TRYING to establish Australia's first Sulphate of Potash (SoP) fertiliser production plant and a subsequent export industry has been more expensive than first thought.
Kalium Lakes Ltd (KLL) managing director Brett Hazelden last week confirmed the company's Beyondie SoP project (BSoPP) at a string of remote salt lakes 160 kilometres south east of Newman had presented some unforeseen and uncosted "development challenges" in attempting to be first into production.
Until earlier this month when the company's $61 million shortfall in funds estimated to be needed to complete the construction phase of its project was leaked, KLL had been front runner of two, possible three, Western Australian prospective SoP producers aiming to start commercial fertiliser production within 12 months.
"Commencing a new Australian industry and being a first mover in SoP has presented some development challenges resulting in a capital cost increase for the BSoPP," Mr Hazelden said in an explanation to the Australian Securities Exchange (ASX) on Thursday.
"Despite the capital cost overrun the company and the project still remains a financially attractive, long life, low operating cost and high margin business once it commences steady State operations," he said.
"The overall project is now 40 per cent complete, with an off-take agreement in place, comprehensive suite of constructions approvals, highly attractive debt funding tenor and interest rates and in a commodity that currently requires Australia to import 100pc of its requirements.
"Importantly our revised capital budget has been verified by independent engineering specialists who have reviewed the project and we are confident that the offer (a $19m institutional share placement and a $42m fully underwritten five-for-seven entitlement offer to raise the $61m) will fund us through to completion of construction of the BSoPP and through to first production.
"We would like to thank our lenders, contractors and shareholders who have been supportive and continue to be supportive of the company and the project."
KLL has moved its estimated production start-up date back six months to in the third quarter next year and is estimating a more than 30 years resource life.
Salt Lake Potash (SO4 on ASX listings), with its fast-tracked project at Lake Way, 25km south of Wiluna, is the new front runner, expecting to produce its first commercial premium grade powder SoP in the first quarter next year.
It also aims to produce a second fertigation grade soluble SoP product, also from evaporating hypersaline brine collected in channels on Lake Way's salt crust surface.
KLL last week identified a number of reasons for its BSoPP cost over runs, including design changes to meet performance guarantees required by a major lender and product specification for the off-take agreement it has with German-based global fertiliser and salt trading specialist K+S.
It also admitted "underestimating the complexity to take a German-based design to the desert in Western Australia" - some of its processing plant is being built in modular form in Germany.
Actual operating bore performance showed brine extraction rates were lower than expected, requiring additional bores, pumps, pipelines and trenches, it said and a gas pipeline had cost more than anticipated.
Weather impacts from two cyclone events and higher insurance costs were also not anticipated, KLL said.
But all planned brine production bores were now installed - by end of last month the brine equivalent to 23,000 tonnes of SoP had been pumped to evaporation ponds and 107 hectares of ponds were lined and operational out of a planned total of 400ha, KLL told the ASX.
The gas pipeline components had been delivered to Port Hedland and were awaiting installation and fabrication of the German SoP processing equipment was "well advanced", it said.
KLL said its major shareholder Greenstone, with 20.1pc of its issued stock, has committed to subscribe for about $12m under the institutional placement and entitlement offers and to sub-underwrite up to $2m of any retail shortfall, making a total commitment of up to $14m.
KLL's board and senior management has committed to take up about $5.8m of the entitlement offer and to also sub-underwrite it.
About 406.7m new shares will be issued at $0.15 each, which represents a 69pc discount to the February 21 last KLL closing share price of $0.49 - trading in KLL shares has been voluntarily suspended since then while the BSoPP financials were independently reviewed and the offers put together aiming to raise the shortfall.
KLL said the likely 53pc discount to the theoretical ex-rights price of $0.325 "reflected" the time KLL shares have been suspended.
The new shares issued as a result of the institutional placement and entitlement offer, plus shares issued to contractors under a debt-to-equity conversion deal and an additional conditional placement, if approved by a July 1 shareholders' meeting, could lift KLL's total issued stock from 391.9m shares to 847m if the entitlement offer is fully taken up.
Normal trading of KLL's new shares is expected to resume on Wednesday, June 17.
