That’s hot: Paris Hills takes star turn for Stonegate

Stonegate Agricom (ST-T) has stepped closer to bringing its Paris Hills phosphate project in Idaho on stream, potentially by late 2014, with a positive feasibility study outlining a bigger and better project than previously thought.

The study, prepared by Colorado-based Agapito Associates, proposes that an underground mine in the Lower Phosphate zone could produce 900,000 tonnes of saleable concentrate a year over 19 years. In comparison, the March 2012 prefeasibility study predicted annual production of 800,000 tonnes over 14 years.

Paris Hills’ after-tax net present value (NPV) has doubled to US$360 million — using an 8% discount rate — while the after-tax internal rate of return (IRR) has jumped to 40.2% from 27%.  

“We knew it was a high-quality project, and now we can demonstrate that,” company president and CEO Mark Ashcroft says. “It’s probably a bit unique in the world, with an internal rate of return after tax of better than 40%. You don’t see a lot of projects like that . . . it just brings additional credibility to the management team, and demonstrates we can execute.”

Wayne Cheveldayoff, the company’s vice-president of investor relations, says that the improved economics resulted from several factors, including a 67% increase in reserves, lower initial costs and operating expenditures, and slightly higher assumed phosphate prices.  

Getting Paris Hills to commercial production is expected to cost US$121 million, which is down from last year’s US$149-million estimate.

“That’s a pretty doable number,” Ashcroft says, noting that the junior aims to raise this amount with debt, leasing and equity.
However, anticipated capital to sustain the mine has increased 49% to US$134 million, bringing the total capital expenditures to US$255 million, up US$16 million.

Commenting on the higher capex, Ashcroft says it comes with an extra five years of mine life. He points out that if the total capital is divided by reserves, the cost per tonne equals US$15.25, which is US$9 per tonne lower than before due to the 67% growth in reserves.  

The Lower Phosphate zone contains reserves of 16.7 million tonnes grading 29.5% phosphorus pentoxide, which is up from 10 million tonnes at a similar grade. The new reserve is based on 39 exploration holes drilled on the property, while the earlier estimate was derived from 33 holes.     

Stonegate says the mined material will be “concentrate quality” and ready for shipping, saving the company capital and operating costs related to processing.

The project’s anticipated total operating costs have dropped 5% to US$69.5, while the assumed average product price is up 3% to US$165 per tonne, free on board.

With the feasibility completed, Stonegate can focus on permitting. It expects to receive all key permits by the fourth quarter of 2014, with mine production to follow by the year’s end.

Unlike many commodities, the price of phosphate rock concentrate hasn’t dropped, but has remained flat, while supply concerns are growing given that Syria’s production is off track, Ashcroft says. “The U.S. is a net importer — they need new products, and that is why our project is important to the phosphate industry.”