Project Study Update

Released : 03/12/2012 07:00

RNS Number : 5129S
Sirius Minerals Plc
03 December 2012
 



3 December 2012 

 

Sirius Minerals Plc

 

("Sirius" or the "Company")

 

York Potash Project Study Update delivers reduced cost, time and risk

 

§ Evolution of development strategy to maximise value from the world's largest and highest grade Polyhalite Resource at the York Potash Project

§ Market engagement and scientific research confirms significant global demand potential for Polyhalite

§ Lower risk and value enhanced initial development:

Estimated capital cost to first production reduced to US$1.7 billion1

First production targeted to commence earlier in Q4 2016

Simplified processing to produce 5 million tonnes per annum of granulated Polyhalite

§ NPK Concept Study confirms viability of producing 5 million tonnes per annum of NPK fertilizers using Polyhalite as the primary source of Potassium ("K")

§ Definitive Feasibility Study ("DFS") work already commenced on both Polyhalite and NPK targeting completion during Q2 2013 to enable commencement of construction during Q3 2013

§ Expansion capacity and options to produce Sulphate of Potash ("SOP") to be considered once the Project is generating positive cashflow

1Figures exclude contingency, costs +/- 25% accuracy.

 

Sirius Minerals Plc ("Sirius" or the "Company", AIM: SXX, OTCQX: SRUXY), the globally diversified potash development group, is pleased to announce the completion of the York Potash Project Study Update (the "Project Study") and the NPK Concept Study for the Company's 100% owned York Potash Project (the "Project" or "York Potash").

Chris Fraser, Managing Director and CEO of Sirius commented:

"Our engagement in the major fertilizer markets around the world has led us to focus the initial development of the York Potash Project on granulated Polyhalite, a unique and sustainable potash product.  This simplified development approach, analysed in the Project Study, delivers a significantly lower capital cost to achieve first production and materially reduces our initial financing requirements.

"The NPK Concept Study has provided the validation of NPK production; a move which could further de-risk the Project whilst generating significant value for shareholders and offering revenue diversification.  These studies are a major milestone for the Company and propel us forward to becoming a global leader in the fertilizer industry and an integral part of the solution to the important issue of food security."

Investor Presentation and Audio Webcast

This announcement should be read in conjunction with the Project Study Update presentation available at www.siriusminerals.com.  There will be an audio webcast available on Monday 3 December 2012 at 14:00 (GMT).  The webcast will be accessible via www.siriusminerals.com following which there will be a replay facility available.  There is also a conference call available for participants unable to access the webcast at 14:00 (GMT): +44 (0)20 7136 2054 (participant code: 9309492).

Development Strategy and Key Findings

The initial development of the York Potash Project will focus on producing 5 million tonnes per annum ("mtpa") of granulated Polyhalite product.  Sirius will target multiple routes to market with the granulated Polyhalite from the initial development as a direct application multi-nutrient fertilizer or blended with Nitrogen and Phosphorous to create NPK fertilizers containing all six macro-nutrients essential for fertilization.

The initial development will deliver a simplified start-up project to reduce the external financing requirements and move the Project into positive cashflow as soon as possible.  The initial development has been engineered to a level of accuracy of +/-25% in the Project Study with key findings as follows:

§ Estimated capital cost to first production of US$1.7 billion1;

§ First production in Q4 2016, ramp up to 5mtpa by 2018;

§ Estimated Teesside FOB operating cost of US$37/tonne1;

§ Positive free cash flow in 2017; and

§ Initial development (5mtpa of Polyhalite) after-tax net present value of US$2.6 billion increasing to US$5.9 billion on first production1,2.

2 Refer to appendix for NPV assumptions.

A summary of the capital and operating costs as detailed in the Project Update Study is provided below:


Capital Cost1

Operating Cost1

Area

2013-2016

US$m

2017

US$m

2018

US$m

Total

US$m

US$/tonne

Mining

133

66

22

221

10.7

Shafts

738

12

-

750

1.4

Processing at Mine

123

-

-

123

3.6

Pipeline

242

-

-

242

3.0

Processing at Port

70

18

14

102

12.0

Port Infrastructure

204

61

6

270

4.3

General Infrastructure

113

33

-

146

2.0

Power and Energy Infrastructure

91

-

-

91

-

Total

1,714

189

42

1,945

36.9

On completion of construction, the shafts will have hoisting capacity of 12mtpa and the pipeline will have a capacity of up to 20mtpa.  This gives Sirius the option for volume expansion in Polyhalite and product expansion into NPK or SOP production, once the Project is generating positive cashflow. 

The results of the NPK Concept Study confirm the viability of producing NPK fertilizers at Teesside.  This demonstrates that Sirius could produce large scale NPK fertilizer with the added nutrients of Sulphur, Magnesium and Calcium to deliver the benefits of Potassium at a lower production cost and energy requirement compared to that of traditional SOP or MOP based NPK's.  The NPK Concept Study order of magnitude cost estimates were prepared to a level of accuracy of +/-50% and established:

§ NPK products with varying Polyhalite content up to 70% can be produced using dry granulation;

§ Estimated capital cost for initial 2mtpa NPK capacity at Teesside of US$318m1,2 with trucking of raw materials to the plant;

§ Total estimated capital cost for 5mtpa NPK capacity at Teesside of US$736m1,2 (inclusive of the costs of the initial 2mtpa capacity described above) including the cost of switching to shipping of raw materials to the plant;

§ Estimated Teesside FOB operating costs, excluding raw materials, of US$61/tonne2 reducing by US$23/tonne2 post expansion beyond 2mtpa due to import of raw materials via ship to Teesside; and

§ NPK expansion could deliver incremental annual EBITDA in the range of US$374 - $617m from approximately 2.5mtpa of Polyhalite.

1 Excludes any land or acquisition costs.

 

2 Figures exclude contingency, order of magnitude cost estimates prepared +/- 50% level of accuracy, operating costs exclude royalties and
 
sustaining capital expenditure.

Work has commenced on the DFS and the Company is targeting completion of that study for both granulated Polyhalite and NPK during Q2 2013 to a level of accuracy of +/-15%.  The team will also focus on a number of engineering optimisations and opportunities to reduce financing requirements as part of the DFS.

Sustainable Development

Sirius is committed to the principles of sustainable development and in January 2011 adopted the ten sustainable development principles issued by the International Council of Metals and Mining ("ICMM") in 2003.  The development strategy and the project design incorporated into the Project Study demonstrate this commitment:

§ World-leading mine design incorporating below surface structures and facilities to reduce the visual impact in the North York Moors National Park as much as possible;

§ Processing facilities at the port rather than at the mine, as would be normal for such an operation.  This results in a significant reduction in the surface footprint and disturbance at the mine location and places larger scale industrial facilities in a heavily industrialised area in Teesside;

§ Highly efficient low-impact transportation of the mineral through a buried pipeline system.  This minimises the Project's impact on the environment including carbon emissions, traffic movements and surface disturbance;

§ Focus on direct application of Polyhalite as a sustainable natural multi-nutrient fertilizer.  By not separating the ore into its distinct nutrient components (SOP, Magnesium Sulphate and Gypsum) through an energy intensive process, the Project is able to become one of the most sustainable sources of vital large scale nutrients for food production globally;

§ Large scale availability of Polyhalite based fertilizers will enable a greater proportion of the world to adopt balanced fertilization.  Balanced fertilization is widely acknowledged as a significant part of the food security solution in many nations around the world;

§ Higher nutrient use efficiency ("NUE") delivered by the synergy of the nutrients within Polyhalite and with other nutrients will increase yields and quality of food for the same unit application of fertilizer.  Balanced fertilization results in an increase in the absorption by plants of all nutrients applied, such as Nitrogen, and therefore results in less environmental from run-off.  A net reduction or improved efficiency of use of the fossil fuel based Nitrogen fertilizers will have a positive environmental impact globally.

 

Fertilizer Market Considerations

Balanced Fertilization

A study by the Food and Agriculture Organization1 showed that crop production will need to rise 70% by 2050 to meet the needs of an increased global population with changing diets.  It is widely acknowledged that this food productivity challenge can only be successfully addressed by increased and more effective use of balanced fertilizers.

Fertilizers replace the nutrients that crops remove from the soil.  Nutrients are complimentary to each other and a deficiency in any one of them will limit crop growth and quality, "The law of the minimum".  Balanced fertilization, particularly of the six macro-nutrients (Nitrogen, Phosphorous, Potassium, Sulphur, Magnesium and Calcium), is essential to obtaining optimal crop yields.

1 Food and Agriculture Organisation report: How to feed the world by 2050, published in October 2009.

Polyhalite Market Potential

Polyhalite as a Potassium bearing mineral is classified as "potash" but uniquely contains four of the six macro-nutrients (Potassium, Sulphur, Magnesium and Calcium) required for plant growth.  It has the potential to play a major role in boosting yields, improving NUE and restoring soil with depleted nutrient levels to address the global food security challenge.  Polyhalite is an effective direct application multi-nutrient fertilizer and can also be combined with Nitrogen and Phosphorous to create high value NPK fertilizer products that contain all six macro nutrients.

Polyhalite is currently sold as a specialty fertilizer in small volumes in Europe and is registered as a European Community designated fertilizer enabling it to be sold into the European Economic Area.  Crop studies have demonstrated that finely ground Polyhalite is an effective source of Potassium, Sulphur, Magnesium and Calcium, particularly on acidic and nutrient-poor soils.  The initial results from a current pot study being conducted by Durham University on behalf of Sirius show a positive response by crops fertilized with Polyhalite.

As Polyhalite is a natural blend of well-understood minerals (Potassium, Sulphur, Magnesium and Calcium), Sirius' initial strategy is to sell granulated Polyhalite as a multi-nutrient fertilizer on a large scale.  The combined market for fertilizers containing the similar nutrients to Polyhalite (SOP, Magnesium Sulphate and Sulphur fertilizers) is currently approximately 20mtpa and is expected to grow to over 27mtpa by 20201.

1 CRU, Roskill, and The Sulphur Institute.

 

Blended Multi-Nutrient Fertilizers (NPK)

Almost half of the world's potash supply is blended into multi-nutrient fertilizers known commonly as NPK fertilizers.  The Complex NPK market is well-established with an estimated size of 80mtpa and is the fastest growing market segment in the fertilizer industry.  The Complex NPK market is expected to grow at a 4.5% CAGR to 100mtpa by 2016 and at a 4.0% CAGR to 115mpta by 20202.  Pricing of NPK products differ on the quality, nutrient content and performance of the product, with standard bulk NPK materials currently priced at the point of production in the range of US$400 to US$450 per tonne3.

Sirius or alternatively customers who are existing NPK producers, can use Polyhalite as a source of Potassium ("K") to deliver higher value balanced NPK fertilizer due to the added nutrients of Sulphur, Magnesium and Calcium uniquely combined in Polyhalite.  This will deliver the benefits of Potassium without the production cost and energy requirements of traditional SOP and MOP production.

 

2 The NPK market growth is assumed to be 1% higher than average fertilizer growth

 

3 Fertecon

Marketing Strategy

Sirius is engaged in discussions with potential customers in key markets including Europe, USA, Brazil, China, India and South East Asia and is targeting signing offtake agreements to underpin financing of the Project.  Europe and the USA are well developed fertilizer markets with large-scale sophisticated farmers who understand the importance of balanced fertilization.  China, India and Brazil all face significant nutrient deficiencies which will need to be addressed to meet the needs of their developing populations.

Sirius is also working with a number of customers, agricultural universities and institutes on crop studies and product testing.  Local crop studies already underway include: Durham University (wheat, cotton, potatoes, soybean, and oilseed rape); and Texas A&M/USDA (potatoes, chilli pepper, sorghum, onion).  Additional studies are currently being planned in Florida (sugarcane and corn) and in China (cotton and peanut oil).  Key technical studies include product testing for solubility, leaching and agronomic performance.  The test work will continue to expand to provide the key support for marketing the benefits of Polyhalite and increasing knowledge about the unique qualities that it offers.

Polyhalite Inferred Resource

The Inferred Mineral Resource Statement is detailed in the table below and has been reported using the guidelines and definitions set out in the 2004 edition of the JORC Code. 

Seam

Weighted Average Thickness

Polyhalite Material

Average Polyhalite Grade

K2SO4

 

(m)

(Mt)

(%)

(%)

Shelf

13.7

1,400

83.2%

24%

Basin

13.3

800

80.8%

23%

Total

13.6

2,200

82.4%

24%

The York Potash Project is contained within the Permian Zechstein evaporites, which have been mined extensively for potash and halite in both the UK and north-western Europe.  SRK's Mineral Resource Estimate occurs as two main Polyhalite horizons, an upper shelf seam and a lower basin seam.  The shelf seam occurs predominantly in the western part of the area explored to date whilst the basin seam occurs predominantly in the eastern part of the area. 

SRK created a geological model for the Polyhalite horizons based on the hangingwall and footwall contacts of these horizons as delineated in drilling supported by drillhole logging information, wireline gamma data and the results of Quantitative X-Ray Defraction (XRD) analysis from which the Polyhalite grades were derived.  The analytical data was then composited into 1.5 metre composites and subjected to geostatistical analysis.  The resulting interpolated grades were validated through visual checks and a comparison of the mean input composite and output model grades.  SRK is confident that the interpolated block grades are a reasonable reflection of the available sample data.

The geological model includes the data from the York Potash exploration drilling programme (8 holes plus 6 deflections equating to a total of 14,950 metres of drilling) and historical borehole data (87 historical holes of which 32 provide data on the Polyhalite seam).  This data was then combined with both historical seismic lines (a total of 1,027 kilometres onshore of which 227 kilometres have been re-processed and re-interpreted) and the new 2D seismic survey over 47 kilometres undertaken earlier this year by York Potash.

Extending drilling away from the mine shaft area of focus and into lower grade areas has resulted in a decrease in average grade from 88.7% to 82.4%.  Notwithstanding this, SRK has outlined approximately 950 million tonnes with a mean grade of approximately 90% Polyhalite within this 2.2 billion tonnes Resource area.

Exploration Target

In addition to producing the updated Mineral Resource Estimate, SRK also used the structural interpretation and increased geological understanding, which are supported by a detailed seismic survey, to outline additional areas where there is likelihood that Polyhalite horizons will be present but have not yet been drilled.  This analysis has resulted in the delineation of an Exploration Target of between 1 and 2 billion tonnes of 80% - 90% Polyhalite in the vicinity of the Inferred Mineral Resource and still only represents 10% of the total Project area, when combined with the current resource area.

Project Study for 5mtpa of Granulated Polyhalite

Objectives

The primary objective of the Project Study was to deliver a simplified and lower risk Project based on granulated Polyhalite with a level of accuracy on both capital and operating expenditure of +/- 25% for the areas of shaft, mining, mineral transport, processing, port facility and associated infrastructure.

The Company was targeting the release of a Pre-Feasibility Study ("PFS") on granulated Polyhalite which requires an Indicated Mineral Resource Statement to reach a +/- 25% level of accuracy for the mining section of the study.  Sirius expects an Indicated Mineral Resource Statement to be completed once results consistent with the geological model are obtained from SM11 in Q1 2013. The following levels of capital and operating expenditure where achieved in the Project Study:

Area

Level of Accuracy

 

Mining

 

+/- 25% - Upgrade to PFS Standard subject to Indicated Mineral Resource Statement

 

Mine Shafts

+/- 25% - PFS Standard

 

Mineral Transport

+/- 25% - PFS Standard

 

Processing

+/- 25% - PFS Standard

 

Port

+/- 25% - PFS Standard

 

General Infrastructure

+/- 25% - PFS Standard


The Project Study was carried out jointly by the experienced York Potash Project team and consulting engineers GBM with input from specialist technical consultants for specific project aspects of mining, shaft design, ore transportation, processing, infrastructure and utilities and marketing. 

Project Study Key Assumptions

§ Phase 1 capacity of 5mtpa granulated Polyhalite;

§ Conventional underground mining of Polyhalite to take place 1,400 - 1,600 metres below surface commencing from the mine shaft location;

§ Shaft and mine at location announced on 3 September 2012;

§ Ore transportation via buried pipeline from the mine to a processing plant and port facilities at Teesside;

§ Processing plant at Teesside for production of Polyhalite in granular or powder form; and

§ Products sold directly to customers via road, train or ship from Teesside.  Shipping from a new jetty to be constructed on the river Tees.

Mine Shaft Development

As announced on 3 September 2012, the design of a sunken head frame with twin vertical shafts was selected to minimise technical risk and environmental impact.  Under this design, a shaft headframe will be sunk approximately 100 metres below the surface from which two vertical shafts will be sunk to a depth of around 1,500 metres to the "shelf" seam of Polyhalite.  From this depth, an incline can be mined to access the deeper "basin" seam in the future.

Sirius has engaged three leading shaft sinking contractors (Cementation, DMC and Shaft Sinkers) to evaluate shaft sinking methodologies.  These studies have considered three combinations of ground control and excavation techniques to build a shaft system with a hoisting capacity of 12mtpa of ore.

These techniques include:

1.    Traditional drill and blast excavation with grouting;

2.    Traditional drill and blast excavation with ground freezing; and

3.    Shaft boring road header with ground freezing (Herrenknecht SBR).

The York Potash team continues to evaluate all options from a cost, time to construct and risk basis and is currently conducting site visits of shafts being constructed by all three shaft sinking contractors.  Following receipt of results of the shaft pilot hole geotechnical test work, the shaft sinking methodology will be confirmed and the contractor will be selected for the completion of the DFS and the construction contract.  The capex estimate and schedule detailed in this announcement are based on traditional drill and blast excavation with grouting.  

Mining Method

SRK has identified target areas for mining as being generally flat lying, in which mining panels have been designed.  The panels extend for several hundred metres with seam thicknesses of 10 metres to in excess of 40 metres.  The preferred mining method is to extract the Polyhalite seam with a room and pillar method comprising of tunnels 12 metres wide and 5 to 20 metres high using continuous miners. 

All mining and development is planned in the Polyhalite seam and the rock mined will be transported underground by conveyors and hoisted to surface as Run of Mine product; no waste material will be extracted.  Pillars sized 10 x 20 metres will be left in-situ to provide local and regional support to the openings; rockbolts will be installed where local conditions require it.  Mining activities will not affect surface topography or the overlying aquifers, including the important Sherwood Aquifer that is located 800 metres above the mining horizon. 

An initial production rate of 5mtpa is planned using six continuous miners fully supported with shuttle cars, rockbolters and in-panel and trunk conveying systems.  Access to the mine will be by the North Shaft, to be used for transport of mine workers and materials and to intake mine ventilation.  The South Shaft will be used for ore hoisting and to exhaust mine air.  General mine facilities will be located in the shaft pillar area, including welfare, mobile equipment maintenance and diesel fuel area, mine pump station, electrical sub-station and stores. 

Pipeline Ore Transportation System

A study by Murphy Pipelines and pipeline engineering consultants, OSD Pipelines, has confirmed the technical viability of a buried slurry pipeline system to transport ore from the mine to the processing plant in Teesside.

The design consists of two 44.5 kilometre, 600-700mm diameter welded steel-plastic lined pipelines with a capacity to transport up to 20mtpa of Polyhalite.  The first pipeline is a slurry concentrate pipeline transporting the Polyhalite ore from the mine to the proposed processing facility at Teesside.  The second pipeline will return the transport water back to the mine site, effectively forming a closed loop system.

Running adjacent to the pipelines will be a power cable, fibre optic cables for control systems and a leak detection system.  At the mine there will be a slurry preparation terminal comprising of ore crushing, milling and mixing tanks.  At Teesside, receiving tanks will prepare the ore for processing.  Pipeline test work has concluded that material can be pumped as slurry from the mine to Teesside from one pumping station located at the mine.

Detailed route surveys have been completed along the entire route and optimisation studies have been completed to minimise impact on moorland, ecological interests, archaeological features and areas affected by historic mining activity.  A public consultation is underway and a planning application is expected to be submitted in January 2013.  Negotiations with landowners for right of way easements are well advanced, with agreements in place with nearly all landowners either complete or nearing completion.

Processing and Port

The Polyhalite ore arriving at Teesside will be dewatered, dried and then granulated either by addition of a binder or by compaction.  Working with GBM, laboratory testwork has been conducted to confirm each process step and to measure key parameters. 

Key inputs to the processing route include electricity and gas.  It has been confirmed that substantial capacity for both already exists at the proposed processing site.  Allowances have been made for associated connection costs in the capital cost estimates.    

Following processing, the granulated Polyhalite will be transferred by conveyor to a covered storage facility with capacity of 250,000 tonnes.  Port Infrastructure will include a shiploader and jetty capable of handling vessels ranging from 50,000 to 150,000 Dead Weight Tonnes ("DWT"), giving flexibility to meet specific market requirements.

Infrastructure

Requirements and costs for general infrastructure include office buildings, IT and communications, workshops, staff facilities, onsite roads, car parks, fencing and landscaping.  The infrastructure is designed to integrate and support all areas of the Project from mine to port.

To supply electrical power to the slurry preparation and pumping facility, it is planned that a power cable will be installed within the pipeline trench and connected to the national grid at Teesside.  A supplementary supply will also be provided by means of a connection to the existing national grid, located at Whitby substation to supply up to 20 Megawatts. 

 

NPK Concept Study

Sirius commissioned GBM to evaluate the feasibility of producing NPK fertilizer with Polyhalite as the primary source of potassium.  The NPK plant was designed as an addition to the granulated Polyhalite processing plant with 1mtpa modules allowing for flexible expansion up to 5mtpa of NPK.  The plant consists of raw material stockpiling, milling, granulation, granule polishing and finished product stockpiling.

 

The NPK Concept Study considered a plant for producing two NPK products through dry granulation with up to four raw material inputs.  For initial production of up to 2mtpa of NPK, it will be possible to procure raw materials from UK sources or from the global market and import them to the UK for delivery by road to the Sirius plant, rather than direct shipping to Teesside.  Whilst increasing operating cost by an estimated $US23/tonne1, this will defer the capital expenditure of a ship unloader and associated civil construction and equipment which will be required when the operation moves to a capacity greater than 2mtpa.  A breakdown of the capital and operating costs for 5mpta of NPK production is as follows:

§ 2mtpa via trucking - capital cost of US$318 million1,2. Operating cost excluding raw materials of US$61/tonne1.

§ 3mtpa via shipping - additional capital cost of US$418 million1,2. Operating cost excluding raw materials once shipping facilities installed of US$38/tonne1 for all production.

1 Figures exclude contingency, order of magnitude cost estimates prepared +/- 50% level of accuracy, operating costs exclude royalties and sustaining capital expenditure.

 

2 Excludes any land acquisition or leasing costs.

Sirius has commenced discussions with suppliers of the other raw materials for the production of NPK and will work towards signing supply contracts as appropriate.  These discussions have indicated that securing the necessary supplies will be achievable.

Continuing Project Development

Sirius is targeting completion of a DFS for both granulated Polyhalite and NPK production during Q2 2013.  The DFS will be prepared to a level of accuracy of +/-15% and include consideration of a number of optimisation opportunities including:

§ Mine Development - Results from the shaft pilot hole geotechnical test work will enable shaft design parameters, sinking methodology and lining to be finalised.

§ Mine Planning - Complete work to refine mine start-up and ramp-up strategies once geological results are known from SM11 with a view to maximising grade of extracted ore in early years of operation.

§ Equipment leasing - Discussions with equipment providers to structure financing options for key construction and operational equipment.

§ Infrastructure outsourcing - Preliminary discussions are underway to consider outsourcing initial infrastructure including power, port facilities and the pipeline.

§ Storage Optimisation - Current estimates for Initial Development of Polyhalite and NPK Concept Study on NPK include US$365 million for product storage facilities, opportunity exists to potentially optimise and better stage operational requirements.

 

For further information, please contact:

Sirius Minerals Plc




Peter McLennan
(General Manager - Commercial)

 


Tel:  +44 8455 240 247

 

Email: info@siriusminerals.com

NOMAD/ Joint Broker

Joint Brokers

Joint Brokers

Media Enquiries

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Lorna Spears

Tel: +44 20 3037 2000

Tel: +44 20 3100 2222

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About Sirius Minerals Plc

Sirius Minerals is a globally diversified potash development company. Its primary focus is to bring on stream major potash mining facilities through the acquisition and development of projects overlying recognised potash deposits.  Today it holds properties in the United Kingdom (North Yorkshire), the United States (North Dakota), and Australia (Queensland).   Incorporated in 2003, Sirius Minerals' shares are traded on the London Stock Exchange's AIM market.  Its shares are also traded in the United States on the OTCQX through a sponsored ADR facility.  Further information on the Company can be found at www.siriusminerals.com.

 

Qualified Persons

The information in this press release that relates to Mineral Resources is based on information compiled under the direction of Dr Mike Armitage C Eng, who is a Member of the Institute of Materials, Minerals and Mining which is a 'Recognised Overseas Professional Organisation' (ROPO) included in a list promulgated by ASX from time to time.

 

Dr Armitage is a full time employee of SRK Consulting and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he has undertaken to qualify as a Competent Person as defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves' (the JORC Code) and for the purposes of the AIM Rules.  Dr Armitage has reviewed this press release and consents to the inclusion in the press release of the matters based on his information in the form and context in which this appears.

 

Graham Clarke, Operations Director for the Company, who has reviewed this Stock Exchange Announcement, has over 26 years' experience in the potash mining industry.  He has a Degree in Mining Engineering from the University of Nottingham, is a Fellow of the Institute of Materials, Minerals and Mining (IMMM) and extensive operational experience gained at Cleveland Potash Limited in the mining of the Boulby Potash seam and the exploration and development of the upper Fordon Polyhalite seam.

 

Forward Looking Statements

This announcement contains certain "forward-looking statements". These statements, which sometimes use words such as "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the Company's intention, beliefs and current expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement.  There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Such factors include, amongst others, the interpretation and actual results of the specific studies undertaken by expert consultants, changes in project parameters as plans continue to be refined, future costs estimates, possible variations in grade or recovery rates, failure of equipment or processes to operate as anticipated, the failure of contracted parties to perform, labour disputes and other risks of the mining industry, delays in obtaining governmental approvals or financing or in the completion of exploration, as well as those factors disclosed in the company's publicly filed documents.

Sirius does not undertake to update any forward-looking statements that are included herein, except in accordance with applicable securities regulations.

APPENDIX

 

PROJECT STUDY AND NPK CONCEPT STUDY

ADDITIONAL INFORMATION

 

 

Indicative Project Timetable

Key milestones are summarised in the table below:

 

Timing

Complete drilling programme and upgrade to Inferred Resource

Q1 2013


Complete Definitive Feasibility Studies

Q2 2013



Approvals

Q2 2013



Initial Development Construction

Q3 2013 - Q4 2016



Production Start and Ramp Up

Q4 2016 - Q1 2018

Project Study

The Project Study has produced an estimate of capital and operating costs for the initial development of the Project to support an annual production rate of 5mtpa of granulated Polyhalite by 2018.  These estimates are to an accuracy level of +/- 25%.

Capital Cost Estimate - US$ million1

Area

2013 - 2016

2017

2018

Total

Mining

133

66

22

221

Shafts

738

12

-

750

Processing at Mine

123

-

-

123

Pipeline

242

-

-

242

Processing at Port

70

18

14

102

Port Infrastructure

204

60

6

270

General Infrastructure

113

33

-

146

Power and Energy

91

-

-

91

Total

1,714

189

42

1,945

 

1 Figures exclude contingency, level of accuracy of +/-25%.

Teesside FOB Operating Cost Estimate - US$/tonne Polyhalite1

Area

US$/tonne1

Mining

10.7

Shafts

1.4

Ore Handling at Mine

3.6

Pipeline

3.0

Processing

12.0

Port Infrastructure

4.3

General Infrastructure

2.0

Total

36.9

 

Note: Operating costs exclude royalties and sustaining capital expenditure.

Indicative Financial Analysis

Key assumptions of the financial analysis are as follows:

§ Net present values are after-tax nominal project cashflows (i.e. do not include cost of debt other than for tax)

§ Assumed annual inflation of 2% on all product and cost items

§ Assumed debt finance of US$1.5 billion for the purposes of calculation of the interest tax shield

§ Discount rate of 10% nominal

§ Illustrative long-term Polyhalite price of US$150/tonne

§ Royalties of 3% of revenue

§ Maintenance capex is assumed to be 2% of development capex

§ Exchange Rates USD/€ 1.35, USD/£ 1.60

The results of the Project Study demonstrate the potential for robust economics of initial development.

Net Present Value (After-tax) Sensitivity Table (US$ million)

Capex Sensitivity

Long-term Product Prices US$ FOB Teesside

 

$112

$135

$150

$165

$188

-25%

1,645

2,438

2,961

3,483

4,265

-10%

1,396

2,194

2,719

3,242

4,024

Base

1,229

2,030

2,557

3,081

3,864

+10%

1,061

1,886

2,394

2,919

3,703

+25%

807

1,619

2,150

2,676

3,461

 

Internal Rate of Return (After-tax) Sensitivity Table

 

Capex Sensitivity

Long-term Product Prices US$ FOB Teesside

 

$112

$135

$150

$165

$188

-25%

21%

25%

28%

30%

34%

-10%

18%

22%

24%

26%

30%

Base

17%

20%

22%

24%

27%

+10%

15%

19%

21%

23%

26%

+25%

14%

17%

19%

21%

23%

 

NPK Concept Study

The NPK Concept Study has produced an order of magnitude estimate of capital and operating costs for the production of NPK fertilizers at Teesside up to a total capacity of 5mtpa of NPK.  Initial development up to 2mtpa of NPK is based on the trucking of raw materials to the process plant. Expansion to 5mtpa based on the shipping of raw materials to the process plant. These order of magnitude cost estimates are to an accuracy level of +/- 50%.

Capital Cost Estimate - US$ million1,2

Capacity

2mtpa NPK

5mtpa NPK

 

Area / Input Sourcing

Trucking

Shipping

Total

Raw Material Unloading

-

52

52

Raw Material Stockpiling

39

105

144

Processing (Milling, Compaction, Polishing)

174

261

435

Finished Product Stockpiling and Reagents

105

-

105

Total

318

418

736

1 Figures exclude contingency, order of magnitude cost estimates prepared +/- 50% level of accuracy, operating costs exclude royalties and sustaining capital expenditure.

 

2 Excludes any land acquisition or leasing costs.

Operating Cost Estimate - US$/tonne NPK1

Capacity

2mtpa NPK

5mtpa NPK

Area / Input Sourcing

Trucking

Shipping

Processing

38.3

38.3

Trucking of Inputs

23.0

-

Total - US$/tonne NPK excluding raw materials

61.3

38.3

 

Notes: 1) Operating costs exclude royalties and sustaining capital expenditure.

The cost of raw materials is dependent on the specific blend of NPK produced.  The Company is investigating a range of potential blends with varying quantities of Polyhalite and other nutrient inputs.  This analysis will form part of the DFS to be completed during Q2 2013.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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