Potash Ridge’s SOP story in Utah

VANCOUVER — A prefeasibility study suggests Potash Ridge’s (TSX: PRK; US-OTC: POTRF) Blawn Mountain project in Utah could be transformed for US$1.1 billlion into an economic, long-life, open-pit mine producing high-quality potash.

Blawn Mountain is home to alunite, a mineral made of sulphate, potassium and aluminum that occurs in potassium-rich volcanic rocks. The alunite at Blawn Mountain can be processed to produce three marketable substances: sulphate of potash (SOP), sulphuric acid and alumina.

SOP is the main goal. A less common form of potash, SOP is used as a fertilizer instead of muriate of potash (MOP) whenever chloride ions are undesirable. This is the case with tobacco, nuts, tea and some fruits and vegetables, as well as in places where irrigation water already carries considerable chloride.

“SOP is a premium potash product that trades at a significant premium over regular potash,” said Guy Bentinck, Potash Ridge’s president and CEO, in a conference call. “The market for SOP is not really subject to a lot of the dynamics that you may be familiar with in terms of regular potash, largely because there is a significant undersupply of the product.”

Potash Ridge wants to feed that under-supplied market. At present there is only one SOP producer in the U.S., and it cannot meet demand. Farmers in the U.S. consume 350,000 tonnes of SOP annually, of which almost a quarter is imported.

SOP usually commands a premium over MOP, but this situation of constrained supply means U.S. farmers pay an even larger premium for SOP. In the third quarter of 2013, the average SOP price in the western U.S. was US$646 per ton, or 130% above the average MOP price.

To take advantage of North American SOP demand, Potash Ridge is pushing Blawn Mountain ahead as quickly as possible. A year ago the company released a preliminary economic assessment (PEA) for the project. The focus since then has been on optimizing the processing flow sheet, which is apparent in the new prefeasibility study.

The study outlines an open-pit mine churning out 10.4 million tons (9.4 million tonnes) of ore annually to produce an average 585,000 tonnes of SOP each year. The process would also produce 1.3 million tonnes of sulphuric acid annually.

Reserves defined to date could feed such an operation for 40 years. The reserves, which total 386.4 million proven and probable tonnes of alunite, are contained within two zones, known as Areas 1 and 2. Two more mineralization zones — Areas 3 and 4 — have seen limited modern exploration but offer potential for resource expansion.

To transform alunite into SOP and sulphuric acid, a facility at Blawn Mountain would first crush and grind the ore. Next the ground material would be thickened and filtered, and then calcined. Hot water would then be used to leach SOP from the calcined material.

The leach slurry would be filtered and the dissolved SOP recovered and recrystallized. The SOP would then be ready for drying, compacting, packaging and load-out. Meanwhile the alumina-silicate leach residue would be deposited in a free-draining stockpile. Sulphuric acid would be recovered from the off-gases.

Using an average SOP price of US$649 per ton over the 40-year project life and a 10% discount rate, Blawn Mountain carries an after-tax net present value (NPV) of US$1 billion and would generate a 20.5% after-tax internal rate of return.

The project’s expected capital costs to total US$1.12 billion, most of which — US$954 million — would go towards the process plant. For that investment Potash Ridge could produce a ton of SOP of US$218, including royalties. Contained operating costs mean the project could repay its sizable capital cost in five years.

There are a few caveats to consider around the Blawn Mountain capital-cost estimate. Importantly, the project would also require another US$641 million for utilities and infrastructure. Potash Ridge excluded these requirements from the capital cost because the company is pursuing deals with third-party providers, which would finance, build, own, operate and maintain these installments. The list includes contract mining operations, a natural gas pipeline to the mine, the sulphuric acid plant and water-production facilities.

Those are some significant needs, but Blawn Mountain is well located in terms of infrastructure. Sitting 90 km northwest of Cedar City, Utah, Blawn Mountain covers some 50 sq. km of state-owned land. Operating on state-owned land means a simpler permitting process and defined leasehold and royalty agreements. In fact, royalties from the project would be used to fund education in Utah.

The Union Pacific Railroad passes within 30 km of the property and there are several highways nearby. There are also two nearby natural gas pipelines.

The alunite deposits at Blawn Mountain have historically been viewed as an alumina source. In the 1970s a consortium came close to developing Blawn Mountain into an alumina mine. At that time almost all the alumina-feeding U.S. smelters came from imported bauxite, as is still the case today. However, by the early 1980s a collapse in global alumina prices and challenging financing conditions brought Blawn Mountain to a halt.

Alumina is no longer the key commodity at Blawn Mountain. The shift of focus from alumina to SOP meant the historic metallurgical process that Potash Ridge used in the Blawn Mountain PEA needed some updating.

In the year since that PEA, Potash Ridge completed several rounds of metallurgical test work and the result is a refined-processing flow sheet that is more economical and environmental.

The biggest change was eliminating the beneficiation step. Alunite beneficiation included grinding ore to 80 microns and floating it to separate off gangue silica. Eliminating this step requires a more expensive and complex calcination facility, but that cost is countered by a simpler and less expensive crushing and grinding facility, because ore need only be ground to 1,000 microns.

From an operating-cost perspective, not beneficiating the alunite reduces energy and reagent requirements. The tailings process is also simplified, because larger tailing particles can be stored in a free-draining pile, instead of a wet-tailings impoundment.

Producing by-product sulphuric acid also aids Blawn Mountain’s economics. Potash Ridge has already inked a memorandum of understanding with an operating Utah mine to provide the mine with sulphuric acid for US$150 per ton. This deal will place 20% of the acid produced at Blawn Mountain. Potash Ridge expects that new mines and planned mine expansions in the area will mean more than enough demand for the rest of Blawn Mountain’s acid.

The feasibility study did not consider revenue from selling alumina-containing leach residues. Test work completed to date suggests these residues could be used instead of bauxite to feed Bayer aluminum facilities or as input for ceramic proppants, though more study is needed.

The company is aiming to earn all necessary permits by the end of 2015. If that happens, mine construction would start in 2016 and the operation would reach full commercial production in 2019.

But this timeline assumes Potash Ridge can access the billion dollars needed to build Blawn Mountain. To that end the company says it is “pursuing strategic partners and funding arrangements.”

On news of the Blawn Mountain study, Potash Ridge’s share price fell 2.5¢ to close at 17¢. The company, which has $10 million in the bank, has a 52-week share price range of 10¢ to 97¢, and 82 million s
hares outstanding.