Planned potash mine project in Moose Jaw region needs new partner
Plans for a mini-potash mine in the Tugaske area have hit a snag.
The 250,000 tonne a year solution mine by Gensource Potash was supposed to start development as soon as financing was arranged by East Indian partner, EGME.
EGME had an off-take agreement to buy potash, an agreement to provide equity and full project financing, and fund the feasibility study for a 49 per cent share.
When it became apparent to Gensource that EGME was dragging its heels by only offering a partial payment of the $5 million crucial feasibility study, Gensource went ahead and paid for the study itself. The feasibility study is crucial to plans; it tells investors and bankers whether the project is financially viable.
The feasibility study in May painted a picture of a highly profitable venture. Total operating costs will be just under $55 a tonne Canadian. Consider that current potash prices are $290 a tonne, and strong potential is obvious.
Capital cost for the 50-year mine is $280 million Canadian.
Given that the new patented mining technology is used successfully elsewhere and the robust profit picture, the mine should be a go.
Indeed, Gensource executives said during an Oct. 4 teleconference call with investors that six potential partners have stepped up to talk since release of the feasibility study.
Gensource management sees the loss of the Indian partner as a temporary setback. Once the feasibility study showed the economics, others who had been in touch, suddenly had more serious interest. In September, Gensource announced interest by a U.S. agricultural capital operation to invest in a potash mine. Gensource can build two to four mini mines on leases in the Tugaske-Craik region. The company has submitted the environmental impact assessment (EIS) to Saskatchewan Environment, answered questions and expects a ruling any time now
During the 30-minute conference call, CEO Mike Ferguson took investor questions about the company and the potash industry.
He predicts no dramatic recovery in potash prices for some years and suggested many of the new mines on the drawing board may not be that profitable. Many plan to produce a sulphate of potash product, which has a premium price until the new supply floods the market.
Gensource will produce the more conventional muriate of potash product like other Saskatchewan mines.
New greenfield mines need a $400 a tonne price to be viable, he said.
Once the EIS approval is received, only a sales and financing partner is needed to go ahead. Within 22 months of that deal, a mine employing 56 people could be in operation. Gensource shares fell from 18 cents when the feasibility study was released to 12 cents, then eight cents after the teleconference call.
A new funding partner could make a huge difference in share price. The stock remains highly risky with awesome potential.
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Ron Walter can be reached at ronjoy@sasktel.net