MBAC announces results of Feasibility Study for Santana Phosphate Project
October 17, 2013 (Source: CNW) — MBAC Fertilizer Corp. (“MBAC” or the “Company”) (TSX:MBC and OTCQX:MBCFF) announces the results of a Feasibility Study (the “Feasibility Study”), for its 100% owned Santana Phosphate Project (the “Santana Project” or the “Project”) located in the southeast of Pará State close to the border of Mato Grosso State in Brazil. The Santana Project is a high grade phosphate fertilizer project located in the heartland of one of the most promising agricultural areas in South America.
The Feasibility Study includes a detailed analysis of the technical, operating and capital cost considerations. A technical report in connection with the Feasibility Study results will be filed on SEDAR (www.sedar.com) within 45 days of the date of this press release, and will also be made available on MBAC’s website.
Feasibility Study Highlights
- Mineral reserves of 45.5 million tonnes (Mt) with an average grade of 12.9% P2O5 (3% cut off);
- Estimated mine life of 32 years based on current reserves;
- Average annual production of 500,000 tonnes of granulated Single Super Phosphate (“SSP”);
- Initial capital cost estimate of US$376.7 million before a contingency of US$50 million;
- Granulated SSP 0-19-0 (Nitrogen-Phosphate-Potassium content ratio) with a selling price of US$345/tonne in 2016 (first year of sales);
- Estimated operating cost of US$113/tonne in 2017 (expected first year of full production);
- After tax Internal Rate of Return of 19.9%;
- After tax Net Present Value of US$396 million;
- Payback is 5 years (from start of operation in 2016).
Santana Project Background
MBAC, through one of its subsidiaries, is the beneficial holder of eight exploration claims with an additional three exploration permits under application, totaling of 97,949 hectares. The Santana Project is located in the southeast of Pará State, Brazil. The target phosphate fertilizer markets for the Santana Project are the northern and eastern regions of Mato Grosso State and the southern region of Pará State. Mato Grosso State is the largest soybean producer in Brazil and the largest consumer of fertilizer, while Pará State is a large beef producer in Brazil. SSP demand in Mato Grosso State alone is approximately 1.5 million tonnes per annum. This demand is expected to grow at least 20% by 2015, with an estimated projected demand for SSP in 2015/2016 in the range of 1.8 and 1.9 million tonnes of SSP per year according to Agroconsult Consultoria and Marketing (“Agroconsult”), a leading independent Brazilian agriculture consultant.
Santana Project Economics
The Santana Project is estimated to produce on average 500,000 tonnes of granulated SSP annually. The Feasibility Study estimates a total capital cost of approximately US$427 million including G&A, start-up, reclamation and US$50 million in contingencies, but excluding working capital. The Feasibility Study has been prepared based on a ±10% accuracy for capital expenditures.
The Feasibility Study supports a robust project with strong economics. The following is a summary of the key operating highlights and project economics. BR$/US$ exchange rate used is 2.84 (which represents the weighted average exchange rate forecast between 2013-2016).
|Currency Exchange Rate||BRL/USD||2.84 (avg. 2013 – 2016)|
|Weighted Average Cost of Capital (WACC)||%||10|
|SSP Sales Price 0-19-0 (2016)||USD/t||345|
|Operating Costs (2017)||USD/t||113|
|Total SSP Production||Thousand tonnes/year||500|
|Initial Capex (2013 – 2016)||USD MM||377|
|Total Capex||USD MM||427|
|Sustaining Capital||USD MM||209|
|Closure Costs||USD MM||20|
|NPV @ 10% (2013)||USD MM||396|
|Payback (from start of operations in 2016)||Years||5.0|
Assumed Product Price
The SSP price was based on the 2013 price provided by Agroconsult. This price forecast is FOB Rondonópolis, a fertilizer hub distribution center in the Mato Grosso state, and is based on an SSP grade of 0-19-0 (Nitrogen-Phosphate-Potassium) and includes adjustments for logistics from the Santana Project to the target region. All prices and costs reflect inflation of 2% per annum.
The table below sets out the a summary of the initial assumed SSP prices from 2013 to 2047 as contemplated in the Santana Project economic analysis.
|SSP Prices (US$/tonne)|
|NPV Sensitivity Analysis by SSP Price|
|SSP Price (% Var.)|
|NPV US$ millions||160||279||396||512||628|
Operating Cost Estimate
Based on all operating cost assumptions outlined in the Feasibility Study, the SSP annual cost at site is estimated at US$113/tonne. The table below shows an SSP production cost breakdown. A 5% contingency is included in these estimates. All costs reflect inflation of 2% per annum.
|SSP Unit Cost per Process ($/tonne)|
|NPV Sensitivity Analysis by Total Opex|
|Total Opex (% Var.)|
|NPV US$ millions||480||438||396||353||311|
Capital Cost Estimate
The total capital costs for the Santana Project are estimated as of October 2013 at 426.7 million, including US$50 million in contingencies. The table below shows a breakdown of the capital costs. The accuracy assumed for the capital costs is ±10%.
|Capital Cost Breakdown|
|Mine Fleet & Preparation||12.4|
|Professional Services – EPCM & Others||25.5|
The Company has worked closely with its technical consultants and has had the benefit of its recent experience in planning and constructing the Itafós SSP Operations (“Itafós”) in benchmarking the estimated Santana Project capital costs against those experienced at Itafós. Specifically the Santana Project will benefit from the following factors:
- A more compact footprint for the operations will reduce the cost of materials required such as structural steel, wiring, concrete and belt conveyors;
- Design improvements will also help to reduce the use of materials such as structural steel;
- The operations will get its water supply directly from a river and will not require the construction of a dam; and
- The high grade of the deposit will allow for a smaller beneficiation plant.
The Company will retain an Engineering, Procurement and Construction Management (“EPCM”) contractor for the Santana Project to provide additional independent oversight at the Project, which should assist in mitigating the risk of cost overruns.
The Company will also undertake additional detailed engineering studies in order to mitigate risks of cost escalation before any final construction decision is made.
Brazil is currently dependent on the importation of fertilizers with approximately 67% of nutrients being imported. In addition, the continuous growth of agriculture (~5.0% pa) will increase the need for fertilizer imports, even when taking into account new fertilizer plants expected to start operating in the future.
Based on the crop outlook, Agroconsult is projecting an 80% increase in fertilizer demand through 2031, reaching 50.9 million tonnes. By 2016, average annual growth is estimated to be 3.4% and should be close to 2.8% in the following years. Both increases in area and more intensive usage, based on application of greater quantities of fertilizer per unit of area, are likely to drive this growth. Agroconsult estimates that fertilized area will rise from 84.2 million hectares (ha) to 93 million ha in 2016 and to 114.8 million ha in 2031 and average fertilizer use will increase from 337 kg/ha in 2011 to 361 in 2016 and 442 kg/ha in 2031.
Currently, there is no production of phosphate fertilizers in the Santana Project target area, resulting in phosphate fertilizers being imported from other domestic regions to the south or abroad. The main supply of the phosphate fertilizers consumed in the target region are from (i) Port of Itaqui (imported); (ii) Port of Santos (imported); (iii) Port of Paranaguá (imported); and (iv) southern Minas Gerais and Goiás states (domestic), where there are local producers.
The Santana Project has a significant competitive advantage resulting from its strategic location. The distance covered by products coming from the south-east region of Brazil (Port of Paranaguá and Port of Santos) is approximately 2,000 km; approximately 1,000 km for those coming from Goiás and Minas Gerais states and approximately 1,500 km for those coming from Itaqui Port. These large distances results in significant freight costs when compared to the distance for shipment of product from the Santana Project.
Andes Mining Services Limited (“AMSL”) has updated the Mineral Resources estimate for the Santana Project from that expressed in the PFS. Indicated mineral resources are now estimated to be 60.4 million tonnes averaging 12.0% P2O5 at a 3.0% P2O5 cut-off grade as detailed in the table below:
|MBAC – Santana Phosphate Project
Indicated and Inferred Mineral Resource Grade Tonnage Report
Ordinary Kriging (OK)
(Block Model – 25mE X 25mN X 4mRL – Cut off 3% P2O5 utilised)
|Inferred Mineral Resource|
|TOTAL INFERRED ➜||26.59||5.56||38.97||5.82||27.47||1.08||2.58||13.57||0.23|
|Indicated Mineral Resource|
|TOTAL INDICATED ➜||60.36||12.04||18.64||16.38||7.78||2.65||7.39||30.65||0.66|
In addition, AMSL states in the Feasibility Study that it is reasonable to assume that MBAC will encounter additional exploration success in other areas with similar favourable lithology. Those areas have not been fully explored to-date. Several of the high-potential areas within the current exploration claims area yet to be drilled are near the plant site and could positively impact on the Santana Project returns during the early years of operation.
A mine production schedule was developed to show the ore tonnages, grades, total material and waste material by year over the life of the mine. The distribution of ore and waste contained in each of the mining sectors was used to develop the schedule, ensuring that criteria such as continuous ore exposure (down to the bottom of the pit), mining accessibility, and consistent material movements were met. The Run-of-mine (“ROM”) grade for the first 15 years operation is expected to be in excess of 15% P2O5.
|Total Plant Feed|
|Year||Mass (Thousand Tonnes)||P2O5 (%)|
The current mineral reserve estimate which is based on the production schedule used for the Feasibility Study is as follows:
|Mineral Reserve Summary|
|Proven Mineral Reserves||–||–|
|Probable Mineral Reserves||45,481||12.86|
Several bench and pilot plant tests were performed over the past several years using material from the main defined resource targets of the deposit at the Santana Project. A consistent and reproducible flotation processing flow-sheet was developed to treat the various sources from the deposit. This process allows the beneficiation of phosphate ore to produce concentrate containing 34% P2O5 with average P2O5 recovery of 55%.
The Feasibility Study concludes that the production of SSP with 19.0% soluble P2O5 in neutral ammonium citrate (“NAC”) utilizing Santana Project rock with 34% of P2O5 is feasible and is the most suitable solution for the specific acidulation process being contemplated for the Santana Project.
Feasibility Study Background
This Feasibility Study follows the Pre-Feasibility Study completed by Andes Mining Services Limited (“AMSL”), NCL Brasil Ltda (“NCL”) and PegasusTSI dated June 7, 2012, as amended August 27, 2012, and titled “Pre-Feasibility Study Santana Phosphate Project Pará State, Brazil, As Amended and Restated” (“Santana PFS”).
The Feasibility Study includes an updated mine plan for the Santana Project as well as an updated mineral resource estimate for the Santana Project which was prepared by AMSL. The results of the Feasibility Study support an open pit mining operation, crushing of the ore on-site, grinding and flotation concentration of the phosphate ore. It is anticipated that the flotation concentrate will be further reacted with sulphuric acid to produce SSP.
The Feasibility Study was prepared by Bradley Ackroyd from AMSL, Carlos Guzmán from NCL and Robert Alexander from PegasusTSI Inc. All persons are qualified persons, independent of MBAC within the meaning of National Instrument 43-101, and each has reviewed and approved the scientific and technical information contained in this news release.
MBAC is focused on becoming a significant integrated producer of phosphate fertilizers and related products in the Brazilian and Latin American markets. MBAC has an experienced team with significant experience in the business of fertilizer operations, management, marketing and finance within Brazil. MBAC owns and operates the Itafós Arraias SSP Operations which consists of an integrated fertilizer producing facility comprised of a phosphate mine, a mill, a beneficiation plant, a sulphuric acid plant, an SSP plant and a granulation plant and related infrastructure located in central Brazil. The Itafós Operations are estimated to have production capacity of approximately 500,000 tonnes of SSP per annum. The Santana Phosphate Project is a high grade phosphate deposit located in close proximity to the largest fertilizer market of Mato Grosso State. MBAC’s exploration portfolio includes a number of additional exciting phosphate and minor potash projects, which are also located in Brazil. The Company continues to search for additional fertilizer opportunities in the Brazilian and other Latin-American markets, where strong agricultural fundamentals and unique opportunities are expected to provide attractive growth opportunities in the near future. Further information on MBAC can be found on the Company’s website at www.mbacfert.com and on SEDAR at www.sedar.com.
FORWARD LOOKING STATEMENTS
This news release contains “forward-looking statements” within the meaning of applicable Canadian securities legislation. Forward-looking statements include, but are not limited to, statements related to activities, events or developments that the Company expects or anticipates will or may occur in the future, including, without limitation, statements related to the results of the Feasibility Study for the Santana Project including expected mine life and production, expected capital and operating costs, internal rate of return and payback period, and economics as well as competitive advantage, as well as the expectation that the Company will file a technical report in connection with the Feasibility Study within the next 45 days. Forward-looking statements are often identified by the use of words such as “plans”, “planning”, “planned”, “expects” or “looking forward”, “does not expect”, “continues”, “scheduled”, “estimates”, “forecasts”, “intends”, “potential”, “anticipates”, “does not anticipate”, or “belief”, or describes a “goal”, or variation of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements are based on a number of factors and assumptions made by management and considered reasonable at the time such statements are made, and forward-looking statements involve known and unknown risks, uncertainties and other factors may cause the actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Such risk factors include, among others, the risk of cost overruns, estimates and assumptions that provide to be inaccurate, expected timelines not being met as a result of unforeseen delays as well as those factors disclosed in the Company’s current Annual Information Form and Management’s Discussion and Analysis, as well as other public disclosure documents, available on SEDAR at www.sedar.com. Although MBAC has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate. The forward-looking statements contained herein are presented for the purposes of assisting investors in understanding the Company’s plan, objectives and goals in connection with the Santana Project and may not be appropriate for other purposes. Accordingly, readers should not place undue reliance on forward-looking statements.
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