Someone posted at Stockhouse yesterday the essential part of the Mackie Research update note by Jaret Anderson.... What i found most tantalizing was the excerpt i've boldfaced in red type, suggesting a MUCH faster ramp-up in production with the help of a financing partner:
-----------------
From Mackie Research:
- Verde Potash (NPK) has completed the Preliminary Economic Analysis for its verdete slate to KCl (ie, Cambridge) process and has published a press release this morning with key highlights.
- Based on the work of SRK, this process looks very attractive, with an operating cost during the early years of production of US$274 per tonne, ramping up to US$291 per tonne over the 30 year life of mine as the stripping ratio increases.
- These opex numbers would appear to make Verde the lowest cost producer on a delivered cost basis to the Cerrado region of Brazil. Recall that Brazil was the largest importer of potash globally in 2011 at 7.5 million tonnes.
- These opex figures also compare favourably to the US$300 per tonne figure we had used as a base case in our earlier work evaluating the value of the Cambridge process to NPK shareholders.
- The scoping study proposes an initial plant with 600,000 tonnes per year of KCl capacity coming online in 2015, which would ultimately ramp up to 3.0 million tonnes of capacity per year.
- Capex for the initial 600k tonnes of capacity is estimated at $654 million (US$1,090 per tonne of capacity), while capex for the full 3.0 million tonne facility is estimated by SRK at US$2.4 billion (US $800 per tonne). The US$800 per tonne figure is right in line with our published assumptions and materially below the cost of greenfield solution mining projects in Saskatchewan which tend to average closer to US$1,081 per tonne (KRN: $928/t; Legacy:$1,136/t; WPX: $1,178/t; Average = $1,081/t).
- SRK estimates an IRR for the project of 23.7% and a NAV at 10% of US$2.3 billion for the full 3.0 million tonne facility. This works out to an NAV of $64.76 per share. Note that this is an SRK figure --we will need to update our own model with the data released today in order to publish our own estimate (note that we have been using more conservative assumptions Re: discount rate (12%) and potash price (US $500 per tonne FOB Vancouver) than SRK seems to have employed.
- Recall that the company is hosting a demonstration of its verdete slate to KCl process on Wednesday in Allentown, PA. We understand there are 20 participants from the buy side and the sell side signed up.
Bottom line: This PEA is a very positive event for NPK and implies more value for NPK from the Cambridge process than we had been baking into our $12.00 target previously. We need to update our model, but at first glance, we expect the Street to begin valuing NPK on the basis of its Cambridge process, as opposed to just the value of the ThermoPotash process (which produces a low grade, slow-release potash product). With a capex of $800 per tonne (ie, ~26% cheaper than a greenfield solution mine), an opex at startup of US$263 per tonne (and US$291 per tonne life of mine), and SRK's estimate of a $64,76 per share NAV, the shares are likely to react very positively today.
It’s also worth noting that this PEA seems to focus on a slow ramp-up schedule in order to fund expansion of the project from cash flow generated by the initial phase of 600k toones of production. This allows the company to minimize dilution. We expect that a well-capitalized corporate buyer of this project though, could employ a much quicker ramp-up, which delivers more cash flow sooner, thereby having a material positive impact on the NAV.
AI
