-- adds broker comment--
Premier African Minerals (LON:PREM) has noted the US$2.1bn value in the definitive feasibility study published by Circum Minerals for the Danakil Potash deposit in Ethiopia.
Premier African has a 2% stake in Circum after it sold it Danakil in 2013 for US$5mln cash and a further 2mln shares.
What was especially important to Premier, it said, and as well as the project’s US$2.1bn net present value (NPV), was Circum’s decision to appoint a major international investment bank to advise on the strategic alternatives.
A number of Asian and Middle Eastern groups had expressed an interest in the project, it said.
House broker Shore Capital estimates Premier's Circum may be worth £27.1mln or 3.97p/share.
Plinian Capital, managed by well-known mining entrepreneur Brad Mills, is operating Danakil.
"The Danakil Project is expected to be one of the largest potash projects in the world.
“With its large scale, low cost profile it is on track to become the world's lowest cost potash producer and a major supplier to the Asian and South East Asian markets," said Mills.
Current plans are for a staged development with phase 1 to cost US$2.58bn and each year to produce 2mln tonnes of MOP, the most common form of potash used in farming, and 750,000 tons of the alternative SOP.
Total resources are estimated at 4.9bn tonnes at 18.1% KCl (potassium chloride) with proven and probable reserves of 107.8 mln tonnes of KCl equivalent.
That level of reserves would support a 26 year mine life for Phase I, with a three year ramp-up period
Production costs would be in the lowest quartile at the mine gate at US$39/t of MOP and US$114/t of SOP.
Shore added: “There is potential for multiple phases to be constructed, with a scoping study to roughly double production to 5Mtpa expected to be completed in 2016.
“If just two phases were built, simple multiplication would suggest a value of £54.1m or 7.9p/share – but in reality, we expect that operating and capital synergies would result in a higher value.
In any case, we note that just the Phase 1 value alone already exceeds Premier’s current share price.”
The broker added that capital per tonne was much lower than planned projects in Canada and Belarus.
A mining licence to be granted in this half-year, which Shore said would be key to any development deals.
Shares rose 3% to 2.6p.