MagIndustries scores potash licence

MagIndustries (MAA-V, MAAFF-O) has nailed a 25-year licence to mine potash in the Republic of Congo in equatorial Africa.

“This is the only significant mining project in the country and it will be the country’s largest investment onshore,” William Burton, the company’s president and chief executive, said in an interview.

MagIndustries’ subsidiary, Mag- Minerals, will build, own, and operate a standalone 1.2-million-tonne- per-year mine and plant at its Kouilou potash deposit, 16 km east of the Atlantic port city of Pointe- Norte, one of West Africa’s best deepwater ports. Point Norte connects by rail to the capital, Brazzaville.

Burton says MagMinerals hopes to commission the plant beginning in late 2010. Full production is scheduled for the second quarter of 2011.

Kouilou has a National Instrument 43-101 compliant proven reserve of 17.9 million tonnes potassium chloride, while the probable reserve amounts to 3.1 million tonnes potassium chloride.

It also holds an inferred resource of 1.07 billion tonnes of carnallite, representing 185.9 million tonnes potassium chloride.

The reserves are found in the 25- sq.-km Mengo area, which makes up only a small fraction of the 1,650- sq.-km Makola mining licence. The deposit is open in all directions.

A feasibility study for the first phase of the project anticipates capital costs will fall in the range of US$723 million, excluding financing costs, for a 600,000-tonne-per-year operation producing granular K60-grade potash.

At a production rate of 600,000 tonnes per year, the mine would have a lifespan of about 34 years.

The first phase of the project would yield an estimated internal rate of return of 26% and a net present value of US$450 million (assuming a 12% discount rate), based on a net realized potash price of about US$500 per tonne, the study found.

The government of Congo will keep a 10% free-carried interest in the mine.

MagMinerals plans to double the first-phase capacity as soon as possible to reach total production of 1.2 million tonnes per year.

Ultimately the potential is “for a production scale equivalent to Canadian (potash mining) operations,” Burton says. “Two to three million tonnes of production annually is possible from this location. We would be able to have a complex as large as the largest Canadian (potash) operations.”

In terms of financing, BNP Paribas has approached a group of lenders who are wrapping up their due-diligence work toward the debt financing of 70% of the project’s costs to bring the Kouilou mine into production.

MagMinerals anticipates closing its previously announced equity offering for $80-100 million on April 3 as an initial step in providing the required 30% equity for the initial phase.

Solution mining will be used to produce potash-rich brine that can be treated in a crystallization plant to produce granular grade potash fertilizers for export.

The company believes solution mining is the most appropriate method because of the high purity of the carnallite and the relatively undisturbed nature of the beds, as well as their depth below the water table.

One of the primary inputs for this process is natural gas, which is available locally (currently flared from the area’s significant oil production with no public or industrial consumers). This gas supply will be contracted from the government and will supply an on-site, 26-megawatt, gas-fired power plant.

MagMinerals’ Makola permit covers about 20% of the Congo basin, including the past-producing Holle potash mine formerly run by France’s Potasse D’Alsace, now SSI. The underground Holle mine was operated in the 1960s but closed in the 1970s when it hit a large aquifer.

Deposits in the area occur in the form of carnallite rock, which is often described as a magnesium-potassium- chloride or a double-salt.

The carnallite occurs in multiple horizontal horizons ranging from 0.5-24 metres thick, with an average content of about 70% carnallite.

Four horizons between 400 and 800 metres below surface have been considered for commercial development.

“We’re lucky that we’re dealing with four stacked carnallite horizons that we can mine in one process from a single well,” Burton says.

MagIndustries, which has 195.2 million shares outstanding, is currently trading at about $2.16 a share, within a 52-week trading range of $1.17-2.90.