American Pacific Borates Ltd (ASX:ABR) has enjoyed a productive December quarter and is ready to begin construction at its Fort Cady Borate Project in California once final permits have been approved.
The company is targeting increased sulphate of potash (SOP) production, which under the current plan will produce 108,000 tonnes per annum.
This increase in SOP production is expected to increase project internal rate of return (IRR) and net present value (NPV) as well as targeting US$345 million annual earnings before interest, tax, depreciation and amortisation (EBITDA) once in full production.
An enhanced DFS is expected to be released before April 30, 2020.
Fort Cady construction
During the December quarter the company began initial site works to prepare for the construction of the borate mine, which included improvement to roads, site clearing/clean-up and infrastructure improvements for construction activities.
A network gas contract has been signed and initial payment made to ensure network gas is available for first production at the site.
The company expects a final, positive permit to be awarded for the project over the coming months.
The ABR board believes there is an opportunity to increase production to take advantage of the fact that USA is a net importer of SOP and the only incumbent producer is a high-cost producer.
The company will also have a very low cost of production relative to USA production and imported SOP.
Other potential advantages are:
- The mine is on the West Coast, which is a major consuming area for SOP;
- Growth rates for SOP consumption are stronger than USA GDP given the link to high-value crops; and
- The mine will have the required electricity and gas to power the additional Mannheim furnaces, as the mine has access to grid electricity and network gas
The mine will also have access to a convenient logistics solution for increased production, with the process plant within four kilometres of a national rail network and a major interstate highway
A$2.75 million placement
On December 11, 2019, the company announced it had completed a placement of 11 million ordinary shares at 25 cents to raise A$2.75 million to three global institutional investors.
The placement included a five for six attaching option at 30 cents and funds will be used to progress construction related activities.
Discussions are ongoing with major Chinese state-owned enterprises (SOEs) with respect to boric acid and SOP offtake agreements.
The company has advised that it is not prepared to sign offtake agreements in the absence of prepayments to support construction or project level investment.
Chinese SOEs are expected to visit the site in March 2020.
Debt financing options
American Pacific Borates has progressed with discussions with Amvest Capital with a view to substantially debt financing the first phase of the mine.
There may be alternative financing options available to the company due to the mine’s strong financial and operational metrics, including a very low upfront capex, an unlevered post tax IRR of 41% and an NPV of US$1.50 billion.
As such the company has been discussing a potential partner process with North American investment banks with mining and fertiliser markets experience.
Once production is up and running, the company is also likely to begin a process for a secondary listing on the NYSE.
Borate/SOP fertiliser crop trials
ANR has commenced a process to engage a west coast and east coast US university to conduct crop trials and studies on a combined boron, potassium and sulphur speciality fertiliser that can be produced directly from the main products produced at Fort Cady – boric acid and SOP.
The company is considering producing a granular fertiliser that targets the high value US market for minimal chlorine-based potassium fertilisers.
Boric acid and SOP contain three of six most consumed nutrients in North America by value and have the added advantage of minimal chlorine which makes it suitable for high value crops like nuts, fruits and tobacco.