By Tom Keyser, Business Edge
Robin Phinney of Karnalyte Resources (T.KRN, Stock Forum) is an outside the box thinker. Where others saw waste product, he saw potential, and after a career bouncing from teaching engineering to the potash business, a nice find in Saskatchewan has propelled him into the solution mining game.
Q: What exactly was it that you discovered?
RP: I was looking for magnesium brine, originally. I had remembered an old drill well that I had come across back in 1983, when I was working for Potash Corp (NYSE: POT, Stock Forum). as a chemical engineering design guy. I was a young engineer and I looked at the mineral form and it was magnesium chloride KCl that was 35 per cent water. The geological guys told me that they didn’t use that stuff, that it was ‘bad,’ so I said okay and left it alone. That bothered me for years. Much later, when I was doing research on cement, I found that I needed a high quality magnesium chloride. So I remembered that old drill well and went to the Saskatchewan government.
Q: Where is the find situated?
RP: The ore body is located at Wynyard, Sask., on a property of 120 square miles. We’re just doing the engineering on the production facility right now. We just got the surface stripping completed. We’re planning to be up and running within two years.
Q: Explain carnallite for the layman.
RP: Potash is a derivative of carnallite (magnesium chloride KCl). The ore body we have is quite rare. I’ve got 16 storeys high of this pure mineralization that is 75 per cent pure carnallite and 25 per cent is the potash sylvite mineral that conventional producers rely on. Carnallite is found in the form of a hydrate, 35 per cent water. So, it’s already pre-dissolved. That’s really good. Using a traditional process, we add a little bit more water and a little bit of temperature and we get full saturated potash and magnesium coming out of our wells. It’s a very simple process that’s been around since 1860. When I was doing my research, I found a 40-year-old plant in Germany that was using this process. They are helping me out in setting up the underground and surface facilities with the technology.
Q: How did you get to this place in your career?
RP: Actually, my chemical engineering specialty was in pulp and paper, of all things. I was from a pulp-and-paper town and that was the chemical engineering discipline offered at Lakehead. But, I never did work in pulp and paper. I ended up getting a job at Inco up in Thompson, Manitoba, where I spent a year. Then I returned to university and worked there teaching engineering labs for a couple of years. I did all the preliminary designs and put in a 20,000-tonne upgrade at the Kidd Creek zinc plant in Timmins, Ontario. From there, I wound up at Potash Corp. I started off at Rocanville, Sask., working with the commissioning team for Phase II. After that, I got involved with engineering design for the process and equipment selection for the upgrade at Lanigan.
After Lanigan got built, I put in projects all through Potash Corp., including a complete redesign of the Cory facility. There was also the development of a little pellet process, making little fertilizer pellets. They’re the damnedest little things. They’re very easy and economical to make, with superior handling characteristics. We’ll be making them at our plant, once we get up and running. I put all the improvements into our process for making these pellets. I also have new patents for them.
I got well educated [at Potash], more of an education than I could ever imagine. Something else happened while I was working there: I spent one afternoon in the lab and came up with a process to make potassium sulfate and that technology led to the creation of Big Quill Resources. My first effort worked so well it only took me one day to accomplish that. Sometimes that happens. You just get lucky and hit one.
Q: You seem to be big on experimentation and outside the box thinking.
RP: I went over to Colt Engineering, which was a good place to be. I was pretty lucky on technology there, too. One of my corporate clients was working on flue gas desulphurization, taking the sulphur and nitrogen out of coal-fired plants. I was able to come up with a process that would convert SO2 and nitrous oxide into fertilizer. So you don’t have any throwaways. Instead of making gypsum piles, you make ammonium sulfate and sell it off to the farmer. They were impressed by the technology so they asked me to join them.
Q: Where did your interest in improvements to the concrete manufacturing process come from?
RP: That was around 2003. I went after a mineral deposit I knew of in Saskatchewan. It was a deposit of kaolin. If you roast it at 700 degrees Celsius, it transforms into another mineral form called metakaolin. You can use that to replace up to 10 per cent of cement in concrete and you end up with concrete that’s about 20 per cent stronger. That led to the founding of Whitemud Resources. […] While I was doing research on cement, I realized that magnesium oxide could be a pretty attractive product. So, I remembered that brine well in Saskatchewan and thought maybe I’d go back and have a second look. Nobody had applied for the property, so I got it for $48,000. I had to wait four months until the government finally gave it to me. Then they invited me down to the property to inspect a couple of drill cores on the property that weren’t recorded. They had never been assayed. As soon as I looked at them, I got excited by the high quality of the potash ore.
It turned out to be all continuous, all good grade, no clays, no sulfate minerals, no bad stuff in it, it’s all clean. I got my assays back and the news was good. But, I wanted to make sure that I wasn’t dealing with a single glory hole. So I paid $960,000 for 3D seismic on 12 square miles to see if there was more of it there. It turns out that 3D seismic is very specific to magnesium. So, I got a perfect snapshot and eventually found that I was sitting on more potash in one location than anybody else in the industry has in Saskatchewan.
After I got the 3D seismic, I went to the brokerage houses but I didn’t like what they were telling me. So, I decided to approach friends and family. I took a small number of founder shares and set up a 10-million share company. I valued the shares at a buck a share and I took a million myself, since I paid for all this stuff. Then, I thought I’d see if friends and family would come in for $2 million, $4 million, whatever.
Q: How did that go?
RP: Well, I started one Thursday at 11 a.m. By 3 p.m., I had $5 million. I couldn’t believe it. I tell you what, that’s the most exhilarating thing you can do. At that point, I had to complete a project assessment on the property. I gave the bank a lot of heartburn on that. We produced one drill core, we had enough of a proven and probable reserve base for a 500,000-tonne plant for 20 years. That was actually a problem. The bank was having a hard time believing it.
Q: When did you go public?
RP: That was in 2010. We got listed on the Toronto Stock Exchange, on the big board, under the symbol KRN, at $8.60 a share. […] We’ve passed most of our major milestones. It’s just a matter of putting financial arrangements in place to move the project forward. We’re sitting in a pretty good position, with $60 million in working capital. It’s a $600-million project, so we’re just putting the debt side together right now and then we’ll be looking for the equity to finish off the financing.
Q: Have the banks decided to get involved at all?
RP: There’s another due diligence we’ve just completed for the debt side so we can qualify for project debt. We’re through all of that, we’re fine. We’re just working with the banks now to see how much they want to lend us or how they’re going to get involved. Then we’ll find out what we need to raise in terms of equity.
Q: Have you been able to interest key institutional investors in the project?
RP: We’re getting a lot of interest. Manulife (NYSE:MFC, Stock Forum) out of Boston is a big player with us. Then there’s Gujarat State Fertilizers & Chemicals Limited (GFFC) of India. They’re a big publicly traded fund, giving us a take-or-pay contract for 350,000 tonnes for 20 years at market price. That’s instant credibility. That’s a friend with a kiss on the cheek.
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