Private equity’s big African potash play
Mining finance and investment
First phase of Circum project to ‘generate $1bn per annum in revenue’. Partners optimistic about business in Ethiopia.
Warren Dick | 25 May 2015 17:45
Circum Minerals Potash Project, which is being advanced in the Danakil Basin of eastern Ethiopia, will be fully funded by private equity investors from development all the way through to production. “We don’t think in the current environment the public markets would entertain something like this, as they are struggling to finance big projects. So we would prefer to deal with strategic investors,” says Brad Mills, founder and managing director of Plinian Capital, which has an interest in the project.
To date, the partners have funded the project to the tune of $50 million. Besides Plinian, Circum shareholders include founders Stephen Dattels and Mike Beck, as well as private equity fund African Minerals and Development. The partners are looking to introduce new investors as they aim to raise a further $30 million for post-Definitive Feasibility Study (DFS) value adding studies and to buy out early high net worth investors. “With the completion of the DFS in July we will apply for our mining license and start work on phase 2 studies targeting doubling of the project size to 5 million tonnes per annum. Most of this work will be targeted at water resources and infrastructure,” says Mills.
Metrics
The first phase of the project, which is targeting start of production in the second half of 2018, will look to produce 2.75 million tonnes per annum of potash (Mtpa); consisting of 2mtpa muriate of potash (MOP) and 750,000 tonnes per annum of sulphate of potash (SOP).
The current NI 43-101 compliant Mineral Resource Estimate, which has tested about 35% of the license area to a depth of 400 meters, consists of 2.6 billion tonnes of Measured and Indicated material grading, on average, 19.2% potassium chloride (the average of the Sylvinite layer, Upper and Lower Carnallite layers and the lower Kainitite layer) and 1.6 billion tonnes of Inferred material grading on average 17.1% potassium chloride. The geologic estimate of the endowment of the remaining 65% of the project area is an additional 7-9 billion tonnes to a depth of approximately 800 metres.
Economics
Mills says the partners started out with a clear idea of where a competitive project needed to be located. “We were looking for a project on the East African coast, to feed into the 18 million tonnes per annum Asian market, which accounts for one-third of the total seaborne trade,” says Mills.
“Phase 1 capital will require $2 billion, which we think will generate $1 billion per annum in revenue. This is predicated on obtaining between $320-$350/tonne for MOP and $600-$650/tonne for SOP,” says Mills. The price for potash is determined by annual negotiations between suppliers and consumers.
In terms of costs of production, Mills is confident Circum will be one of the lowest cost producers around. “These projects will all be within the first quartile of the cost curve, with the cost to mine between $75 – $100/tonne. It will cost a further $20 – $30/tonne to truck and put it on the water,” says Mills. The majority of potash will be mined at a depth of 100-450m and 6-10m seams of potash will be extracted through solution mining. “We have tremendous evaporation potential due to temperatures on the site that average 40 degrees Celsius year round,” says Mills.
From the port in Djibouti, Mills estimates it will cost $10/tonne to ship to India, and $20/tonne to get it to China. “So we think most of the product we produce will find a home in India,” says Mills.
Mills says Ethiopia is open for business. “Currently there are some active gold mines in the country. We will pay a 4% royalty on potash mineralization, together with income tax, and the government gets a 5% carried interest.”
To date, the partners have funded the project to the tune of $50 million. Besides Plinian, Circum shareholders include founders Stephen Dattels and Mike Beck, as well as private equity fund African Minerals and Development. The partners are looking to introduce new investors as they aim to raise a further $30 million for post-Definitive Feasibility Study (DFS) value adding studies and to buy out early high net worth investors. “With the completion of the DFS in July we will apply for our mining license and start work on phase 2 studies targeting doubling of the project size to 5 million tonnes per annum. Most of this work will be targeted at water resources and infrastructure,” says Mills.
Metrics
The first phase of the project, which is targeting start of production in the second half of 2018, will look to produce 2.75 million tonnes per annum of potash (Mtpa); consisting of 2mtpa muriate of potash (MOP) and 750,000 tonnes per annum of sulphate of potash (SOP).
The current NI 43-101 compliant Mineral Resource Estimate, which has tested about 35% of the license area to a depth of 400 meters, consists of 2.6 billion tonnes of Measured and Indicated material grading, on average, 19.2% potassium chloride (the average of the Sylvinite layer, Upper and Lower Carnallite layers and the lower Kainitite layer) and 1.6 billion tonnes of Inferred material grading on average 17.1% potassium chloride. The geologic estimate of the endowment of the remaining 65% of the project area is an additional 7-9 billion tonnes to a depth of approximately 800 metres.
Economics
Mills says the partners started out with a clear idea of where a competitive project needed to be located. “We were looking for a project on the East African coast, to feed into the 18 million tonnes per annum Asian market, which accounts for one-third of the total seaborne trade,” says Mills.
“Phase 1 capital will require $2 billion, which we think will generate $1 billion per annum in revenue. This is predicated on obtaining between $320-$350/tonne for MOP and $600-$650/tonne for SOP,” says Mills. The price for potash is determined by annual negotiations between suppliers and consumers.
In terms of costs of production, Mills is confident Circum will be one of the lowest cost producers around. “These projects will all be within the first quartile of the cost curve, with the cost to mine between $75 – $100/tonne. It will cost a further $20 – $30/tonne to truck and put it on the water,” says Mills. The majority of potash will be mined at a depth of 100-450m and 6-10m seams of potash will be extracted through solution mining. “We have tremendous evaporation potential due to temperatures on the site that average 40 degrees Celsius year round,” says Mills.
From the port in Djibouti, Mills estimates it will cost $10/tonne to ship to India, and $20/tonne to get it to China. “So we think most of the product we produce will find a home in India,” says Mills.
Mills says Ethiopia is open for business. “Currently there are some active gold mines in the country. We will pay a 4% royalty on potash mineralization, together with income tax, and the government gets a 5% carried interest.”
Private equity's big African potash play - Mineweb
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