FULL DISCLOSURE: Sage Potash is a sponsor of theDeepDive.ca.
Sage Potash (TSXV: SAGE) yesterday released the results of a preliminary economic assessment for their flagship Sage Plain Potash Project, which is found in the Paradox Basin of Utah. The results were headlined by an after tax net present value of US$502 million, alongside an internal rate of return of 39%, based on a discount rate of 8% and a sales price of $450 per tonne.
“This PEA reinforces our conviction that our proposed approach of incremental potash production using solution mining is a cost effective and low risk strategy to bring in-market potash production on-line in the US. We expect this approach would allow us to scale up production with cash flow to eventually become the largest domestic potash supplier in the US market. Currently, the US market imports more than 95 percent of its potash requirements and Sage Potash’s goal is to become a supplier of choice in the United States,” commented Peter Hogendoorn, CEO of Sage Potash, on the results.
The PEA was based on an operation that will produce an initial 300,000 tonnes per year of potassium chloride from a solution-based mine over a 20 year mine life. An initial 7 caverns are to be developed under the current mine plan, which will grow to 15 caverns over the first five years of operations.
That production estimate is based on an inferred mineral resource of 298 million tonnes of in-situ sylvanite, containing 118 million tonnes of KCl within a 2,400 metre radius of the drilled wells on site, with that resource footprint representing just 4% of total landholdings held by Sage. The resource is said to support multiple phases of production.
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Potash production is expected to come from both the upper and lower potash horizons of Cycle 18, while processing is expected to use triple-effect evaporators, crystallization, and a fluidized bed dryer for the recovery of KCl. Minimal amounts of freshwater are to be used in the production cycle, and this production method allows for year-round production.
In terms of costing, initial capital is pegged at $155 million, which includes $26 million in contingencies and a further $16 million in construction indirect costs. Sustaining capital is estimated at $10 million per year, or $33 per metric tonne. Operating costs overall are estimated at $144 per tonne.
Average annual free cash flow is estimated at $75 million under the current scenario, alongside operating cash flow of $80 million and EBITDA of $92 million. The Sage Plains project is expected to be cash flow positive within two years, while the payback period is estimated at 5 years.
“Currently, the US market imports more than 95 percent of its potash requirements and Sage Potash’s goal is to become a supplier of choice in the United States. The possibility of high margins and scalable expansion suggested by the PEA makes for a robust asset with stability through a wide range of market conditions,” continued Hogendoorn.
In terms of next steps, Sage intends to accelerate the development of the Sage Plains project. The company is currently focused on upgrading the resource from inferred to measured and indicated, and intends to undertake optimization efforts. Sage currently plans to drill an already permitted exploration well to confirm final cavern concentrations and flow rates to enable the submittal of a solution mine plan, with that exploration well to be converted to an initial production well.
Work is also planned to advance the plant and solution mine engineering to support the issuance of permits, while talks will also be advanced for offtake agreement sand industry partnerships.
Sage Potash last traded at $0.465 on the TSX Venture.
FULL DISCLOSURE: Sage Potash is a client of Canacom Group, the parent company of The Deep Dive. Canacom Group is currently long the equity of Sage Potash. The author has been compensated to cover Sage Potash on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. We may buy or sell securities in the company at any time. Always do additional research and consult a professional before purchasing a security.
