Arrowhead Business and Investment Decisions Releases Report on Potash West

Arrowhead Business and Investment Decisions released a commissioned report containing due diligence and valuation on Potash West NL (OTC:PWNNY,ASX:PWN).

As quoted in the report:

Dandaragan Trough Project

The Dandaragan Trough hosts one of the world’s largest glauconite deposits, along with phosphate mineralization. The Dinner Hill prospect within the project has a phosphate resource of 120MMT at 2.79% P2O5, and a K-Max resource estimate of 122MMT at 4.6% K2O. The current resource covers 15% of the Dinner Hill project area, less than 1% of the license area, suggesting potential resource upside over the whole project area.

The company updated its scoping study in January 2015, indicating a pre-tax IRR of 30% and NPV12 of AU$652MM. The scoping study was based on a mining rate of 4.2Mtpa in two stages – phosphate project, and Integrated K-Max project.

Stage 1 – Phosphate Project

During the first five years of operations, the company will focus on the phosphate project, with an estimated production of 390ktpa SSP. The project is expected to have a low capex of AU$135.7MM. As a stand-alone project, phosphate production generates an IRR of 30% and an NPV8 of AU$331MM.

The study also highlighted the easy adoption of the process flowsheet with a recovery of 70% to 36% of the mass (indicating relatively non-expensive upgrade of resources to 5.4% P2O5 for feed to the flotation plant).

Potash West currently plans to carry out a Definitive Feasibility Study on the phosphate project, and expects to complete it by Dec 2016. The company aims to complete the construction and start production by mid-2018.

Stage 2 – Integrated K-Max Project

In the second stage, the company plans to process glauconite concentrate along with phosphate in an Integrated K-Max plant. It is expected to be operational from 2H22, and will produce 152ktpa SOP, 136ktpa KMS, 223ktpa iron oxide, 764ktpa aluminium sulphate, and 152ktpa phosphoric acid.

The company has also developed a proprietary K-Max process to extract Sulphate of Potash (SOP), and other co-products from glauconite. The company has applied for a patent for the K-Max process.

The project has an estimated capital cost of AU$590.3MM. This second stage is expected to have a relatively lower risk profile due to funding from the operating cashflows of the phosphate project, along with use of existing beneficiation plant. The project will also have lower mining costs due to exposed K-Max ore from phosphate mining in Stage 1.

German Project

In July 2014, the company entered into a farm-in agreement with Exploration Pty Ltd. (EE), through which it can earn up to 55% interest in two exploration tenements in the South Harz region in Germany.

Based on the historical exploration data relating to drilling, the company estimates 4–5BT of mineralized rock, containing 292–1,285MMT K2O at a grade range of 7.2–25%. The company plans to advance the project by locating and analyzing detailed historical exploration records along with sample material from exploration drill holes. Also, the company plans to submit approvals to undertake a drilling program.

Valuation

Given the due diligence and valuation estimations based on the discounted project cash flows, Arrowhead believes that Potash West NL’s fair share value lies between AU$0.16 and AU$0.21. Our valuation is based on the company’s flagship Dandaragan Trough Project, which is at a relatively advanced stage. We have not carried the valuation for the German project, given the early exploration stage.

Disclaimer: The report referred to in this post was paid for by the company that is covered in the report, or there is some other monetary relationship between the company and the writer of the report. This may lead to a conflict between the interests of the writer of the report and the interests of investors. Due care should be taken to understand the relationship between the company and the writer of the report and to factor the relationship when making investment decisions.

Click here to read the report on Potash West NL (OTC:PWNNY,ASX:PWN)
Click here to see the Potash West NL (OTC:PWNNY,ASX:PWN) profile.