Mr. James Walchuck reports
ENCANTO ANNOUNCES POSITIVE PRE-FEASIBILITY STUDY FOR MUSKOWEKWAN PROPERTY
Encanto Potash Corp. has completed an independent positive prefeasibility study prepared by Novopro Projects Inc. for the Muskowekwan
property in Southern Saskatchewan.
The prefeasibility study confirms that the project has significant positive economics and
that the resource is of sufficient size as well as grade to support
primary and secondary mining for over 50 years with muriate of potash
production rate of 2.8 million tonnes per year.
The prefeasibility study's economic model for the project generated an internal rate of
return of 19.1 per cent (20.4 per cent before taxes) and a net present value of $3.63-billion ($4.47-billion before taxes), yielding a project payback period
of five years. A list of assumptions used in the model are shown in
the attached table.
SUMMARY OF FINANCIAL MODEL
Realized potash price (FOB Vancouver) $460/t standard
$485/t granular
Discount rate 10%
Inflation rate 2%
Operating expenditures at full capacity
(includes utilities, labour, maintenance,
reagents, fuel, insurances and municipal taxes) $54.32/t
Sustaining capital cost
(includes brine field and tailing management
area extensions) $32.21/t
Logistics costs (rail and port) $50.50/t
Taxes and royalties
(includes potash production tax, Crown royalty
and Saskatchewan resource surcharge, average
over the life of the project) $64.76/t
Initial capital expenditures $2.86-billion
(includes contingency and escalation)
Deferred capital expenditures $130-million
All capex and opex costs are in Canadian dollars;
revenues are in U.S. dollars
(U.S.-dollar-to-Canadian-dollar
exchange assumed as one)
Annual production rate 2.8 million tonnes of
K62-grade potash (98% KCl)
Construction start date Q2, 2014
Mine start-up Q1, 2017
Lifespan of project 50 years plus
Jim Walchuck, Encanto's president and chief executive officer, commented: "This
prefeasibility study confirms the economic robustness of the
Muskowekwan project and highlights our flagship property as an
attractive potash project. This is a major milestone in the company's
intention to develop the Muskowekwan project into a significant
producing potash mine. I would like to express the company's sincere
appreciation to the company's employees and consultants who worked on
the study, and made it possible to move the project towards the next
stage of its development."
Capital and operating cost estimates were generated with a target
accuracy of plus or minus 20 per cent, typical for this level of study. The initial capital expenditure estimate for the plant is $2.86-billion, and includes estimates for
water supply, gas pipeline and a cogeneration plant, and includes a
contingency and escalation of $460-million.
The operating costs were estimated at $54.32 per tonne at full-production
capacity. This number includes utilities, labour, maintenance, reagents
(including fuel), insurances and municipal taxes. It does not include
royalties, potash production taxes or federal/provincial income taxes,
which are estimated at $64.76 per tonne. The logistical costs estimates of
$50.50 per tonne were provided by existing carriers and port facilities with
capacity to serve this project. Sustaining capital costs were
estimated at $32.21 per tonne at full production, and include well-field
extension and tailing management area.
Novopro is a Canadian-based project development and implementation
company servicing the mining and metallurgical industries, specializing
in the potash sector with industry-leading expertise in solution-mining-related projects.
Mineral reserve estimate and mineral resource update
The attached table presents proven and probable potassium chloride (KCl) reserves of 161.96 million tonnes. The
mineral reserves shall be discussed in more detail in a National Instrument 43-101
report that supports this news release as required by the Canadian
securities regulation.
PROVEN AND PROBABLE RESERVES
(in millions of tonnes)
Member In-place KCl(1) KCl reserves(2)
Patience Lake
Proven 20.77 18.65
Probable 82.17 70.67
Belle Plaine
Proven 17.35 15.58
Probable 66.36 57.07
Total proven reserves 38.13 34.23
Total probable reserves 148.54 127.74
Proven and probable reserves 186.66 161.96
(1) Based on cavern tonnages minus 15-per-cent
cavern recovery loss;
(2) Reserves account for unknown anomalies (5 per cent
for proven and 9 per cent for probable) and plant
recovery of 94.5 per cent (including downstream
losses). These reserves are based on 100 per cent
KCl and do not account for the K2O or KCl grade
of the product actually sold.
Notes:
- Proven radius of influence of 800 metres;
- Probable radius of influence of 2,000 metres.
The mineral reserve estimate was prepared by Agapito Associates Inc.
of Grand Junction under the direction of qualified person Dr.
Michael P. Hardy, PE, PEng.
The mineral reserves discussed in the table were obtained from a mine plan
covering the areas of measured and indicated resources surrounding
seven of the eight wells advanced for this project. Mineral resources
outside the areas containing reserves are presented in the attached table.
RESOURCE SUMMARY
SOLUTION-MINING RESOURCE SUMMARY (INDICATED)
Member Weighted In-place Net KCl
average KCl sylvinite resource
grade (%) resource (mmt) (mmt)
Patience Lake 26.74 217.92 19.40
Belle Plaine 30.71 116.55 11.91
Total excluding interbed 334.47 31.31
Weighted average
excluding interbed 28.12
SOLUTION-MINING RESOURCE SUMMARY (INFERRED)
Member Weighted In-place Net KCl
average KCl sylvinite resource
grade (%) resource (mmt) (mmt)
Patience Lake 29.57 838.08 82.48
Belle Plaine 29.48 776.68 76.21
Total excluding interbed 1,614.76 158.69
Weighted average
excluding interbed 29.53
Notes:
1. Mmt refers to millions of metric tonnes;
2. Density of sylvinite equals 2.08 tonnes per cubic metre;
3. In-place sylvinite is calculated based on area
multiplied by thickness multiplied by density (2,080
kilograms per cubic metre);
4. Net resource is based on a 41.6-per-cent extraction ratio
and 20-per-cent plant-and-cavern loss;
5. Weighted average thickness and KCl are weighted to
in-place tonnage;
6. The 8-14 interbed salt was thin so it was included in
the PLM resource interval;
7. Indicated resource radius of influence of 2,000 metres;
8. Inferred resource radius of influence of 5,000 metres.
The resource estimate was provided by Saskatchewan-based North Rim
Exploration Ltd., and the qualified person is Tabetha Stirrett, PGeo.
The study includes all facilities, infrastructure and utilities to
produce potash via the solution-mining method. This includes a two-train hybrid evaporation plant, a crystallization plant, drying,
storage and a load-out facility. The project also includes a
cogeneration plant to produce both the electricity and steam, which
improves efficiency and allows for a lower overall carbon footprint.
The design details are sufficient to allow the capital-cost estimate to
adhere to the requirement of AACE (Association for the Advancement of
Cost Engineers) Class 4 standard.
The prefeasibility study provides a high degree of project definition, building on the
preliminary economic assessment completed in 2011. Study experts were
retained by Encanto and Novopro to refine the project, including Agapito
Associates Inc. (mining design and reserve estimate), North Rim
Exploration Ltd. (resource estimate), Stantec Consulting Inc.
(environmental impact assessment), MDH Engineered Solutions Corp., a
member of SNC-Lavalin Group (tailing management area design), NG
Consulting (dissolution test work), Institut fur Gebirgsmechanik GmbH
(IfG) and RESPEC Consulting Services (geomechanical test work).
Using these specialized companies resulted in a prefeasibility study that is both
detailed and thorough.
An environmental impact study has been initiated to capture all
environmental, heritage and historic aspects required by the regulators
to obtain construction permitting. The environmental impact study is scheduled for completion
in the third quarter of 2013. The prefeasibility study is based on environmental constraints mapping of
the available Muskowekwan First Nation lands to site the plant,
which was complemented by the following trade-off studies: 1) site
selection alternatives, 2) solution-mining cavern temperature, 3)
evaporation crystallization process, 4) cogeneration, and 5) logistics
and port.
No significant limitations were identified, and the strong economic
outcome results in a recommendation to fast-track toward a feasibility
study as soon as possible.
The technical content of this news release has been reviewed by Jim
Walchuck, PEng, a qualified person as defined by NI 43-101.
We seek Safe Harbor.
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