German backing for salt mining project

06 Aug, 2018 04:00 AM
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A grader, tracked bin vehicle and salt harvester on Kalium Lakes Ltd's trial evaporation ponds at its Beyondie Sulphate of Potash fertiliser project, 160 kilometres south east of Newman. A German government committee has indicated it might guarantee risk insurance cover for lenders financing part of the project.
A grader, tracked bin vehicle and salt harvester on Kalium Lakes Ltd's trial evaporation ponds at its Beyondie Sulphate of Potash fertiliser project, 160 kilometres south east of Newman. A German government committee has indicated it might guarantee risk insurance cover for lenders financing part of the project.

ALMOST one third of a projected $124 million in capital to be raised for a WA Sulphate of Potash (SoP) fertiliser project may be effectively guaranteed against default by the German government.

Kalium Lakes Ltd (KLL) has received what it described as a “positive preliminary assessment” from a German government inter-ministerial committee on its application for project credit guarantees for the Beyondie SoP project in the Little Sandy Desert, 160 kilometres south east of Newman.

It also has a letter of interest in the Beyondie project from Euler Hermes Aktiengesellschaft (Hermes), the German government-appointed agency which runs the export-focused credit guarantee scheme on behalf of the government.

As previously reported in Farm Weekly, KLL is working with German engineering company K-UTEC on design and construction of a modular processing plant for its Beyondie project, to turn salts harvested from brine evaporation ponds into commercial granular SoP, premium SoP and soluble SoP fertiliser products for domestic and export markets.

It also has in-principal agreement with another German company and established international potash producer K&S KALI GmbH to off-take, market and distribute all of Beyondie’s projected stage-one production of 75,000 tonnes of SoP a year through its global network and in Australia.

These associations with German exporting companies – particularly if the in-principle agreement with K&S evolves as anticipated into a 10-year contract – makes KLL eligible to apply for risk-averting credit insurance guaranteed under the German government scheme.

According to information on the German Federal Ministry of Economic Affairs and Energy website, aspects of the scheme have operated since the early 1960s with demonstrable success and are aimed at promoting German exports, securing reliable raw materials supply for German industry and maintaining German employment by underwriting foreign investment risk insurance.

Known as ‘Hermes cover’, the scheme provides German government guaranteed insurance cover against economic and political credit default risks to bank lenders or financiers providing development capital for raw materials projects that have a German export connection.

The inter-ministerial committee which reacted positively to KLL’s application comprised representatives of the German federal ministries of economics and technology, finance, foreign office and economic co-operation and development.

Decisions on matters of principle and underwriting of large export transactions under the scheme are made by the committee and administered by Hermes.

KLL has told the Australian Securities Exchange (ASX) about $42 million of the estimated $124m Beyondie project capital raising could qualify for Hermes cover.

KLL is proposing to fund construction of its Beyondie project by a combination of about $74.4m (60 per cent) debt and $49.6m (40pc) equity.

It hopes to have project financing arrangements, due diligence and formal credit approvals finalised by the end of the year.

Early construction is projected to start in the fourth quarter and progress throughout next year, with processing plant commissioning and first commercial production scheduled in the fourth quarter 2019.

Granting of Hermes cover is expected to make development loans for Beyondie easier to obtain from institutional lenders because of the reduced risk through German government insurance guarantees.

According to KLL, Hermes cover also usually brings a benefit of lower loan interest rates, again because of reduced risk.

Approval of Hermes cover for the Beyondie project will depend on a due diligence process to be conducted by Hermes and final approval by the inter-ministerial committee.

KLL has advised the ASX that independent due diligence work on Beyondie is also being conducted “by a number of leading consultants for local and international project finance banks”.

Managing director Brett Hazelden said “receiving this positive preliminary assessment from the inter-ministerial committee and Hermes, in such a short period of time, will help facilitate the company’s progress to secure project financing”.

“Our objective is to become the first SoP producer in Australia,” Mr Hazelden said.

KLL is the front runner of five Perth-based companies proposing to produce SoP fertilisers from brine pumped from beneath the crust or collected in surface trenches at remote WA salt lake locations.

SoP has a lower salt index than other mineral fertilisers so sells at a price premium in comparison.

This effectively limits its commercial usage in Australia to higher-value fruit and vegetable crops.

Australia imports about 40,000 tonnes a year but it is estimated usage could increase to about 75,000t a year if SoP can be produced locally at a cost low enough to encourage broadacre cropping enterprises, particularly in salt-affected areas like parts of WA’s Wheatbelt, to use it.

The world SoP market is estimated at 6m tonnes a year – 10pc of the global potash fertiliser market – and growing.

KLL is proposing a ramped start-up, initially producing 75,000t a year but building to 150,000t a year and exporting SoP via the Geraldton port.

It estimates target markets in China, the United States, India, Japan, New Zealand, Indonesia, Malaysia, Thailand and Vietnam could total almost 4.9 million tonnes a year.

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