Western Potash may move Milestone Potash project straight to feasibility after positive numbers in scoping study

by Ian Mclelland

Western Potash (TSX-V: WPX) said it was considering the possibility of consolidating the pre-feasibility and full feasibility studies for its Milestone potash project after receiving highly encouraging scoping study results from engineering group AMEC.

The Milestone property, which is 100% held by Western Potash, covers 500 square kilometers of ground southeast of Mosaic's Belle Plaine Mine, one of the largest producing potash solution mines in the world. Milestone currently hosts a potash resource of 41 million tonnes of Measured Resource (contained KCl), 133 million tonnes of Indicated Resource, and 560 million tonnes of Inferred Resource.

Highlights from the scoping study released today included 2.5 million tonnes of KCI production per year for a initial mine life of 40 years and an after-tax and royalty internal rate of return (IRR) of 27.3%. The study estimated a total project capital cost of CAD$2.51 billion and project unit operating cost of CAD$62.90 per tonne. The Net Present Value (NPV10) was estimated to be CAD$5.22 billion, with an after tax payback period of 7.3 years. AMEC based its estimates on a flat US$ exchange rate and a long term potash price of US$511 per tonne. Tax and royalties were calculated using a flat rate of CAD$28.90 per tonne.

“This Study confirms that the Milestone resource shows significant positive economics and that the asset is of sufficient size and grade to support solution mining for more than forty years at a production rate of 2.5Mt/yr. The annual production rate can be expanded to a higher annual production rate, achievable through a higher level of capital expenditure. The Company cautions that mineral resources that are not mineral reserves do not have demonstrated economic viability,” Western Potash stated this morning.

The junior potash developer also reported that AMEC had recommended the immediate commencement of a pre-feasibility study, but the company was weighing up the possibility of consolidating the pre-feasibility and full feasibility studies into one final feasibility study. By doing so, Western Potash would cut down the timescale to reach a production decision and starting the process of securing project finance.

"Not only does the Study show that the project is technically feasible and economically positive, it also shows that our favorable formation temperatures contribute to reduce our production costs by approximately 10%. We believe these features identify Milestone as one of the largest and best Tier 1 potash, greenfield, solution deposits, still available in the world today, that are ready for development. Our team has already started planning further studies that will further "de-risk" the project and allow for the construction of a mine at Milestone,” Patricio Varas, CEO and President of Western Potash added.

Shares in Western Potash, which have nearly doubled on recent weeks in part due to M&A activity in the sector, slipped in early deals this morning as some investors banked strong recent gains.