Mr. Sidney Himmel reports
IC POTASH TO ADVANCE OCHOA SOP PROJECT ON POSITIVE FEASIBILITY STUDY RESULTS
IC Potash Corp. has successfully concluded an independent feasibility study for its 100-per-cent-owned sulphate of potash Ochoa project located in southeast New Mexico. All dollar amounts in this press release are U.S. dollars and all tons are short tons.
The study projects an economically viable mining and processing facility with the capacity and reserves to produce 714,400 tons of SOP per year for a minimum of 50 years. The study recommends that the company move to implementation by:
- Commencing engineering, procurement and construction management activities;
- Completing environmental permitting;
- Arranging project financing.
The study was prepared by a group of leading international independent engineering, process design and equipment supply companies led by SNC-Lavalin Inc. SNC-Lavalin is a world leader in the consulting, design, engineering and construction of mining projects around the world, with specific expertise in potash mining, processing and distribution.
Sidney Himmel, president and chief executive officer, stated: "This feasibility study evaluated all aspects of our plan to produce SOP from our polyhalite mineral reserves. We are pleased with the technical validation of the mining and processing design, and the resulting economic characteristics. The Ochoa project positions ICP to become a world leader in SOP production and a bottom-quartile-cost SOP producer. We intend to begin immediately with the next phases of engineering and financing."
FINANCIAL RESULTS
Full equity basis (that is, no debt) Before tax After tax
Capital cost $1,018-million $1,018-million
Operating cost per ton SOP at steady state $195 $195
Internal rate of return 17.8% 16.0%
Net present value, 8-per-cent discount factor $1,502.3 $1,018.9
NPV, 10-per-cent discount factor $942.7 $612.0
Payback period - 5.4 years
The financial model covers approximately three years of construction and commissioning beginning in the second quarter of 2014 and continuing through the second quarter of 2017, followed by 50 years of operation. SOP production in 2017 is estimated at 48 per cent of annual capacity, with full capacity expected in 2018. In the financial model, no inflation or escalation factors were applied to cash inflows and outflows.
After-tax IRR is sensitive to capital cost, operating cost, and revenue assumptions.
AFTER-TAX IRR SENSITIVITIES
Input variable to financial model -20% -10% Base case +10% +20%
Capital cost 19.3% 17.5% 16.0% 14.7% 13.6%
Revenue 11.3% 13.8% 16.0% 18.1% 20.1%
Operating cost 17.8% 16.8% 16.0% 15.1% 14.2%
Capital cost
The capital cost of the project is estimated to be $1,018-million, with an accuracy of plus or minus 15 per cent. Preparation of the capital cost estimate is consistent with standards defined by the Association for the Advancement of Cost Engineering International for a Class 3 estimate.
ESTIMATED CAPITAL COST BY MAJOR AREA
(millions)
Mine infrastructure and development $ 107
Process plant 527
Storage and loading 37
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Total direct costs 671
------
EPCM services 99
Construction indirect 22
Freight, spares and first fills 34
------
Total indirect costs 155
------
Owner costs 80
Contingency 112
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Project total $1,018
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Operations
Operating costs are based on scheduled production, equipment requirements, operating hours, equipment operating costs and manpower requirements. Steady state has been defined as the operating years from 2022 through 2065. Steady state years generally exclude major one-time costs that are included in years 2017 through 2021, such as start-up activities, equipment rentals, initial receding face expenditures and inventory adjustments.
ESTIMATED OPERATING COST PER TON OF SOP
Steady state production 714,400 tons per year of SOP
Mining cost per ton $ 78
Processing cost per ton 108
General and administrative cost per ton 9
-----
Total operating cost per ton $ 195
% of operating cost -- labour 24.8%
% of operating cost -- electricity 24.5%
% of operating cost -- natural gas 20.7%
Sustaining capital per ton per year $ 40
The plant is designed to operate 7,912 hours annually and employ approximately 400 people at full production. The plant model projects a K2O process recovery of 82.2 per cent based on the pilot testwork carried out by independent consultants and equipment providers. As a result of the pilot testwork, the study projects an SOP product with potassium content, or K2O equivalent, between 50.3 per cent and 53.7 per cent.
Energy costs for the project were obtained from public domain sources. Xcel Energy, the local electricity supplier, provided rates under regulated tariffs for transmission and subtransmission voltages. Transmission power costs were estimated at 3.46 cents per kilowatt-hour and subtransmission rates at 3.48 cents per kilowatt-hour, plus associated demand charges.
Natural gas pricing was estimated at $3.69 per million British thermal units based on the El Paso hub, which is the appropriate index given its proximity to the project. Also, the hub's natural gas characteristics, such as heat value and moisture content, are the same as those of the natural gas that will be used at the plant. Diesel fuel pricing was based on the Rocky Mountain Index for No. 2 diesel, estimated at $3.95 per gallon.
Revenue assumptions
SOP prices, based on projected grades, are FOB Jal, N.M., and net of other sales-related expenses. A.J. Roth and Associates, a U.S. fertilizer consulting company with international expertise in potash and phosphates, provided pricing estimates by grades and receiving locations for the study. The relevant SOP grades are standard, granular and soluble. Upon full production of the estimated 714,400 tons per year, the product mix is projected to be 229,400 tons of standard SOP, 385,000 tons of granular SOP, and 100,000 tons of soluble SOP. The weighted average FOB Jal SOP price used in the financial model was $636 per ton. As reported in Green Markets, the average fourth-quarter 2013 granular SOP price was $680 per ton for California delivery. Granular SOP prices historically receive an average premium of approximately $50 per ton above standard SOP. During the fourth quarter of 2013, ICP estimates the soluble SOP price was $740 per ton for Florida delivery.
Mineral resources and mineral reserves
The study identified measured and indicated resources of 1,017.8 million tons at an average grade of 83.9 per cent by weight polyhalite. The resource was constrained by a minimum polyhalite thickness of four feet and a minimum resource grade of 65 per cent polyhalite. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
MINERAL RESOURCES (EFFECTIVE DATE MAY 31, 2013)
Average Resource In-place Equivalent
thickness area tons(1,2,3) Polyhalite K2SO4
Category (ft) (acres) (millions) (wt%) (wt%)(7)
Measured(4) 5.2 26,166 511.7 84.5 24.4
Indicated(5) 5.0 26,698 506.0 83.3 24.1
--- ------ ------- ---- ----
Total M+I 5.1 52,865 1,017.8 83.9 24.2
Inferred(6) 4.8 15,634 284.0 82.6 23.9
Anhydrite Halite Magnesite
Category (wt%) (wt%) (wt%)
Measured(4) 4.02 3.27 7.94
Indicated(5) 4.00 3.30 8.61
---- ---- ----
Total M+I 4.01 3.28 8.27
Inferred(6) 4.11 3.37 8.82
Notes:
(1) Average in situ bulk density of 173.5 pounds per cubic foot
(2) Bed thickness cut-off of four feet, composite grade cut-off of 65.0
per cent, excluding out-of-seam dilution
(3) Mineral reserves are included in mineral resources
(4) Measured resource located within 0.75-mile radius from an exploration
core hole
(5) Indicated resource located between 0.75-mile and 1.5-mile radius from
an exploration core hole
(6) Inferred resource located between 1.5-mile and three-mile radius from
an exploration core hole
(7) Pure polyhalite grades 28.9 per cent by weight K2SO4. This also
equates to 15.6 per cent by weight K2O
Note: Gypsum weight per cent negligible for all resource classifications.
In addition to defining the mineral resources and mineral reserves, the study specified a 50-year mine plan. Contained within the mine plan are approximately 182.4 million recoverable tons of proven and probable reserves grading 78.05 per cent by weight polyhalite. Mining was constrained to a minimum polyhalite grade of 66 per cent, as well as a minimum polyhalite thickness of four feet.
MINERAL RESERVES(1) (EFFECTIVE DATE JAN. 9, 2014)
50-year
Average mine plan
mined mined area ROM mine Mining
thickness(2) (million tons(3,4) recovery(5) Polyhalite
Category (ft) sq ft) (millions) (%) (wt%)
Proven 5.9 246 125.0 47.1 78.42
Probable 5.9 113 57.4 64.8 77.20
--- --- ----- ---- -----
Total P+P 5.9 359 182.4 51.5 78.05
Equivalent
K2SO4 Anhydrite Halite Magnesite
Category (wt%)(6) (wt%) (wt%) (wt%)
Proven 22.66 11.29 3.66 7.79
Probable 22.31 11.60 3.65 8.30
----- ----- ---- ----
Total P+P 22.55 11.39 3.66 8.08
Notes:
(1) Mineral reserves are included in mineral resources
(2) Bed thickness cut-off of four feet, composite grade cut-off of 66.0
per cent, including out-of-seam dilution
(3) Average in situ bulk density of 173.5 pounds per cubic foot
(4) No inferred tons mined
(5) Areal recovery (mined area) inside 50-year mine plan boundary
(6) Pure polyhalite grades 28.9 per cent by weight K2SO4. This also
equates to 15.6 per cent by weight K2O
Note: Gypsum weight per cent negligible for all resource classifications.
Updates to the mineral resources and mineral reserves estimates are based on the results from the completion of ICP's phase 3A exploration drilling program, a continuation of the exploration program included in the report dated Dec. 30, 2011, and titled National Instrument 43-101 technical report prefeasibility study for the Ochoa project in Lea county, New Mexico. Industry best practices were followed for the exploration program. The investigations, interpretation of exploration information, and the quality assurance and quality control measures for the phase 3A program were as reported in the PFS.
Over 70,000 feet of exploration drilling have been completed to date. Additionally, 855 petroleum wells were incorporated into the model (for stratigraphy correlation and bed thickness only) through geophysical logging. A higher minimum polyhalite grade (66 per cent) was defined for the mineral reserves to ensure compliance with the mineral resource cut-off grade (65 per cent) when developing mine projections.
As compared with the PFS, mineral reserves increased over 30 per cent from 139.5 million tons to 182.4 million tons while maintaining similar polyhalite grades (79.39 per cent in the PFS to 78.05 per cent in the study). Measured and indicated resources (four-foot minimum thickness) increased from 983.8 million tons to 1,017.8 million tons. The study is based on a mine life of 50 years.
Measured and indicated mineral resources exist to the north, east and west of the 50-year mine plan boundary, and there is a reasonable expectation that those resources will be economically minable, which would allow for an extension of mining operations beyond 50 years.
Environment and permitting
The company remains on schedule to receive a record of decision on its environmental impact statement in early April, 2014. That schedule will allow construction to commence as planned. The Bureau of Land Management and its retained consultant are currently addressing review comments in preparation for issuance of the final EIS. Once review comments are incorporated into the document, the BLM will publish the final EIS. Notice of availability of the final EIS is expected to be published in February, 2014.
In parallel with the EIS process, ICP also submitted an air quality permit application for construction to the New Mexico Environment Department Air Quality Bureau. This application was ruled administratively complete by the NMED AQB on Dec. 13, 2013, and technical review is expected to be completed on or before June 10, 2014. The assessment included in the permit application demonstrates that the project complies with air quality standards.
As previously announced by the company there have been two major permitting milestones to date. First, the company received a jurisdictional determination from the U.S. Army Corps of Engineers that concluded no authorization from the Corps is required for construction. Second, authorization has been received from the New Mexico Office of the State Engineer that the company has full right to appropriate non-potable water from the Capitan Reef aquifer for mining and industrial use.
Mining
Room-and-pillar mining will be used to extract ore from the deposit at a nominal rate of 3.7 million tons per year. Equipment selection includes state-of-the-art, high-horsepower continuous mining equipment currently in use throughout the world in the coal, trona and potash sectors. During the course of the study, ICP performed linear cutting tests on the polyhalite core. A continuous mining equipment manufacturer reviewed the linear cutting test results, performed additional testing, and recommended the use of drum-type continuous miners.
The ore bed will be accessed via a 25-foot-diameter, two-compartment mine ventilation and service shaft, and a 12,000-foot-long slope (also referred to as a "ramp" or "decline") inclined at 8.5 degrees. The 1,525-foot-deep shaft will have an intake air compartment, equipped with an emergency escape hoist and cage as well as electrical high voltage and communication cables. The second compartment will be used for return air and will contain fresh water and mine discharge water piping to prevent freezing during the winter months. General mine ventilation will be accomplished with dual 11-foot fans installed in parallel on the return side of the shaft. The slope provides flexibility to accommodate increased underground production as needed. Ore will be transported to the surface via a 60-inch slope conveyor with a capacity of 4,000 tons per hour.
The study recommends the use of dual split super section mining methods. Parallel sets of main entries are developed five to seven entries wide each. Production panels are developed up to 1,000 feet wide to accommodate the DSSS concept of operating two continuous miners side by side using a centrally located single belt conveyor. DSSS supports the use of common equipment such as section scoops, forklifts and section conveyors. DSSS keeps both capital and operating costs as low as possible.
Surface facilities
The plant will include several key unit operations to process a continuous stream of polyhalite ore from the mine into finished SOP products. The main process circuits include crushing and washing, calcination, leaching, evaporation and crystallization, and drying and granulation. In conjunction with the crushing phase, washing removes sodium chloride from the ore and ensures a high-quality, appropriately sized feed to the calciner. Fluid-bed calciners provide precise temperature control and cause the ore to become readily soluble in water. A two-stage countercurrent leach circuit produces brine containing potassium and magnesium sulphates. This brine is fed to the evaporation and crystallization circuits where SOP is crystallized. Following crystallization, drying and granulation of the crystals produce the final products. Pilot plant operation confirmed that the process is technically and economically viable on a continuous basis. Portions of this process are covered by U.S. patent 8,551,429, with other U.S. and foreign patents pending.
The SOP products are planned to be trucked 22 miles to the rail loading and truck distribution facility. From this facility, ICP will have the ability to reach domestic rail and truck markets, as well as nearly any international dry bulk port facility in the Americas. Tailings management will include a variety of evaporation ponds and injection wells, in addition to a dry-stack gypsum storage facility. Deep saline water will be sourced from the Capitan Reef aquifer and treated, where necessary, through reverse osmosis.
Engineering consultants and client engineers
"We extend our heartfelt thanks for the stellar performances of those contributing to this study," said Randy Foote, chief operating officer. "During the course of our work, ICP and the engineering consultants identified further opportunities with the potential to increase processing efficiencies and lower both capital and operating costs. We intend to implement these enhancements."
In addition to SNC-Lavalin, other primary consulting engineering groups, process design, and equipment supply groups include the following.
Agapito Associates Inc., a Colorado-based company, provided services in geology and mining engineering. AAI was responsible for reviewing and auditing the exploration program, developing the resource geologic model and the resources and reserves estimates, providing mine design and mine engineering, and developing the operating and capital costs for the mine.
Veolia Water Solutions and Technologies, a worldwide process and technology equipment supplier, provided services in water treatment and evaporation, as well as crystallization technologies. Veolia was responsible for developing the evaporation and crystallization circuits, and for pilot testing.
Novopro Projects Inc., a Canadian-based company, provided services in engineering, project development and project management, with particular expertise in potash mineral processing. Novopro acted in the role of the owner's engineer, providing project management, process development, testing, and contract development services.
Resource Development Inc., a Colorado-based company, provided international services in mineral processing, leaching and circuit recovery. RDi provided overall technical reviews of processing technology and surface facilities.
Upstream Resources, a Washington-based geosciences company, provided services in the design and execution of exploration programs, data analysis, and geologic and resource modelling, and with substantial international experience in potash exploration and development. Upstream Resources carried out the substantial portion of the exploration programs and subsequent data analysis, and interpretation and geological modelling.
Hazen Research Inc., a Colorado-based company, provided services encompassing research and development in the adaptation of known technology to new situations, pilot plant testing, preliminary engineering, and cost analysis. Hazen designed numerous process testing procedures, provided laboratories and facilities for bench-scale testing, and fabricated parts of the pilot plant. Hazen also validated all phases of the ICP process to optimize conversion of polyhalite into SOP.
INTERA Inc., a New Mexico-based company, provided services in water resources planning, development and management. INTERA managed and co-ordinated environmental permitting and hydrogeological modelling.
Walsh Environmental Scientists and Engineers, a Colorado-based company with expertise in environmental consulting services, ecological investigations and surveys, site assessment, and National Environmental Policy Act regulations, contributed to environmental permitting and related activities.
In addition to the consultants mentioned above, several other highly regarded professional companies contributed to the completion of the study. These include:
- AB Engineering Inc.;
- Chastain Consulting;
- Chemfelt Engineers;
- FEECO International;
- Fakatselis Consulting Inc.;
- Gundlach Equipment Corp.;
- Harrison Western Construction Corp.;
- Metso Minerals Industries Inc.;
- SGS Lakefield Research Ltd.;
- Sage Earth Sciences;
- Western Technologies Inc.
Qualified persons
Gary Skaggs, PE, PEng, AAI vice-president/principal, is the independent qualified person for the mine plan and mineral reserves; Leo Gilbride, PE, AAI vice-president, is the independent qualified person for mineral resources; Tom Vandergrift, PE, AAI vice-president/principal, is the independent qualified person for the mine geotechnical analysis; Dr. Susan Patton, PhD, PE, AAI senior associate, is the independent qualified person for mine capital and operating cost; Vanessa Santos, CPG, AAI chief geologist, is the independent qualified person for the geology and exploration sections of the study, each within the meaning of National Instrument 43-101 -- Standards of Disclosure for Mineral Projects.
Lawrence Berthelet, PEng, MBA, vice-president, potash, SNC-Lavalin, is the independent qualified person for mineral processing and metallurgical testing, recovery and project infrastructure; Phillipe Poirer, PEng, vice-president, finance, SNC-Lavalin, is the independent qualified person for the economic analysis, both within the meaning of the National Instrument 43-101.
The independent qualified persons within the meaning of the National Instrument 43-101 for the evaporation and crystallization processes are John DiMonte, PE, vice-president, operations; Tony Banasiak, PE, electrical manager; Jean Claude Gallot, MS, process engineer; John Pitts, CHMM-Engineering; Harry Parker, PE, technical manager, piping and facilities; David Gamache, CHE, director of research and development; Shawn Thornton, MS, research and development; Dr. Charlotte Bessiere, PhD, research and development; all of Veolia Water Solutions & Technologies.
Pursuant to National Instrument 43-101, ICP will file a compliant technical report on SEDAR addressing the applicable sections of this press release within 45 days of the date of this disclosure.
All scientific and technical disclosures in this press release have been prepared under the supervision of and approved by Dr. Deepak Malhotra, PhD, registered SME member, president of Resource Development, a qualified person within the meaning of National Instrument 43-101 and an adviser to the company.
We seek Safe Harbor.
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