Elemental Minerals (ASX:ELM) has raised $4.98 million through a private placement to progress its Sintoukola potash projects in the Republic of Congo.
The funds were raised through a private placement priced at $0.20 per share to existing shareholders.
Elemental Minerals’ Projects are high grade and large compared to its peers such as Allana Potash Corp’s (TSX:AAA) Dallol project and Circum Minerals’ Danakil project.
The quality and location of the deposits underpin the margins for its deposits with the Sintoukola projects in the lowest cost quartile of potash projects worldwide.
Dougou has estimated EBITDA margin of US$248 per ton while Kola has an estimated margin of US$232 per ton.
This compares to US$171 per ton for Dallol and US$208 per ton for Mag Industries’ (TSX:MAA) Mengo Potash Project.
Elemental’s Kola and Dougou deposits also have the first and second highest grades respectively, when compared with its peers. Third highest is Karnalyte Resources’ (TSX:KRN, market cap: $20M) while Allana Potash Corp’s (market cap: $163M) Dallol has the fourth highest grades.
Highlighting how quickly potash companies can grow, fellow Australian Highfield Resources (ASX:HFR) has seen its shares grow 77% in the last six months to the current price of $1.32 on the back of its success in Spain.
Highfield has a market capitalisation of $442 million, while Elemental’s currently sits at $74 million.
Elemental has also identified a third project, The Yangala Prospect, where it has drilled two boreholes, both with intersections of over 4 metres grading just under 60% KCl.
An Exploration Target of 235 to 470 Mt was announced earlier this year.
Market Outlook
Global consumption of potash fertilizer has grown over the last decade, primarily in developing markets like Asia and Latin America, which have growing crop production requirements and where potash historically has been under-utilised when compared to scientifically recommended amounts.
Elemental’s dominant location compared with peers along with its favourable estimated EBITDA margin should see the company well placed to supply these markets.
The company’s Dougou deposit has the lowest estimated delivery cost compared with its peers at US$68 per ton, with the next lowest Mag Industries and Allana Potash, both at $US76 per ton. The Kola deposit has the fourth lowest estimated delivery cost at $US91 per ton.
China, the United States, Brazil and India are currently the world’s major potash-consuming countries, which together represent about two-thirds of world potash consumption.
Latin American fertilizer consumption is predicted to grow faster than that of any other region, driven largely by Brazil, the third-largest consumer, which today is heavily dependent on imports.
Despite the generally held positive outlook about increasing fertilizer consumption to help feed the world’s growing population, near-term market conditions are not as appealing for mining projects focused on fertilizer minerals like potash.
Since a fertilizer price boom in the late 2000’s due to rising food prices and scarcity, prices have fallen as farmers consumed less.
The International Fertilizer Industry Association (IFA) predicts growing global surpluses in potash and phosphate over the next few years with supply growth outpacing demand.
Feasibility Studies
Final preparations are now underway to start in August 2015 the Bankable Feasibility Study (BFS) for the Kola Sylvinite Project and the Pre-Feasibility Study (PFS) for the Dougou Carnallite Project.
The Kola BFS is planned for completion in Q3 2016, with the start of construction foreseen in Q2 2017.
The Dougou PFS and environmental social impact assessments are both scheduled to be completed in Q2 2016.
It is anticipated that these studies will further demonstrate the ability of these projects to deliver lowest quartile operating costs and attractive investment returns, reflecting their shallow depth, high quality and favourable location on the coast and in close proximity to the project’s natural market of Brazil.
While Kola remains Elemental’s lead project, Dougou is very compelling given its relatively low start-up capital requirement.
Advancing both projects creates strategic optionality and an emerging potash “province” which includes the Kola, Dougou and Yangala projects all lying within 20 kilometres of each other and with only 25% of the property explored to date.
The company has completed its initial BFS/PFS consultancy selection process for both the Kola and Dougou projects respectively and is developing detailed proposals with the shortlisted companies.
Both studies will incorporate further build-own-operate-maintain (BOOM) infrastructure partners, thereby reducing the project start-up capital.
Elemental has received expressions of interest in this regard for the power supply, gas supply, marine facilities and trans-shipment, the overland conveyor belt, underground mining and the employee facilities.
These will be further developed to commercial terms during the Kola BFS in conjunction with the selected engineering, procurement, and construction management (EPCM) company.
Elemental is also in negotiations with globally significant companies, with interests in the fertiliser sector, pertaining to a sizable investment into the company in the near term, and ultimate off-take of muriate of potash (MOP) once the project(s) are in production.
It is anticipated that these negotiations will be successfully concluded by no later than Q4 2015.
John Sanders CEO comment on raising
John Sanders, chief executive officer, commented: “We are extremely pleased with the continued support expressed by shareholders through this successful private placement, which reflects their recognition of the exceptional quality of the projects.
“Our discussions with companies capable of major funding and MoP off-take are advancing, supported by the successful reduction of the initial capital requirement for the shallow and high grade Kola sylvinite deposit, the company’s flagship asset.
“There is increasing recognition of the high quality of our potash projects and the opportunity they present to achieve the lowest global potash production operating cost and it is looking increasingly likely that a ‘strategic’ investment and off-take agreement will be secured in the near future.
“This would provide a “runway” to production and the build-finance thereof.
“We are ready to start the Kola BFS, which is a significant step in taking this deposit to production.
“The Dougou Deposit is one-step back in the development time-line but forms an integral part of our planned production from this emerging potash province, and will be taken through PFS adding further value for shareholders.”
Potash Projects
The Kola and Dougou deposits are located within the 1067 kilometre Sintoukola Permit. Elemental has higher grades when compared with its junior potash peers and very large deposits in total.
Kola is a large sylvinite deposit with Proved and Probable Reserves of 152 million tonnes of sylvinite ore with an average grade of 31.7% KCl.
Dougou a large carnallitite deposit just 15 kilometres southwest of Kola. It has a Measured and Indicated Potash Resource of 1.1 billion tonnes grading 20.6% KCl.
Both projects are conveniently located to access the available infrastructure in the greater Pointe Noire region.
The national road (RN5) passes within 2 kilometres of the Kola shaft site and through the Dougou deposit.
Pointe Noire is also home to an international airport while the Port of Pointe Noire is one of the largest ports in West Africa and is currently undergoing an expansion of its container terminal.
Elemental intends to offtake power from the Mongo-Kamba II substation, situated in the north of Pointe Noire.
Gas requirements for product drying will be supplied from an offtake point also located at the CEC (Céntraled’Electricité de Congo).
The deposits are located 36 kilometres and 20 kilometres from the coastal processing facility at Tchiboula, where Elemental intends to construct a jetty for product export.
An export jetty is also under construction 60 kilometres to the south of the project at Pointe Indienne, which the company intends to use for export of product during Phase 1.
The Sintoukola Permit also hosts the less advanced Yangala Sylvinite Prospect that is a candidate for the worlds highest-grade potash seam at 55 to 60% KCl.
An exploration target of 235 to 470 million tonnes grading 55% to 60% KCl was announced at Yangala in January this year.
The Hangingwall Seam sylvinite is a candidate for the world's highest grading potash seam.
Analysis
With the $4.98 million private placement, the company is well positioned to progress its Kola and Dougou potash deposits.
In August, the company will start the BFS for Kola and the PFS for the Dougou, which creates strategic optionality and an emerging potash province at its Sintoukola permit.
Notably, the Kola and Dougou deposits as well as the Yangala prospect are all located within 20 kilometres of each other and with only 25% of the property explored to date.
In entering the market, Elemental will have more going for it than good geology and grades. The Sintoukola projects are very well positioned on the coast – even unusually so for projects of their type.
Some peer group projects in Canada and Russia for example, have mines around 1,000 kilometres inland.
Elemental Minerals’ Kola Sylvinite Project and Dougou Carnallite Project are very high grade and large compared to its peers such as Allana Potash Corp’s (TSX:AAA) Dallol project and Circum Minerals’ Danakil project.
The deposit quality and location also underpin margins for its deposits with the Sintoukola projects in the lowest cost quartile of potash projects worldwide.
Dougou has estimated EBITDA margin of US$248 per ton while Kola has an estimated margin of US$232 per ton.
This compares to US$171 per ton for Dallol and US$208 per ton for Mag Industries’ (TSX:MAA) Mengo Potash Project.
Elemental’s Kola and Dougou deposits also have the first and second highest grades respectively, when compared with its peers. Third highest is Karnalyte Resources’ (TSX: KRN, market cap: $19 million) while Allana Potash Corp’s (market cap: $163 million) Dallol has the fourth highest grades.
Highlighting how quickly potash companies can grow, fellow Australian Highfield Resources (ASX:HFR) has seen its shares grow 77% in the last six months to the current price of $1.32 on the back of its success in Spain.
Highfield has a market capitalisation of $442 million, while Elemental’s currently sits at $74 million. Highfields lead project, Muga, has a total resource grade of 18.2% KCl versus 32.8% KCl for Kola and Kola is over three times the tonnage.
Therein is the opportunity for investors in Elemental Minerals.
Key catalyst re-cap:
- Selection of Lead Consultant for the Kola Bankable Feasibility Study and Dougou Pre-feasibility study;
- Start of drilling on Dougou and then Kola to support the accuracy of the study work;
- Finalise discussions with potential strategic partners, which are anticipated to culminate in an investment and off take agreement;
- Selection of a Project Finance Advisory to structure the debt and equity finance for the Kola implementation; and
- Completion of Dougou and ESIA and PFS to enable the application for a mining license.
Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.