Potash One purchases long lead time equipment to take advantage of lower prices

To take advantage of the economic slowdown, cheaper materials and labour, and hedge against inflation, Potash One (KCL-T) is buying some of the equipment it needs for its Legacy Potash solution mine in southern Saskatchewan sooner rather than later.

Commissioning and start-up of the mine is scheduled for the fourth quarter of 2013, but Potash One has already placed its first order for the long-delivery alloyed materials that are needed to fabricate the evaporation/crystallization equipment.

“Prices and delivery times are substantially less than they were one year ago,” the company explained in a press release. “Further, as the world-wide economic recovery progresses and nickel prices start to rise, the cost of these alloys will only increase.”

The purchase of the specialty clad plate material also allows Potash One to take advantage of reduced pricing and readily available shop space that suppliers are currently offering.

The evaporation/crystallization plant is the core of the Legacy processing facility, which is being designed and supplied by Whiting Equipment Canada. The initial order of Inconel(TM)-clad steel plate will allow Whiting to deliver major equipment to the Legacy site beginning in 2012.

Solution mining involves using hot water to dissolve minerals from a geological core zone into solution through directional or vertical boreholes or abandoned underground mine workings. The solution is then pumped back to the surface where the potash is crystallized and purified into the finished product.

The Legacy potash project is about 80 km northwest of Regina and immediately adjacent to Mosaic’s (MOS-N) Belle Plaine potash solution mine, the largest potash solution mine in the world.

Potash One owns 100% of the 972-sq.-km Legacy project, which has a National Instrument 43-101 compliant measured resource of 29 million tonnes grading 25.8% recoverable potassium chloride.

Legacy also has an indicated resource of 222 million tonnes grading 26.3% potassium chloride and an inferred resource of 853 million tonnes grading 23.8% potassium chloride.

The company launched a full feasibility study in October 2009. A June 2009 prefeasibility study, however, demonstrated positive economics, including an initial mine life of 40 years and annual potash production of 2.5 million tonnes of potassium chloride.

Capital costs were estimated at US$1.87 billion with an after-tax payback period of 3.3 years. The after-tax and royalty internal rate of return (IRR) was projected to be 30.1% with a net present value (NPV) after tax at a 10% discount rate of US$4.47 billion.

At presstime, Potash One’s share price was $2.99, trading within a 52- week range of $1.51-$3.87. The company has 80.84 million shares outstanding