIndustries also plans to start a scoping study before the end of the year on the prospects of producing magnesium metal from the proposed mine’s magnesium chloride waste. (Carnallite is a magnesium-potassium-chloride mineral or a double-salt with the chemical formula KMgCl3-6H2O.)
As for the future of potash prices, the company remains upbeat. While prices for many commodities are easing largely due to fears of a global economic downturn, Morrow says the fundamentals for potash are different.
“We think there are limited sources of new supply and we think that will be reflected in the continuation of quite strong prices for potash going forward,” he explains. “It’s a high barriers-to-entry industry; it takes a lot of time and money to get into this business. While we’re aware that various industry players are preparing to bring on more capacity over time, we don’t see any meaningful capacity coming onto the market ahead of our project in 2011.”
MagIndustries has a market capitalization of about C$406.85 million with 197.5 million shares outstanding.
The Toronto-based company is currently trading at about C$1.99 per share, with a 52-week trading range of $1.25-$3.72.