“Back to the drawing board” mostly indicates something gone wrong. For Elemental Minerals (ASX/TSX:ELM) the news is good. And unexpected. And it, in the view of several analysts, means that the company has to stop and think about its plans. The bottom line: a high grade potash find may mean the company having to go back and think the whole thing through again.
So exciting is the news that four analysts have felt compelled to put pen to paper.
First, to recap. Last week Elemental announced what it called exceptional intersections at its Kola potash project in Republic of Congo. Drilling at the Hangingwall Seam (HWS) produced the highest grade intersections yet, including 37.8 per cent K2O over a 3.11 metre sylvinite intercept. This seam was discovered just over a month ago and is not included in the project’s mineral resource. (The full announcement can be viewed in the News section here on Potash & Phosphate Blog.)
Patersons Securities, a Perth broker with very high resources profile, sees the impact of this discovery as being an issue for Elemental. These results, says analyst Matthew Trivett, indicate that mining the HWS would be a simple, conventional operation at shallower depths (between 200 metres and 220m) than the remainder of the resource (between 250m and 300m). He says this, coupled with the grades and the potential of mining the HWS for several years, would have a material impact on the capital and operating expenses. This presents an issue for Elemental in his view; this discovery suggests that the current development plan, including items such as the planned shaft position, may not be ideal. Further investigation is warranted, he adds.
From Montreal, National Bank Financial headlines its note on the announcement: “Wow! New High-Grade Potash Seam Expands”. The analysts note that the potash grade in the HWS appear to be at least 50 per cent higher than the previously grading Upper Seam around which management has been building its pre-feasibility study. So the company now has the opportunity to enhance the project’s economics.
Toronto-based Northern Securities felt moved to start with a line from the 1893 work, The Mystery of Sherlock Holmes: ‘ “Excellent!” I cried. “Elementary,” said he.’ Analyst Fadi Benjamin says he concludes the incorporation of the HWS in mine planning and design would allow shareholders to reap significant value. And then, in a section headed “Pause and Rethink”, this analyst said a portion of the HWS would be incorporated into the next update resource statement. And then Benjamin adds: “Incorporating the potential of this seam into the mine design for the feasibility study, we believe, would be vital and accretive for securing project financing and strategic partnerships.
Finally, from London, Libertas Capital’s Roger Bade sees the news as “potentially embarrassing” as the HWS grades much higher than the existing resource and is at slightly shallower depths. Moreover, the seam is open to the northwest, north and southeast.
“This is a nice dilemma to have: press on with the development of the existing resource or find out how large the HWS really is and face shareholder wrath because one is still drilling holes,” he writes.