HomeEast AfricaCircum Minerals: Potential potash major on the horizon

Circum Minerals: Potential potash major on the horizon

Thanks to Circum Minerals’ recently approved mining licence, the company is aiming to secure investment which will enable it to develop and mine the project’s proven 4.9 Bt potassium resource for an initial 20 year period, Circum Minerals COO, Chris Gilchrist tells Laura Cornish.

Considering the project is located within the highly prospective Danakil potash basin and surrounded by other potash-focused companies such as Israel Chemicals (which acquired Allana Potash), Yara International and next door in Eritrea, Danakali, Circum Minerals’ licence area is undeniably a potash hot spot. The resource it has proven to date is contained within a massive 365 km² license area.

With the right strategic investor on board, Circum Minerals will be well positioned to become one of the world’s largest, low-cost potash producers

Having initially acquired a 70% stake in the Danakil project in 2013 and the remaining 30% the year after, which at the time comprised just 25 drill holes in the ground, it took Circum Minerals only 14 months from 100% ownership completion to complete a drilling and seismic programme, scoping study and definitive feasibility study (undertaken by SENET), which was delivered on time and on budget.

The study delivered the massive 4.9 Bt potash resource, announced in July 2015, “which is far more substantial than the 500 Mt resource target we were looking for,” says Gilchrist, who joined Circum Minerals in 2014, having previously worked as a director for Danakali which is developing the Colluli potash project in Eritrea.

The 4.9 Bt resource is NI 43- 101 compliant and more specifically comprises a measured and indicated mineral resource of 2.8 Bt at 18.6% potassium chloride and the remaining 2.1 Bt at 17.5% potassium chloride in inferred mineral resources.

[quote]And while the resource is by far substantial enough to build a stand-alone operation, internal reports based on a comprehensive seismic survey of the license area indicate a further, but currently non-compliant, estimated potential of the undrilled portions of the Danakil project of between 7 and 9 Bt, which suggests an overall resource size of between 12 and 14 Bt of potash bearing salt beds within the property.

“This truly is the new big find in potash and has the potential to emerge as one of the world’s massive potash producing areas. We are both delighted and excited to have the opportunity to exploit this resource,” states Gilchrist.

Attractive features and economics

The last year has seen Circum Minerals and SENET complete a value engineering study (post the DFS) with the aim of optimising the US$2.5 million capital estimate, “which we successfully did, by approximately 10% or $245 million.”

Further to this, Gilchrist notes that the project will have some of the lowest operating costs “on the planet” – primarily due to the very cost effective, well established and low-risk solution mining method technique which will be deployed to extract the potash resource.

“We have to use solution mining,” says Gilchrist “because of the saturated overburden which makes underground or open-pit mining too risky”.

The method, in simple terms, entails drilling large-diameter wells into the ground which are subsequently lined with pipes, pumping water into the holes to dissolve the potassium salts, pumping the solution back to surface where it will evaporate and crystallise in brine ponds.

And unlike most major potash mines, which are mined between 500 m and 1 000 m below the ground, the Danakil project’s resource is very shallow and averages 200 – 300 m in depth – “so even the pumping costs won’t be excessive.”

The COO also adds that the labour costs in Ethiopia are relatively low by comparison with competitor countries such as Canada, Israel and Germany.

“At this stage we are looking to produce a total 2.75 Mtpa of potash – 2 Mt of MOP (muriate of potash) and 0.75 Mt SOP (sulphate of potash) which we can mine comfortably for 50 years and potentially 100 years.

“We have determined 2.75 Mtpa to be an optimal production output based on a number of technical and marketing factors.”

With the potash market expected to continue growing by around 3% per annum, it is an obvious decision to develop such a large-scale operation from the start.

Moving forward, the project has now reached a critical point – and requires a strategic investment partner to help fund its construction and development.

Circum Minerals appointed Morgan Stanley (in early 2016) to help secure such a partner.

“Our project has a compelling business case with extremely attractive financials. To date we have had discussions with several parties and made good progress after conducting site visits and management presentations and continue to engage with a number of interested parties. In fact, we expect to secure an investment partner during the course of this year,” Gilchrist points out.

“Securing our mining licence from the Council of Ministers in Ethiopia in March this year will undoubtedly facilitate a necessary investment transaction.”

Government expediting the process

One of the unique aspects of the project has been government support Gilchrist continues.

“They have formed an infrastructure committee led by a senior advisor to the prime minister which also comprises the ministers of transport, water resources and mines, in order to effectively engage with us in terms of what our infrastructure requirements are, how to secure them and when we need them by.

“This experience is highly unusual but nevertheless very welcome for the area, the country and for our company.”

Thus far, the government has already built a network of tarred roads (130 km) “at great cost” with a view to facilitating and assisting set up potash companies in the area.

A contract to construct the final stretch of road – a dedicated haulage road to transport potash material by truck to Djibouti – was awarded by government to a contractor a few months ago and alone is worth more than US$70 million.

Thanks to a loan from the African Development Bank, the government (Ethiopian Electric Power Corporation) is also installing and providing utility grid electrical power to the area. As the electrical power is generated in Ethiopia by hydroelectric systems, the industrial tariff for power is extremely low.

Water is another critical element for the project’s success Gilchrist notes.

“The government was extremely proactive and determined to assist us in this project area and provided us with information from their historical boreholes to assist in establishing a water programme.”

Further to this, Circum Minerals undertook extensive water exploration and hydrogeological work in conjunction with Muizenburg-based water resource development company, Umvoto.

Adjacent to the Danakil basin the company sourced significant volumes of water within the foothills of the Ethiopian highlands. Having drilled 11 wells, it was determined that water security poses no risk to the project.

Under Ethiopian law, Circum Minerals has the right to use any water resources on its licence area which will amount to 30 gigalitres per annum.

A new bulk terminal at Tadjoura in Djibouti has been completed and will be inaugurated in May this year.

The Djibouti Port Authority has already allocated Circum Minerals with the rights to export potash and has set aside land adjacent to the new bulk terminal for the erection of potash storage warehouses.

What next?

With an investor on board, Circum Minerals would look to appoint an owners team with the aim of moving the project into construction as well as appointing a marketing team who would look to secure off-take agreements.

Gilchrist states that it will take between 36 and 40 months to build the project – because of its size, adding that it would take another year for the first crystallised potash to be produced from the brine ponds. (The evaporation process takes a year).

The potash market

The global MOP market roughly produces about 60 Mtpa a year, largely from big producers in Canada, Russia, Belarus, Israel and Germany.

This is consumed mainly in Brazil, China, South East Asia, Europe and North America through fertilizer products which enable plants to grow.

Feature image: Harvesting an evaporated crystal crop during the DFS experimental phase

All images courtesy of Circum Minerals