The long term viability of mining projects is highly dependent on the cost of production. High costs make the mines more susceptible to adverse business cycles. For ICPTF, the cost of operations is expected to be $162 per ton which is significantly lower than the averages. ICPTF has its main property in Ochoa in Lea County, New Mexico where it intends to develop a polyhalite mine. The focus is on exploration / development of Sulphate of Potash (SOP) and Sulphate of Potash Magnesia (SOPM). As per a recent report, the feasibility of the mines is expected to be completed by the middle of this year and the construction is likely to start a few months thereafter. The Pre-Feasibility Study (PFS) estimated potash reserves of 139 million tons for the 40-year mine. Production is likely to start in 2015 and the company expects to produce at full capacity by 2017 with the annual production being 568,000 tons of SOP and 275,000 tons of SOPM. The market for SOP is 6 million tonnes per year and the product sells at a 30% premium to Muriate of Potash (MOP). SOPM has global market of approximately 1.2 million tonnes. The NPV estimate for the ICPTF mine is $1.286 billion @10% discount rate. The payback for the mines is 3.9 years (post tax), and the expected IRR is high at 26%. The expected average EBITDA is $380 million. Some other companies which are at similar stage of production like Passport Potash (PPRTF) have low estimated cost of production. The long term charts of potash producing companies clearly indicate that once the start of production approaches, the stocks take off very fast. Many bigger companies take stake in companies like ICPTF and PPRTF at this pre-production stage so that their strategic position is improved and they are able to get capital appreciation. For ICPTF, hopefully the story will be same.
