Potash West (ASX:PWN) has in its portfolio the world-class Dinner Hill phosphate and potash project in Western Australia, along with potential company making technology.
In a move to streamline its focus, Potash West is selling its non-core interest in the South Harz project in Germany, and the company has negotiated a deal where the company and shareholders will maintain exposure.
This exposure to South Harz is of strategic importance, as it is not well-known that Germany has a long history of potash mining, starting back in the late 1800's.
The country is still the fifth largest producer in world.
Patrick McManus, managing director of Potash West, speaks exclusively in Proactive Q&A Sessions™.
PROACTIVE INVESTORS: Welcome Patrick.
First of all, can you outline the benefits for Potash West in selling the company’s stake in the South Harz project in Germany?
Patrick McManus: This transaction will bring with it the funds to complete the drill program targeting the verification holes on the Küllstedt licence area.
That is aimed to confirm a JORC Inferred Resource.
As there is a large amount of historical exploration data we expect that a relatively small drill program will generate a good sized resource.
For Potash West shareholders - there are several benefits.
Firstly, they could increase their shareholding in the South Harz project by participating in the IPO of Davenport Resources, PWN shareholders will have a priority entitlement.
Secondly PWN will have a significant equity position in Davenport Resources and success in that project will flow through to our shareholders.
At IPO our shareholding will be approximately 28%, based on a raising of $4 million.
There are significant parcels of performance shares as well, that will come to us, based on exploration success.
This deal allows PWN to concentrate on the Dandaragan Trough project, and completing the feasibility study on Dinner Hill.
What are the future steps for South Harz?
Patrick McManus: The South Harz project will now have a focused, and a well-resourced team to take it forward.
We are currently identifying the drill sites on Küllstedt, and will be applying to carry out drill programs later this year.
Drilling should be completed in 2016, if we achieve a large JORC resource there should be a re-rating of the company market value, which PWN will share in.
Why not retain ownership of South Harz in Potash West?
Patrick McManus: Its important to recognize that we own 55% of the South Harz project.
By vending 100% of the project into a new company, the asset becomes more attractive to the investing market.
South Harz and our Dinner Hill projects are both large projects, with different end-markets, and potentially different investors.
This action allows the two projects to develop independently.
Moving on to Dinner Hill, new drilling targets were identified earlier in the year. When will these be drilled, and what is Potash West trying to achieve?
Patrick McManus: We are in a very fortunate position at Dinner Hill.
The recent drilling has outlined an indicated resource of 250Mtonnes at 2.9% P2O5. This will underpin a mining operation, on our planned scale, for more than 40 years.
So our focus is not on further drilling. There are several areas in and around Dinner Hill where we could target more resources, but that is not our objective.
Right now we are focusing our efforts at completing a preliminary feasibility study on the phosphate resource, to confirm the economic potential.
We expect that to be achieved within approximately twelve months.
Do you see Dinner Hill as being attractive to global strategic investors?
Patrick McManus: The Dinner Hill project has a number of really strong advantages, for a project producing a relatively low unit value product.
The great infrastructure, already in place, and close proximity to bulk ports, allows a low capital start-up and low logistics and operating costs.
Crucially the resources are very large and will sustain a large project for many, many decades.
Stage 1, producing single superphosphate, uses well known technology and has a low capital cost.
Stage 2, our K-Max project, will produce sulphate of potash, phosphoric acid and alum, and can be financed by the cashflows from stage 1.
Importantly, the scale will be large enough to interest fertilizer users and suppliers in the region.
We will be long term producers in a region that imports the bulk of its potash and phosphate needs, WA, SE Asia and India all rely on imports.
We can offer secure long term supply from a stable jurisdiction with low sovereign risk.
Can you outline how the company’s K-Max technology could be a “game-changer” for Potash West at Dinner Hill?
Patrick McManus: The K-Max technology is an exciting breakthrough, it releases potash from glauconite, potassium rich mica.
We own the IP 100% and it is patent-protected. At Dinner Hill the technology would allow an operation generating over $250 million EBITDA each year (ungeared, pre-tax), which would be a very significant business, as well as reducing the local costs of fertilizer products.
In addition we own a significant percentage of a new extraction technology, which promises to lower the production costs of lithium.
Lithium is forecast to face demand growth of over 10% annually for many years, based on electric vehicles.
Is Potash West investigating how the K-Max technology could be commercialised?
Patrick McManus: Yes PWN and our partners Strategic Metallurgy are shareholders in Lepidico, a company set up to commercialise the lithium extraction technology.
We are investigating the merits of bringing in the K-Max technology as well.
Finally, can you outline the key upcoming catalysts for investors, and why you consider these have the potential to drive a re-rating in the valuation of Potash West?
Patrick McManus: We have recently announced a large increase in the measured resources at Dinner Hill, and a new Exploration Target.
The revised mining plan, using a higher grade start up, is being calculated at present and will form part of a revised scoping study to be released this quarter.
Work is starting on the preliminary feasibility study for phosphate production at Dinner Hill.
Completion of the Davenport transaction will expose PWN to significant upside, with no liabilities. That is targeted for December 2015.
Also, the lithium exposure could, by itself, have significant value for PWN, if some of the predictions about the demand growth for Lithium are fulfilled.
PROACTIVE INVESTORS: Thank-you Patrick.
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