Blackwood- The comparison that you asked for. This was posted a year or so ago by Jerichoj. Some pretty detailed research.
he posted some good follow ups after that as well.
Obviously since this was written Wpx has secured a partner and a guaranteed offtake worth Billions so this should be added to the Wpx positives.
jerichoj
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February 01, 2013 - 02:39 PM
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KRNvsWPX Long and Short with Opex problem
At the bottom of this document I may have found an error or its just dumb luck the numbers worked out this close in WPX Phase 2 Expansion by Agipido on Opex, The reasoning for me doing this comparasing
Hypothetical: If both companies were operating right now WPX and KRN
(Take your time its only half as long as it looks, I put in the long hand work at the bottom)
• This is reading through OPEX and CAPEX and off each companies highlights
Comparing 2Mt plant to 2Mt plant. I have a conclusion and all the work shown on the bottom pages. Its just simple mathematics, but feel free to check it, I may be wrong
• WPX 2Mt Pg 21-5 of Feasibilty $74.64 as the other 800,000 tonnes will not be available till year 10
• KRN 2.125 Mt on Revised feasibility $125.45 per tonne
So reading this if you make over $59 a tonne profit you are taxed 35% by good old Saskatchewan, which both companies face. (Sited at the bottom out of WPX Feasibility)
• WPX Total expenses 74.64opex+28.49 ($103.13)for wellfield (this is a yearly expansion to well field development for every year the mine is operating)+$59.00 Freight equals $162.13 a tonne
• KRN Total expenses 125.45 opex+50 frieght equals $175.45 a tonne
The Conclusion of Profits
• $500 potash price WPX profits $219.62 a tonne and KRN $210.96 a tonne
• $400 Potash prices WPX profits $154.62 per tonne and KRN $145.88
• Mosiak Opex $203 @$470a tonne with higher taxes than what these 2 will have for the 1st 10 years. So its close enough for this arguement
Roughly a $ 10.00 difference per tonne on profit, nothing substantial but the difference would be $20Million per year in favor of WPX
Krn $2.1 Billion WPX $2.9Billion a difference of $0.8 billion or $800million on 2Mt facility
$0.8 Billion divide by the $20 million a year difference in profit. It will take WPX 40 years to make up the Capital difference required to make WPX and KRN be on equal playing ground. WPX will be mined out by time these 2 companies can be put in the same class and why they cannot be compared to each other.
As the point Cacheitin is trying to get across the debt aquired with $2.9 Billion the interest alone takes that $10.00 profit out of the equation when these 2 are compared.
I found this document which has giving me most of my insight. If you would like to learn how the whole potash process from exploration to EIS in Saskatchewan operates. Breakdowns of everything, and i mean everything. I suggest everyone read it. It is written by HATCH who runs all the expansion projects Saskatchewan for every mine.WPX Capex is right on the money for a Sylvinite Solution Mine according to this report, but weak on the Opex
https://www.enterprisesaskatchewan.ca/PotashGuide
Pg 5 $234,050,000 for 2Mt equals $117 OPEX (KRN $125)(WPX $103) for solution mining $80 for Conventional Verifies my findings a little bit. I have taking out the frieght
ADVANTAGES WPX
-following the blue print for Sylvinite mining in Saskatchewan
-looks like Potash 1 and Mosiak Solution Mine
-nothing new to Saskatchewan
- With a market Cap of $80 Million if they were bought for $320 Million that is a 400% gain on an investment
DISAVANTAGES WPX
- No partner to protect from being bought out
- High CAPEX $800 Million in this model over KRN
-Tails piles on the surface and put in at the end of mine life
ADVANTAGES KRN
-Have a partner with guaranteed Sales (worth $5Billion over 20 years)
-Lower Capex
-Tailing put back into the ground as being mined
-Secondary Project off of tailings to possibly lower OPEX substaintially
-No tailing saved them Approx $220 Million Capital +$234 Million Reclamation not to have to construct and dispose of tailing management. Opt to do as they go.
( https://www.enterprisesaskatchewan.ca/PotashGuide )
DISADVANTAGES KRN
-Carnillite never mined in Saskatchewan (mined by Intrepid Usa, Deusa Germany, Iran)
-Higher OPEX by $10 a tonne
-Will be the 1st company other than Deusa to mine Carnallite ore directly,
INTERPRETATION
WPX is a great investment to make money on a take out basis.
If they wanted to actually go to construction they would need to use (1) 1million tonne per year production train and come into the market on a smaller scale like KRN to attract a JV without losing the company. Debt financing, the interest alone is a deal breaker. It would be 15 years before it could be paid off. If a company wanted to invest $2.9 Billion, why would WPX's $80 million (Market cap)be the controlling partner. Surrounded by BHP, Mosiak,Vale,K+S there is no room for expansion as this is a 40 year project. If management does this approach of a partner coming in and WPX trying for control. It will be what happened to MagIndustries. Ive posted information on the bullboard of my thoughts about having a partner take2/3 of a company.
KRN with the $10.00 a tonne higher OPEX it will take WPX 40 years to make the difference in CAPEX over expendure to be looked at equal. For $10 a tonne more in Opex KRN will be putting their tailing back in the ground. Something that Industry has been dragging there feet on for the last 50 years. Currently a conventional mine will cost $500 million to replace tails, a solution mine $235 Million at the end of the mine life. I can only guess that when the day comes to close a mine this will never be done. If KRN proceeds with there second project to work with their tailing instead of deep well injecting it. That will bring there Opex down substantially. As their second project has an IRR of 34.6% after tax. KRN has only looked at 20% of their property which means theres opportunity for expansion.
JERICHO THOUGHTS
If it only cost $10.00 a tonne for to put piles back into the ground. Why isn’t this being done? A disadvantage to WPX is that rain water will dissolve their tails then be pumped into the disposal well. If rain actually did that, then what are we looking at PCS and Mosiak. Those piles are beyond belief (Only in Saskatchewan) and I don’t see the rain melting them. According to Hatch its $234 Million to clean up tails. What company is going to go from making a 20% profit to taking on that expense at the end of the mine. Just good human faith or are they going to walk away and let the taxpayers deal with it?
Aside with KRN second project, there carnallite seam is 45 meters or 147 feet think on 20% of the lease. The other 80% of the lease hasn’t been looked at. At what thickness does mining Carnallite become unfeasible? I find it hard to believe that a 147 foot seam stops at the end of the property. How much further does that go? There is no one around them to stop expansion and 147 foot seam just doesn’t disappear. That’s a 16 story building! If you don’t know what that is!!!
So I stand by my comments that WPX is a great buy out candidate and KRN being a Chemical company with an Indian partner, which can protect themselves from the volatile potash swings. Once financed at $600 million that would be 200%-250%% gain over there $180 million market cap. On cash, but what happens when they are finally valued on 50% of NAV instead of 5%?
The other big question is what happens in the next 40 years if Saskatchewan goes back to a NDP or Liberal Government? With Environmental and Safety becoming the biggest growing sector. What happens when the Government puts a tax on those tailings for being an Environmental Obstruction? They can go back in the ground, but no one is doing it . The government always wins and they always get their money at every chance before anyone else does. What makes you think there isn’t an easy Environmental Tax that couldn’t be implemented by 2015-2016 when these guys are trying to break out. KRN is looking at the future and it looks bright with innovation, foresight, lower capex with "no tails management to build", and the most environmental project in Saskatchewan, not to say everybody else isn’t. But “no tails” is a BOLD statement, if it can be done, just do it already. No reason why industry can not follow what they said they would do.
https://www.youtube.com/watch?v=aYkEI-qq3q4 Mosiak Esterhazy(brief site from the road)
Goggle Earth shows how big these tailing are Esterhazy, Lanigan, Colonsy, Patience Lake. Just zoom into it. Each grid is 2 miles by 2miles and it can give you an idea of the size. You can see a house and use that as a bench marker.
WPX’s high CAPEX hurts them but they have RESERVES. With EIS in, this is looking like Potash 1 all over. Itll be a great lift to the shareholders, at $320 Million buyout on reserves, Which share holder won’t want a 400% increase on an investment? A great turn key project for any existing miner to take out or an “end user” to buy out and produce there own. A turnkey project like this will not sit on the shelf long
Again both have great investment opportunities and is why I’m holding onto both. WPX is the better investment for the short term and KRN for the long. I congratulate both these companies being "Juniors" and fighting through these lousy markets. Its safe to say that we are still in the recession. If this was prior to 2006 both these companies would have been pushed through a lot faster then what is happening now.
These are my own thoughts and opinions on these 2 companies. please dont think its accurate. I’m just seeing what I read and trying to verify my findings
Ive just read through Potash 1, Western, Karnalyte, and Magindustries feasibilities and a lot of News releases on each company. With both companies coming to a head almost at the same time. I decided to ask the boards for any relevant information and see if I’m looking at this is the right way.
Now to get back to the root of my OPEX and what started this whole Comparison.
AGAPIDO’ Math on OPEX? Possible Error on WPX Feasibility on PHASE 2 expansion “The 2.8 Million tonne Facility”
$74.64 a tonne multiplied it 2Mt to get $149,280,000 per year in OPEX and put it over 2.8Mt ($149,280,000/2,800,000) equals $53.31 a tonne (Multiply by 1.15% for feasibility study) equals $61.31, pretty close to there $62.00. This is a rough calculation.
That 800,000 tonnes on phase 2 in year 10 must be free? Is there a model I can use where if you operate for 10 years, you get a bonus 30% expansion with no Operating cost? I guess because it’ll be in year 10 its not there problem anyways! I was not impressed with the progress of the scoping study to the feasibility. As CAPEX kept climbing and that OPEX never moved once. Why was more equipment being added and not reducing the OPEX. Finding this HATCH document somewhat verifies my suspicions.
. _____________________________________________________________________________
MATHEMATICS
$500 potash prices
WPX 500-162.13= $337.87 profit X 0.35 equal 118.25 taxes
All in $162.13+118.25tax equals $280.38 total expense $219.62 per tonne profit
KRN 500-175.45= 324.55 profit X 0.35 equals 113.59 taxes
All in $175.25+113.59 equals $289.04 total expense $210.96 per tonne profit
$400 potash prices
WPX 400-162.13=237.87 profit X 0.35 equals 83.25 taxes
All in 162.13+83.25 equals 245.38 total expense with $154.62 Profit
KRN 400-175.45=224.75 profit X 0.35 equals 78.66 in taxes
All in 175.45+78.66 254.11 total expense with $145.88
https://www.enterprisesaskatchewan.ca/PotashGuide
https://www.marketwatch.com/story/the-mosaic-company-reports-second-quarter-fiscal-2013-net-earnings-of-629-million-or-147-per-share-2013-01-04
https://finance.yahoo.com/news/intrepid-potash-inc-announces-preliminary-213401737.html
SITED DOCUMENT (From WPX Feasibility, needed to do a rough after tax Calculation to Mosiak $203 profit @$470 tonne)
22.1.7 Taxes and Royalties
Four taxes were included in the cash flow. In addition to corporate income tax, WPX is
subject to three specific resource taxes. Saskatchewan’s general tax rate on corporate taxable
income is 12%. Under the Potash Production Tax Schedule of the Saskatchewan Mineral
Taxation Act, 1983 and the Potash Tax Regulations introduced in 1990, there are three taxes that
would apply to the Milestone Project:
• Base payment production tax
• Profit tax
• Royalties
The base payment and profit tax are considered to be potash production taxes.
The base payment is a monthly payment based on estimated sales for the year, with a rate
in 2011 that has a minimum payment of $11.00/t and a maximum payment of $12.33/t sold of
K2O. As a new producer, however, Western Potash would be exempt from paying this tax for
10 years, providing its production capacity exceeds 122,000 t of K2O per year.
The profit tax is a progressive payment based on net profit from mine operation, with the
rate of tax based on per tonne profit, net of base payments, corporate allowance (currently 2%),
corporate office incentive, depreciation allowance (120% on new capital expenditures in excess
of 90% of a company’s 2002 capital expenditures), loss carry-forward (to a maximum of
5 years), research and development tax credit (40% of approved expenditure) and royalties. The
profit tax rate payable in 2011 was 15% on profit up to $59.55/t of K2O and 35% for profit over
$59.55/t of K2O.
Royalty rates payable under Section 38 of The Subsurface Mineral Regulations (1960), to
the province of Saskatchewan vary between 4.25% and 9.0% of the sale value (US$ FOB mine
gate), depending on the grade of the ore and value of production on land with Crown mineral
rights. Based on drilling results, the grade from the Milestone Project is less than the 21% K2O
grade threshold and the corresponding rate of royalty will be the lowest level of 4.25%. This
gross royalty rate is subject to a 51% write-off for operating costs, effectively putting the net
royalty rate at around 2.1%. Royalty rates in respect of production from freehold subsurface
mineral leases will reflect the same level as those paid for production from Crown lands.
NI 43-101 Technical Report Summarizing the Feasibility Study for a Potash Solution Mine on the Milestone Project (Subsurface
Mineral Lease KLSA 008), Saskatchewan
Prepared for Western Potash Corp.
January 15, 2013 Page 22-5
Agapito Associates, Inc.
Mining activities are also subject to other federal and provincial taxes, such as the GST,
PST, less applicable allowances, credits, and deductions. Although Saskatchewan no longer
imposes a capital tax on corporations (it was eliminated in 2008), it does apply a 3% resource
surcharge based on the value of fiscal-year resource sales, including potash, oil, natural gas,
uranium and coal, for companies with gross assets of $100 million or more (as determined by its
balance sheet for income tax purposes) and a positive taxable paid-up capital balance. A
resource company with gross assets under $100 million may deduct sales up to $2.5 million from
its value of resource, the amount being the lesser of the value of resource sales and $2.5 million
less the proportion of salaries paid outside Saskatchewan. In the case of potash, the value of
resource sales (gross revenue) is determined by Section 5 of The Potash Production Tax
Regulations.
Read more at https://www.stockhouse.com/bullboards/messagedetail.aspx?s=WPX&t=LIST&m=32113322&l=0&pd=0&r=0#s0h8APTPg7T3etdm.99
Read more at https://www.stockhouse.com/companies/bullboard/t.krn/karnalyte-resources-inc#dSCLSXr34oKX2kbM.99