IC Potash’s Ochoa Project de-risked and ready to move to production phase
IC Potash Corp. (“ICP’, TSX: ICP | OTCQX: ICPTF) aims to become the leading producer of potassium sulfate – SOP – (K2SO4) through its 100% owned Ochoa Project, located in southeastern New Mexico wants the. ICP has a federal permit with the State of New Mexico for potash exploration underground for the nearly 40,500-acre property. ICP is well positioned to lead a market of about 5.5 million tons per year – and rising – as one of top, and one of the lowest cost, SOP manufacturers in the world. Potassium sulfate is a chloride-free fertilizer, which is trading at a significant premium over the more common muriate of potash or MOP (potassium chloride). SOP is priced at a premium and better suited than MOP in the cultivation of fruit and vegetables, tobacco and potatoes, horticulture and it can also be used to treat sandy and dry soils, delivering higher crop yields, which have improved flavor and longer shelf life. ICP is also the only new SOP potash being developed in the world now and is marked by the lowest capital and operational costs (OPEX) as well. The projected OPEX rate per ton of production at Ochoa will be about is USD$ 150/ton, which is about 65% -70% less than the industry average of USD$ 500-550/ton. ICP’s SOP will be the world’s cheapest to produce.
ICP announced that Dr. Ross Bhappu has joined its board of directors and that it has been granted federal Preference Right Leases that complete the permitting for the 50-year Ochoa mine plan. Dr. Bhappu brings many years of experience in various roles, including director of business development at Newmont Mining (one of the largest mining companies in the world); he is a specialist in mineral economics. Perhaps, Dr. Bhappu is most famous for having led one of the biggest private equity deals in mining history. As a partner at Resource Capital, in September 2008, Dr. Bhappu headed the takeover team that included Goldman Sachs and others that bought Molycorp from Chevron. Meanwhile, just days earlier, ICP received confirmation from the US federal Bureau of Land Management, commonly known as the ‘BLM’, that it has been granted; potassium Preference Right Leases (PRL) covering approximately 14,774 acres, adding to those already granted by the State of New Mexico’s Land Office as part of the 50-year Ochoa mine plan that was approved by the BLM last April. Therefore, ICP can proceed with the engineering and construction of the Ochoa mine and processing facilities as described in Feasibility Study.
The PRL concession means that the BLM has reviewed any risks of ICP having a significant impact on the environment. The process is extensive and includes consultation with various agencies, at all government levels, and, more importantly, with the public itself. In the specific ICP case, the BLM has worked on the PRL process for over two years, taking into consideration the proposed mine’s impact on water, air, cultural and other resources. In a sense, the BLM has already analyzed and approved the project for potential investors, reducing the environmental, social and legal risks they would otherwise have incurred. The thorough BLM approval process has actually gone a long way toward de-risking the Ochoa Project in general. ICP has a very close financial partner, Mitsubishi UFJ Financial Group (“MUFG”), which has a wide range of project finance experience, useful in helping ICP “expand relationships with strategic investors, international banks, export credit agencies and project equity, and also as we look to involve additional strategic and financial investors and off-takers of Sulphate of Potash.” From now until the start of production (early in 2017) ICP will rely on the contributions and wide-reaching networks it can access through Dr. Bhappu and MUFG in order to secure the necessary funding to build the mine while setting up the related engineering procurement and tenders.
There are also final environmental permits to be granted but ICP should have few obstacles and the BLM’s PRL concessions represent one of the important steps in this direction. The Feasibility Study predicts an economically viable mining operation and processing plant, capable of producing 714,400 tons of SOP per year over a period of at least 50 years.Some of the other promising highlights from the Feasibility Study include: a three year period for construction and commissioning beginning in Q2 2014 and continuing through Q2 2017. SOP production will commence in 2017 (at first 48% of annual capacity and then full capacity expected in 2018). Room-and-pillar mining and dual split super section mining methods will be used to extract ore at a rate of 3.7 million tons/year.Capital costs are expected to be in the range of USD$ 1.018 billion. The FS Importantly notes that the Ochoa project has identified potential of 1.017 billion tons of SOP at an average grade of 83.9% (polyhalite content). The price for SOP, which was incorporated in the financial model was USD$ 636 per ton. This is below the current average price for granular SOP of USD$ 680/ton for California delivery in the fourth quarter of 2013. For the fourth quarter of 2013, ICP has estimated that SOP prices may increase to well above USD 700/ton the price of soluble SOP was reported to ICP estimates at 740 USD per ton at Florida Delivery.
ICP has already secured (in 2012) an offtake agreement with Yara International, one of the world’s largest distributors of mineral fertilizers, which greatly facilitates the financing process. ICP’s main target markets are California, Northern Europe and parts of North Africa, where soil salinity makes SOP especially effective. SOP does not contain chlorides and it typically fetches higher prices than the more common Muriate of potash (MOP); SOP is more easily adaptable to various soils, even those presenting high salinity levels (as in North Africa), and is suitable for a variety of crops such as fruits, tobacco, potatoes and vegetables. In contrast, the more common MOP variety of potash does not tolerate high soil salinity, which reduces its range of applications. SOP is ideal for the European and South Western Asian markets, which are low in magnesium, and where Yara enjoys considerable distribution access.
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