Salt Lake Potash Ltd (ASX:SO4) enjoyed a productive December quarter, beginning stage two of construction at its Lake Way Salt of Potash (SOP) Project in Western Australia and securing a range of offtake agreements.
The first stage of the Lake Way solar evaporation ponds was completed in June and these have provided the company with additional insight into the critical evaporation processes and provided opportunities to further improve design and construction of the remaining evaporation pond network.
SO4 is using a staged approach to construction which will allow for some capital expenditure to be deferred for up to 12 months.
Stage two construction
More than 400 hectares of brine evaporation pond areas are nearing completion and 35 kilometres of brine abstraction trenches are planned.
A specialised pipe network and pumping system has been constructed and in excess of 12,000 metres of brine transfer piping has been installed with pump capacity of 600 litres/second.
Process plant and non-process infrastructure
Site clearance for the process plant began last month and GR Engineering Services Limited is expected to commence construction during this quarter.
SO4 also awarded several key contracts for the installation and supply of key NPI and services including Complete Group to construct and install the accommodation village and Power West for the supply of power to the project under a 10-year agreement.
Installation of the permanent on-site accommodation village is anticipated during the current quarter.
Process Plant Layout
Binding offtake term sheets
During the quarter, the company signed binding term sheets for the sale of 220,000 tonnes per annum, representing 90% of total planned production, of premium SOP from the project, including:
- HELM AG – 50,000 tonnes per annum for 10 years in South East Asia and the Middle East;
- Unifert - 60,000 tonnes per annum for five years in the Middle East and Africa;
- Indagro - 50,000 tonnes per annum for five years in North America and Europe; and
- Fertisur - 60,000 tonnes per annum for five years in South America
The agreements support SO4’s marketing strategy for the sale and distribution of its product by diversifying distribution across geographical areas with the highest concentration of crops which benefit from SOP fertilisers.
Offtake shipping is set to begin in the first quarter of 2021.
Placement and debt facility extension
SO4 has secured further funding for the project via an institutional placement and debt facility extension for a total of A$45.5 million in additional available funding.
The company agreed to place approximately 33.6 million shares to several new Australian institutional investors and existing institutional shareholders at 70 cents each to raise A$23.5 million before costs.
In addition, Taurus Funds Management agreed to extend the stage one facility by US$15 million (A$22 million) to a revised total of US$45 million ahead of finalising the main project development facility (PDF).
The combined additional funding ensures the company is well placed to continue with the rapid development of the project, including the stage two on-lake construction which is substantially advanced and commencement of process plant construction in the first quarter 2020.
BFS and outstanding economic returns
In October 2019, the company reported the results of its bankable feasibility study (BFS) for the commercial-scale development of its 245,000 tonnes per annum project.
The study demonstrated exceptional economics with estimated project post-tax (real) net present value of A$479 million (pre-tax net present value of A$696 million) and post-tax internal rate of return of 28% (pre-tax internal rate of return 38%).
The steady-state project earnings before interest, tax, depreciation and amortisation (EBITDA) is A$111 million annually and the average annual after-tax free cash flow is A$78 million (A$83 million during the first five years).
The company anticipates the strong cash flow and low capital costs will result in early payback period of 3.5 years
Project timeline for 2020
SO4 expects to finalise full project funding in the coming months alongside the completion of stage two construction.
Then process plant and NPI siteworks will begin with the procurement of final, long lead packages for the plant and NPI progressing in line with the advanced project schedule.
The company anticipates the final purchase agreements based on the binding offtake term sheets will be executed in the near-term.