Robin Phinney thought he had put a successful career as a chemical engineer behind him, but the search for the world’s next great potash deposit proved too enticing to resist.
So rather than rest on his laurels, Phinney shouldered the task of guiding Karnalyte Resources (KRN-T) towards building Saskatchewan’s next significant potash mine.
But the project which Karnalyte now holds, the Wynyard Carnallite potash project, signifies more than a rejuvenation of Phinney’s career, it represents a re-visiting.
Phinney spent 16 years as a chemical engineer at Potash Corp. of Saskatchewan (POT-T, POT-N) and during his tenure came across Wynyard, sitting roughly 100 km east of PotashCorp’s Lanigan potash mine in central Saskatchewan.
“I found the deposit in the mid-80s and tried to get PotashCorp into it. But they didn’t want it,” he says.
The reason for PotashCorp passing on it had to do with the potash at Karnalyte being hosted in, as the name suggests, carnallite instead of the sylvinite deposits that PotashCorp was more familiar with mining.
After PotashCorp passed, the Karnalyte property was left dormant for decades.
And it may have stayed that way for many decades more if it hadn’t been for Phinney thinking of it when searching for a magnesium chloride deposit to develop a proprietary cement for the oil and gas industry. Karnalyte, Phinney remembered, hosted magnesium chloride along with the potash.
Eager to see what modern drill results would yield, then privately held Karnalyte Resources, put two drill holes into the ground in 2008 to see if results from the 1950s that returned 2 metre-thick deposits of carnallite could be improved upon.
Early results were promising as the first core hit 14 metres of carnallite while the second returned 28 metres.
And when assays showed that mineralization was already in brine – making extraction all the easier – Phinney knew he had a potential solution-mining operation on his hands and left the cement ambitions by the wayside.
Two years later, Karnalyte completed a preliminary assessment report which outlined indicated resources of 56.2 million tonnes potassium chloride (KCl) and inferred resources of 186.3 million tonnes KCl, with average potassium oxide grades ranging between 8.1% and 12.2%.
And Phinney believes there are much more resources on the way.
“We’ve already initiated a major drill program of nine holes, four of which are complete,” he says. “We’ll be finished the drill program in four to five weeks and I expect a massive increase to the resource estimate… the core coming up looks spectacular.”
With such potential some may wonder why PotashCorp would have passed on the project almost 30 years ago.
Phinney says it had everything to do with the carnallite, which turns into brine on contact with air. For that reason it makes mining a sylvinite-carnallite deposit more costly.
But, he adds, such a higher-cost structure only holds true when carnallite is present in a predominantly sylvinite deposit.
When a deposit is mainly carnallite, such issues are no longer a concern and in fact, he says, carnallite deposits offer the advantage of lower operating cost thanks to less water evaporation per tonne, and the magnesium chloride credits.
“It will be a high-grade in-situ operation,” Phinney explains. “And we’ll have perfect control of the extraction process as we can run the water temperature up to enhance dissolution. It’s like pumping a big water bed, 120 sq. miles (310 sq. km) and it is absolutely uniform from top to bottom.”
But what about the magnesium chloride that initially drove Phinney’s interest in the project?
Well, it is still there and the market for the product is strong once it is turned into magnesium oxide. Magnesium oxide is used in the manufacturing of industrial furnace bricks for the steel industry and sells for roughly US$550 per tonne.
With a mineralized body that will likely produce 2 tonnes of magnesium oxide for every 5 tonnes of potash, Phinney maintains there is enough of it to cover the costs of extracting the potash.
With such enticing economics, the company has built an aggressive agenda for itself.
Next on the to-do list is getting a feasibility study finished. Karnalyte plans to spend $30 million this year on the study and related drilling and exploration. It expects to have the study completed by year end.
If the feasibility study is positive, Phinney says it will take between 18 and 24 months to build a plant with a full run rate of 500,000 tonnes of KCl per year. Total capex is estimated at $409 million.
But the company doesn’t want to stop there, as the larger plan is to move up to a production rate of 2 million tonnes of KCl production per year.
“We’re going full speed ahead to get the potash into production,” Phinney says. “Then we expand to 2 million tonnes of potash over a five- to six-year interval, and we’d be bringing on the magnesium oxide production within that timeframe.”
According to Dundee Securities’ analyst Richard Kelertas, such a transition should be made smoo-ther given both the lower capex requirements of solution mining versus conventional shaft mining, and the company’s ability to generate operating cash flows early on to help finance later expansion.
As for the market’s willingness to back such a large-scale project, the early indications are positive. Investors signaled their optimism by forking over $60 million as part of Karnalyte’s initial public offering last December.
Phinney believes that the project’s fundamentals, when combined with the macro story on future food supply, will continue to have investors keen to partake in developing the project.
“We are going into a period of severe fertilizer shortages for the next 10 to 15 years,” he says. “It might scare you to find out that with the current number of years of food supply, all we need is a couple of crop failures and we are into a place, where we’re thinking famine.”
Phinney reckons that demand for fertilizer will grow significantly over the next 15 years and the industry will need to supply 8 million to 20 million more tonnes of potash production by 2030.
Currently, 52 million tonnes of potash is being consumed per year.
I wonder if it’s possible to bind another fertilizer, such as nitrogen, to the potash brill? This might eliminate multiple passes or extra equipment purchases for the farmers/golf courses.