Very few picked up on this company when it did a placing last Thursday 27 April, a story about a Project that has the potential to host a large, high grade salt lake brine project to produce highly sought after Sulphate of Potash (SOP) for domestic and international fertiliser markets.
With a market cap of less than £40m, SO4 could this be the next Sirius? Lower capex requirement, an established high value end product, and none of Sirius’ massive underground engineering challenges.
Share Price: 27.00
Salt Lake Potash Limited is a dual listed ASX and AIM mineral exploration company with a focus on creating value from the Company’s Sulphate of Potash (SOP) assets in Australia. AIM mineral exploration company with a portfolio of salt lakes in Western Australia
A placing took place last Thursday to raise approximately £7.0 million (A$12.0 million) for the Company at a price of 25 pence (A$0.43) per Placing Share.
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Application has been made for admission of 30,000,000 new ordinary shares, to be issued pursuant to the Placing, to trading on ASX and AIM (“Admission”). The Placing Shares will rank pari passu with the Company’s existing ordinary shares. Admission to AIM is expected to become effective on 8.00 a.m. on 4 May 2017.
Following Admission, Salt Lake’s total issued and voting share capital will comprise 164,007,596 Ordinary Shares.
The Company’s primary focus during the period continued to be the advancement of the Lake Wells’ Project, located in the Northern Goldfields of Western Australia approximately 200km north of Laverton. The Project comprises 1,126 km2 of Exploration Licences, substantially covering the Lake Wells Playa and the area immediately contiguous to the Lake. The Project has potential to host a large, high grade salt lake brine project to produce highly sought after Sulphate of Potash (SOP) for domestic and international fertiliser markets.
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Infrastructure ideal for an integrated project from several lakes
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Amec Foster Wheeler (AMEC) have been appointed to prepare an analysis of the alternatives for the Company to construct a Pilot Plant at the Goldfields Salt Lakes Project, intended to be the first salt-lake brine Sulphate of Potash (SOP) production operation in Australia.
The Company believes the advantages of the Pilot Plant approach are:
· Proof of concept for SOP production from salt-lake brines in Australia. This will substantially de-risk the full-scale project, with commensurate improvement in financing costs and alternatives. While substantial salt-lake brine production of SOP is undertaken in China, Chile and the USA, it is new in Australia and overseas production models need to be tested and adapted for Australian conditions.
· Refinement of design and costing of engineering elements at Pilot Plant scale may result in considerable cost savings at larger scale.
· Market acceptance of a new product in conservative agricultural markets is best achieved progressively and in conjunction with existing, established partner(s). It is important to establish Salt Lake’s product(s) as premium, sustainable nutrients in the key long term markets and staged production increases are the best way to achieve this objective.
· A Pilot Plant offers an accelerated pathway to initial production, with limited infrastructure requirements and a faster, simpler approval process. The Pilot Plant is intended to operate for 12-24 months to establish parameters for larger scale production, and the Company’s objective is to commence construction in 2017, harvesting first salts in 2018.
· Relative ease of financing a Pilot scale plant. Initial indications are that a Pilot Plant of this scale (40,000tpa) would cost up to US$35m. While the Pilot Plant’s principal objective is to prove the technical concept, the Company intends for it to still be cashflow positive. While economies of scale for a Pilot Plant are limited, the Goldfields Salt Lakes Project’s considerable location and infrastructure advantages will be important in sustaining its economic parameters.
Several of the global SOP industry parties have expressed a keen interest in partnering with Salt Lake to market and distribute Pilot Plant production, as well as to provide technical and financial assistance in design and construction of the Plant. Those discussions are ongoing however, Salt Lake notes that the discussions are incomplete and there is no guarantee the discussions will result in any firm offtake, technical or other arrangements.
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Commencement of a Pre-Feasibility Study (PFS): based on the positive results of the Scoping Study, the Company has commenced a PFS. During the PFS phase, the Company will undertake more detailed hydrological testwork and modelling, brine extraction optimisation and further infrastructure assessment aimed at identifying opportunities to enhance the Project economics through capital and operating cost reductions.
Continued Exploration activities: including drilling, test pumping and other testwork are already underway, to upgrade the resource classification and increase the overall resource base. The targeted outcomes include an improved hydrogeological understanding of the performance of basal sand (deep bores) bores including draw down rates, productivity rates and bore and trench positions, as well as improved understanding of the potential productivity of the fractured siltstone aquifer.
Field Evaporation Trial: A comprehensive field evaporation trial has commenced with the objective to optimise evaporation pond design from a flow, halite storage, and hydraulic perspective. The field trial will also produce large samples of product salts which can be used for marketing and testing purposes.
Regional Lakes and Opportunities: The Company will also continue to investigate potential additional revenue streams for the Project and other opportunities for enhancement, including the benefits of an integrated Lake Wells-Lake Irwin operation.
Salt Lake Potash Ltd managements teams on their visit to the UK last month spoke with Beaufort Securities.
Salt Lake Potash visited our London office. Management discussed its plan to build a small-scale process plant in 4Q 2017 which should mean production in 2H 2018. It’s being called a pilot plant but it could produce up to 40ktpa of high quality Sulphate of Potash (SOP) and be profitable.
Based on a capex estimate of $35m and on our estimate production cost of US$300/t, a 40kt operation could produce US$10m of operating cashflow. Management also described the bigger picture and touched on the interest in SO4’s projects being shown by global SOP players. This was also mentioned in yesterday’s RNS (i.e. 20-04-2017).
Beaufort Securities : This pilot plant development should provide catalysts for the stock over the next 12 – 18 months. However the investment case is overwhelmingly dominated by the potential for a large scale and very long life SOP operation. SO4 has a very large footprint in Western Australia with 9 potash containing salt lakes and 4750km2 of licences.
It has the potential to be a major low cost SOP producer in an excellent jurisdiction with rail and power infrastructure. Also, unlike standard potash commodities, SOP’s price has been strong with a very positive outlook due to its low salt content (SOP is 2.5x the price of benchmark KCL potash products such as Muriate of Potash, MOP).
With a market cap of less than £40m we regard SO4 as the next Sirius, certainly in terms of upside potential.
In fact unlike Sirius, SO4 has a far lower capex requirement, an established high value end product, and none of Sirius’ massive underground engineering challenges.
On a closing note this a company is well under the investor’s radar and i hope this write-up sheds a little bit more light on a company that could be in production in the next 12 -18 month’s.
Share Price: 27.00
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