Western Potash's Milestone plant capex pegged at $88M 2016-12-21 19:44 ET - News Release
Mr. Geoffrey Chang reports
WESTERN POTASH RECEIVES FINAL ENGINEERING REPORT ON THE MILESTONE PILOT PLANT PROJECT
Western Potash Corp.'s wholly owned subsidiary, Milestone Potash Corp., has received the final engineering report on the proposed Milestone pilot plant project. The report was compiled by Amec Foster Wheeler who was responsible for all site surface facilities, Agapito Associates Inc. ("Agapito") who was responsible for mining, and Milestone Potash Corp. who was responsible for off-site utilities,permitting and engagement. The co-ordination of all project interfaces was managed by Amec Foster Wheeler.
As reported in an April 21, 2016 news release by the Company, the purpose of the report is to develop a full scope of engineering and procurement services as well as a Class 3 (+/-10%) Capital Cost Estimate and Operating Cost estimate in advance of Western's construction decision for the Pilot Project. Engineering deliverables include process flow diagrams, site plans, specifications, data sheets and detailed drawings, all of which have been developed to the point of allowing issuance of purchase orders for equipment and contracts.
The pilot plant was designed to have an annual production capacity of 146,000 tonnes of potash obtained through horizontal mining of the Prairie Evaporites. The solution mining plan is based on the concept of 'selective solution mining' where the solvent is near-saturated with sodium chloride and partially saturated with potassium chloride. Among the advantages of the selective solution mining method are a lower CAPEX and OPEX compared to conventional solution mining. In addition, the selective solution mining technique has a lower environmental impact, consumes less water than conventional solution mining and does not produce salt tailings. Results of the Pilot Project will be used to determine the feasibility of construction and operation of a larger scale selective solution mining operation.
The total cost (CAPEX) to design, construct and commission the Pilot Project as described in the report is $88.3 million as expressed in Q4 2016 Canadian Dollars ($CAD), which equals to a competitive unit Capital Intensity per tonne of $604. The $88.3 million CAPEX represents the costs associated with executing the project under an EPCM environment and satisfies American Association of Cost Engineering ('AACE') Class 3 requirements at an accuracy of +/- 10%. In the EPCM scenario, the Company would assume all risk (Owners Cost Risk) for cost increases beyond contingency allocation.
The OPEX estimate for the Pilot Project was developed by Amec Foster Wheeler in conjunction with the Company. The plant site OPEX is estimated to be $82.39 per tonne of product. This estimate does not include costs associated with product transportation and delivery from the site to the customer.
MPC is working towards optimizing the project execution plan and continuing to minimize potential risks associated with the Pilot Project. The Company management will proceed to make a sanction at an appropriate time based on the optimization of the project execution plan and the mitigation of the potential risks. Among potential risk are:
Lower than expected potash prices. This has the most significant effect on project economics. Although ChinaBlue Chemical Ltd., one of Western's major shareholders, has expressed its willingness to enter into negotiations for a purchase agreement under certain terms for all the Pilot Plant's products, MPC is continuing to explore other options for product sales outside of the Chinese market.
Pilot Project water supply. Western has a previously negotiated an agreement with the City of Regina to use treated effluent for a 2.8 mtpy conventional solution mine. Although the Company maintains this agreement, the Pilot Project requires substantially less water volumes and construction of a pipeline to transport effluent to the site is not cost effective. MPC therefore intends to secure groundwater from a local deep well for the Pilot Project, which is below any potable or agriculture ground sources,and will not affect domestic or agricultural water safety
Agapito's numerical cavern model showed that brine concentrations could be lower than anticipated in the later stages of cavern life. To maintain potash recovery rates, additional wells were planned and drilling costs updated in the sustaining CAPEX. However, actual hydrodynamic conditions in the caverns may be underestimated in the model. Currently, further experimental investigations of the mechanisms of dissolution by NaCl-saturated solvents are being undertaken by Agapito in an attempt to simulate actual mining conditions.
Road restrictions reduce the ability to ship product off-site (such as spring road bans) resulting in the process plant being shut down for a portion of the year. MPC is developing contingency plans to minimize the risk associated with restricted product shipping due to road conditions. This includes on-site storage and conducting an annual plant maintenance shutdown during spring road bans.
Geoffrey Chang, Chairman of the Company stated, "we are pleased to have completed all the engineering, which shows the technological and economic feasibility of applying innovative horizontal drilling methodology, selective solution mining and crystallization pond techniques. We are very excited about the prospect of bringing this revolutionary new solution mining technology to Saskatchewan."
The content of this news release has been read and approved by Gregory F. Vogelsang, P.Eng., P. Geo., Project Manager of the Company. Mr. Vogelsang is a Qualified Person as defined by NI 43-101.
Readers are cautioned that the projected mining method, potential production profile and plan and mine plan referred to in the Pilot Study and this release are conceptual in nature. There is no certainty that a potential mine will be realized or that a production decision will be made