Potash a hot commodity on the Canadian prairies

With the world’s  population marching upward, and the U.S. Department of Agriculture estimating this year we’ll see the largest U.S. corn crop in 75 years, it may be no surprise that potash exploration and project development are moving ahead at a brisk pace in Canada, despite potash price fluctuations over the past six months.

U.S.-based fertilizer-giant Mosaic (MOS-N) said on April 25 that it saw a “sharp increase” in world demand for nutrients, and subsequently announced fourth-quarter volumes for both potash and phosphates at the upper end of its guidance of 1.7–2.2 million tonnes for potash, and 2.3–2.7 million tonnes for phosphate.

Mosaic shares jumped 5.4%, or $2.72 following the news, triggering renewed optimism regarding nutrient-based markets this year.

“Global demand for crop nutrients has increased sharply, driven by an early and strong spring season in North America, combined with increasing shipments to South America,” says Jim Prokopanko, Mosaic’s president and CEO. “We expect demand to continue to grow, and crop nutrients to remain affordable. We anticipate another year of high farm income in North America — the second highest on record — and strong farm economics around the world. Our long-term outlook for the business is positive.”

That should come as welcome news to a group of potash explorers and developers in the Canadian prairies, with Saskatchewan alone holding over half of the world’s potash reserves.

Germany-based K+S Group’s greenfield Legacy potash project near Moose Jaw in southern Saskatchewan is on a large-scale development schedule. The superv-isory board for subsidiary K+S Potash Canada approved a US$3.25-billion capital expenditure (capex) on the project last November, and the company is holding a groundbreaking ceremony on June 19, though construction has already begun on water and electrical infrastructure. 

K+S estimates its construction workforce will peak at around 1,100 people, with 320 permanent jobs at the operation during production. With a build-out period of three years, Legacy is slated for initial production in 2015, and K+S anticipates total capacity at 2.86 million tonnes of potassium chloride (KCl) per year by 2023, with a potential for expansion to 4 million tonnes per year.

Australian mining giant BHP Billiton (BHP-N) is deciding this year whether to build its Jansen potash project outside of LeRoy, Sask. Later this year the company is expected to present to its board a study for US$12-billion conventional underground mine. BHP is building a 2,600-person camp 100 km north of Regina in anticipation of Jansen’s construction.

 According to report by BMO Capital Markets, the project has an estimated 12.5% internal rate of return (IRR) and a US$2.1-billion net present value (NPV) at a 10% discount rate. Under the current plans, Jansen would be the largest potash mine in the world at peak capacity, with annual production of 8 million tonnes potash over a minimum 50-year mine life.

Karnalyte Resources’ (KRN-T) 100%-owned Wynyard carnallite project is also at an early stage of  development, with advanced exploration and environmental permitting underway. Located outside of Wynyard, Sask., the project has reserves of 786 million tonnes at 22.4% KCl for 155 million contained tonnes KCl. 

According to an economic assessment, full operations at Wynyard would carry a US$2-billion capex with a US$1.7-billion NPV and 21.4% IRR at a 10% discount rate. The project would have up to a six-year ramp-up, with annual production eventually hitting 2.1 million tonnes of potash-granular pellets — a product Karnalyte has branded “KCl97” — with reserves and resources supporting a 70-year mine life.

Karnalyte is carrying out a detailed engineering study that would clear the path for project construction. 

A first-phase commissioning and production stage is expected to start-up in early 2013, with initial output pegged at 625,000 tonnes of KC197 per year. This phase will carry a US$593-million capex, and Karnalyte is looking at its financing options to proceed with mining.

Western Potash (WPX-T) has made headlines in recent weeks after announcing it wants to bring on a major partner to handle development of its Milestone potash project 30 km southeast of Regina. Talks with Chinese fertilizer-giant Sinofert Holdings, which is 22% owned by Canadian-based Potash Corp. of Saskatchewan (POT-T, POT-N), broke off in early April after the parties failed to reach an option agreement. 

Western Potash needs a suitor with the financial muscle to support Milestone’s US$2.5-billion capex, and the junior says it is scouring India and China for potential partners. 

According to an economic assessment Milestone carries a US$4.14-billion NPV and a 22.7% IRR at a 10% discount rate. 

Western Potash is targeting a 2016 start-up with a six-year ramp-up to commercial production at 2.8 million tonnes of potash annually, with average cash costs of US$62.35 per tonne. 

Milestone has a measured resource totalling 787 million tonnes grading 25.6% KCl for 203 million tonnes of contained KCl, which translates to a mine life exceeding 40 years.

Explorer Encanto Potash (EPO-V) got some good news in late February at its flagship Muskowekwan potash project in southeastern Saskatchewan, when the Muskowekwan First Nation showed “overwhelming support” for the project in a vote.

According to a preliminary economic assessment, the Muskowekwan project has a US$2.9-billion NPV and a 23.6% IRR at a 10% discount rate from a mine with a US$2.4-billion capex and a 32-year life.

Encanto began a feasibility study on the project in January, and released an updated resource in March that includes measured resources of 273 million tonnes grading 29.6% KCl for 26.9 million tonnes recoverable KCl, as well as indicated resources of 1.04 billion tonnes grading 29.7% KCl for 104 million tonnes of recoverable KCl. 

Muskowekwan is part of a 234-sq.-km land package on the Muskowekwan First Nation reserve. Encanto maintains full interest in the project under joint-venture conditions with the Muskowekwan that include a 3% gross overriding royalty, as well as a 5% gross overriding royalty held in trust by the federal government. 

In February Pacific Potash (SKZ-V) released results from initial wells drilled and cored on its fully owned Provost Potash property located on the Alberta-Saskatchewan border some 250 km southeast of Edmonton. According to Pacific Potash CEO Steve Khan, the results mark the first-ever significant presence of potash in Alberta. 

Results from wells 37 and 38 include 3 metres carrying 18.76% KCl starting from 1,330 metres; and 0.3 metre grading 34% KCl from 1,350 metres.

Pacific Potash had US$2.5 million in working capital to end March, and intends on using the results to plan more drilling later this year. 

The Provost Potash property is part of a 178-sq.-km group of claims that Pacific Potash controls on the prairie-evaporite formation that stretches from eastern Manitoba to eastern Alberta. 

Pacific Potash is also kicking off a drill program 10 km north of the Provost Potash property at its Provost property, a fifty-fifty joint-venture with Grizzly Discoveries (GZD-V). 

Grizzly is another explorer active in southern Alberta. It discovered potas
h in mid-February in a well on its wholly owned, 4,000-sq.-km South Block property outside of Medicine Hat, Alta. 

Grizzly geologists observed visible potash minerals in core drilling starting at 1,650 metres below surface, with results of 22 metres grading 4.15% KCl, including 3 metres  of 13.88% KCl.

Grizzly holds 9,300 sq. km along the Alberta-Saskatchewan border, with showings of up to 20% potassium oxide from historic core and gamma logs. The company is planning confirmation drilling on three separate sites on 5- to 20-km spacing. It is aiming for a resource estimate by year-end.