Competition steps up for salt lake miners

Kalium Lakes Ltd, Salt Lake Potash Ltd and Australian Potash Ltd, designated KLL, SO4 and APC respectively on the Australian Securities Exchange (ASX), last month were extolling financial benefits of their mineral salts recovery processes currently being trialled.

Their projects are rapidly approaching a point where each will have to decide whether to proceed to full-scale commercial production of Sulphate of Potash (SoP) fertilisers.

That race is not only on at remote salt lake locations across the Great Sandy, Little Sandy and Gibson deserts to prove up their SoP production methods.

It is also on via ASX announcements and technical reports to attract and retain investor interest and support.

Implicit in any decision to commit to commercial production is a need to raise between $124 and $268 million the companies claim will be required to achieve desired start-up production rates and promised initial returns on investment.

Sharpening competition to be first into local production is the likelihood domestic SoP supply will be a winner-takes-all situation for a market worth $38m on 40,000 tonnes per annum currently imported and sold for about $950/t

With SoP produced locally and sold at a lower price, KLL and others believe domestic demand could grow to 70,000tpa.

According to SO4’s October 23 statement, it plans 40,000tpa production from a “demonstration plant” at Lake Wells, 200 kilometres north east of Laverton.

It plans to start that phase of its project midway through next year and ramp production up to possibly 400,000tpa after mid 2020, but its work so far suggests 120,000tpa will achieve main economies of scale.

KLL is reviewing a lower capital-cost start up option of 75,000tpa, then building to 150,000tpa or more at its Beyondie SoP project 160km south east of Newman and APC, a neighbour of SO4 at Lake Wells, is considering a 150,000tpa five-year stage one then ramping up to 300,000tpa.

Each company at present is claiming a 20-year life for its SoP project, but they are already working on extending that timeframe.

Production cost estimates range from $248/t to $368/t at start up or stage one production rates.

KLL and APC have predicted life-of-mine production costs of $244-$253/t and $343/t respectively.

But the real prize for first into production, and a possible consolation prize for second and maybe third, is a significant share of a growing global SoP market estimated by KLL to be 6mtpa or 10 per cent of the world’s potassium fertiliser market.

According to KLL’s October investor presentation, the global SoP market is worth about US$3-4 billion a year.

At an assumed price of A$666/t it claims its Beyondie project will generate more than $1 billion in “free cash flow” in its life, while APC in an October 27 report claimed at a SoP price of $795/t its Lake Wells project will generate “annual operating pre-tax cash flow” of $118m.

KLL has a memorandum of understanding with Mid West Ports, Geraldton, for export of standard and granular SoP and non-binding off-take agreements with German and Chinese fertiliser companies.

APC has non-binding off-take agreements with Chinese fertiliser companies and plans to truck SoP to a rail head near Leonora then bulk rail it to Esperance.

SO4 has not announced off-take agreements, but plans to truck SoP to Malcolm Siding and rail it to Fremantle.

Last month’s ASX reports from the three were essentially a tit-for-tat processing argument aimed at potential investors.

It was about merits of building plastic-lined evaporation ponds off the salt lake surface to maximise harvest, compared to using the flat lake surface and a low-permeability clay surface layer at Lake Wells to build unlined evaporation ponds to minimise start-up cost.

The three intend to collect potassium-rich brine from beneath the salt lakes via bores and surface trenches, pump the brine into a series of concentrator ponds for water to be evaporated off leaving harvest salts behind.

Processing at temperature will separate sodium chlorate and other waste products from SoP.

As previously reported in Farm Weekly, KLL managing director Brett Hazelden has argued the company’s decision to build a gravity flow, lined evaporative pondage system off lake is the way to go.

Mr Hazelden said the higher capital cost of tiered earthworks and plastic liners would be repaid by higher potassium recovery rates from a smaller environmental footprint with no loss through leakage back into the lake crust.

In what could be interpreted as a comment on competitors’ intentions, Mr Hazelden had said KLL considered it “impractical” to try to use heavy equipment on sometimes boggy salt lake surfaces.

Last month’s ASX report stated KLL’s large-scale lined evaporation ponds trial had established an indicative construction cost of $5.40 per square metre off lake.

It also claimed recovery rates as high as 87pc might be possible compared to an estimated 69pc for unlined ponds, assuming a 0.5 millimetre a day leakage rate.

APC, which plans to build evaporation ponds on Lake Wells, countered with a geotechnical study finding that the clay layer there was suitable for building unlined pondage walls and floors.

“This advancement in our pond geotechnical work stream is a very significant step forward in the critical evaporation stage of the SoP production process,” APC executive chairman Matt Shackleton said.

“Our development strategy is focused on delivering the highest returning project in the emerging Australian SoP landscape to capitalise on our expectation for strong SoP demand growth.

“Being able to avoid the significant capital expenditure associated with lining the large evaporation pond network improves on that development strategy.”

SO4 advised the ASX last month it had completed a six-month field trial validating potential to build unlined clay evaporation ponds on Lake Wells with “negligible seepage inefficiency”.

Four 25 metre by 25 metre test ponds were built on the lake surface using a standard 30-tonne excavator to test different wall designs, plus a 5m by 5m plastic-lined pond as a control to measure evaporation.

SO4 said its engineering consultant Amec Foster Wheeler estimated the cost of lined ponds to be about $10.50 per square metre and up to 25 times higher than constructing unlined ponds.

Amec Foster estimated “the comparative construction costs of a 400ha on-lake unlined pond at $1.6m compared to $42.2m for a HDPE (plastic) lined pond,” SO4 said.

The observed seepage loss indicated losses for a 400ha pond will be below 0.125mm a day, it said.

SO4 now plans to build an 18ha pilot pond system.

“We are very pleased to have successfully demonstrated and quantified the potential of unlined evaporation ponds,” said SO4 chief executive Matt Syme.

“The importance of this outcome cannot be understated for two reasons,” Mr Syme said.

“Firstly, the potential capex savings are very substantial and, secondly, this outcome is the final fundamental technical building block which we have tested and validated under field conditions and to a very high standard.”

Last month SO4 also notified the ASX its major institutional shareholder, London-based Lombard Odlier Asset management (Europe) Ltd, had increased its holding from 7.73pc to 8.75pc with acquisition of a further 1.78m shares for UK£497,000.

It is due to hold annual meeting on November 17.