Feb 172012

Image courtesy of the Arizona Geological Survey The Holbrook Basin in Arizona has the shallowest known potash deposits in the United States.

By Teri Walker —

State Geologist Lee Allison says the deposit of potash in the Holbrook Basin, east of the city of Holbrook, could be a significant player in the global potash market, and there don’t have to be major environmental impacts.

“The sense is the Holbrook deposit could be very competitive in the global market,” said Allison, who is with the Arizona Geological Survey (AZGS) in Tucson. “With a relatively high grade of potash available at shallow depths, with uniform layers that aren’t busted up with faults, it could be less costly to mine this potash than deposits in other places.

“With the existing railroad and highway infrastructure near the basin, everything is coming together to make Holbrook look very attractive on the global market,” Allison said.

The mission of the Arizona Geological Survey is to serve as a primary source of information for the public regarding the state’s geologic and mineral resources, and to advise and assist the public in the development and use of the mineral resources in Arizona.

The agency is expected to also “provide technical advice and assistance…to industry toward the wise development and use of the mineral and land resources of the state.”

With these mandates in mind, Allison and his colleagues have been watching with interest as the Holbrook Basin has been explored for potential potash mining for the past few years by three mining companies: Vancouver and Apache Junction-based Passport Potash Inc., the first recent explorers in the basin; American West Potash, based in Denver, Colo.; and HNZ Potash, a subsidiary of Hunt Oil in partnership with NZ Legacy, an Arizona-based company.

Predating Passport initiating exploration of the Holbrook Basin in 2009, AZGS had been conducting research of its own to ferret out the implications and influencing factors related to potential mine development in the region.

“In 2008, we saw global markets exploding for potash and also saw we had a huge deposit in the Holbrook Basin that was garnering intense interest, so I asked Steve Rauzi (AZGS Oil and Gas administrator) to go back to previous exploration of the basin to see what we really had there,” said Allison.

What Rauzi concluded, based on historic exploration data, is that the Holbrook Basin holds 682 million to 2.58 billion tons of potash, ranging in grade from six percent to 20 percent, at an average depth of 1,200 feet.

Rauzi’s report release nearly coincided with the timing of Passport’s decision to explore mining potential in the region.

Given the ease in extraction that could be achieved in the Holbrook Basin, along with the hundreds of millions of dollars that companies won’t have to invest to build transportation infrastructure–rail and roads–miners could expect to have a globally competitive mine, Allison said.

Providing, that is, someone gets going, and gets to the market soon.

“There are a dozen or so potash mines in the planning stages right now, and the world market could not absorb that much supply,” said Allison. “The next three or four mines to come on line could fill up enough of the market demand.”

The key to a Holbrook Basin mine being a success–and attractive to investors–will be whether one of the companies can get built and start producing before mines in other places get rolling.

He said exploration and development activities are happening in other areas of the world, and in the U.S. in New Mexico, North Dakota and Utah; however, the earliest mine opening date he’s heard of for any of the potential operations is 2016, with most not anticipating being ready for production for at least seven to 10 years.

While the Holbrook Basin’s competitive factors look good, investors need to feel assured there will be a demand for the supply they put their money behind.

One of the Holbrook Basin explorers, American West Potash, has released a project timeline with a 2014 opening date.

“It seems like a very optimistic timeframe,” said Allison. “But, if American West can open in 2015 or 2016, before some of these other mines come on line, it can lock up a market.”

The U.S. has a demand of 10 million tons of potash per year, for which it relies heavily on imports.

U.S. potash mines supply only 1.5 million tons to domestic markets, and command $700 per ton, which is above the world average, which has fluctuated recently between $350 to $500 per ton.

The price difference comes down to the lower costs of getting the mineral out of the ground in U.S. mines, Allison explained.

“In Canada, potash can be purchased cheaper, but by the time you add on shipping and export costs, even at $700 per ton, the U.S. potash is cheaper,” said Allison.

If the cost-per-ton holds in the U.S. as new mines come on board, that would mean higher than anticipated returns for an operation like American West, which issued a preliminary economic analysis anticipating annual revenue based on potash values of $450 per ton.

While timing will be an issue influencing financial backing for mine development, all indications are that maneuvering through environmental concerns may not be as arduous as what’s encountered in most mining operations.

Risks identified for potash mining typically include groundwater contamination, water usage and subsidence (or cave ins).

Allison has been somewhat surprised at how quiet things have been on the environmental impact front.

“When you have the superintendent of Petrified Forest National Park talking about a ‘win-win,’ it sends a very strong message,” said Allison.

He’s referencing a recent presentation by Petrified Forest Superintendent Brad Traver at a watershed conference in Show Low, during which Allison said Traver reiterated his impression that, done the way he understands at least American West’s plans to mine, he essentially believes the environmental concerns are covered.

American West Potash has been working with Petrified Forest officials on mine development plans for the past year. The company’s plans to have an underground mine with a small surface footprint that won’t be visible to park visitors, and to employ industry-accepted safeguards to keep salt from seeping into groundwater supplies and to reduce the use of fresh water, has Traver feeling comfortable with the company’s potential operations.

“Do I wish the mines were 20 miles from the park, instead? Yes. But if they’re going to be here, I feel like my biggest concerns are being addressed,” said Traver in a previous interview.

Allison said Traver’s assessment is a significant one, and the fact that the National Parks Conservation Agency, defender of national parks’ interests, hasn’t weighed in, is also telling.

Allison says his agency shares the common concerns related to potash mining, but like Traver, there aren’t any risks that he’s feeling can’t be effectively addressed.

While working in Kansas, Allison said he was familiar with salt mines there and found the environmental impacts can be minimal.

“If there is subsidence, it’s likely going to be minor, and it’s likely not going to have significance or even an observable impact on the surface,” he said.

He said the one environmental concern he has heard was expressed by Kathy Hemenway of the Snowflake area, and related to “hydrofracking” contaminating the area’s groundwater.

“I was blown away,” said Allison. “I’ve never heard anyone suggest a concern about fracking related to potash mining here.”

Hydrofracking, or hydraulic fracturing, is when the injection of pressurized fluid is used to cause fracturing in a rock layer. The practice is sometimes used in natural gas, petroleum and coal seam gas operations to create new channels in rock that can increase the amount of fossil fuels recovered from a site.

Allison says, “There’s been kind of a national hysteria about fracking in the last few years,” while pointing out there are no fracking operations occurring anywhere in Arizona.

Hydrofracking would only be an eventuality should one of the potash mining operations decide to use solution rather than underground mining methods and employ fracking as part of that mining method. American West has said it would use conventional underground methods, but Passport Potash has not yet indicated which method it would use. HNZ Potash has not shared any details about its development plans.

The concern expressed by Hemenway, Allison explained, is that if fracking is employed, saltwater could escape the deposit and contaminate the surrounding groundwater, a situation that Allison said is not likely.

Even if one of the companies decides to use solution mining, Allison said it doesn’t have to be a source of panic for area residents.

For one thing, fracking does not have to be used in solution mining. There are solution mining methods that typically don’t involve fracturing rock layers. First, there have to be mechanically rigid layers “interbedded” with the salts and potash to even make fracking technically feasible. The salt and potash are more plastic in composition, and flow rather than fracture.

Second, even if a company decided to use hydraulic fracturing as an enhancement to a possible solution mine, they would use water as the hydraulic fluid, not the chemicals used in the petroleum industry, Allison says.

“The potash companies would not want to contaminate potash that would be used as fertilizer on crops,” said Allison. “Farmers would not buy it.”

As far as injecting water into the ground to extract the potash, Allison says there are ways to do it without the water leaking into surrounding areas. The mining industry has standard methods they use to keep the injected solutions or materials contained to defined areas.

“If people are really concerned, I can point them to an example that’s been going on for the last 40 years in the Holbrook area,” said Allison. “Most people aren’t even aware of the fact that they’ve been storing LPG (liquefied petroleum gas) in salt caverns outside of Holbrook all these years.”

He explained that the LPG storage facility near Holbrook, which is now operated by Enterprise Products Partners of Houston, is inspected twice a year for safety.

“You’ve had the same operation in the same environment for 40 years without any problems,” said Allison.

If one of the mining companies in the Holbrook Basin should decide to use the solution mining method, Allison said, “You’d employ the same technology and safeguards. You shouldn’t have the issue of salt water leaking into groundwater supply,” because there are industry-standard safeguards in place to prevent leakage.

“I think potash mining appears to be very benign and I thing the worst thing to worry about would be some surface subsidence,” he said, reiterating that even should it occur, it wouldn’t likely be at a scale that would be of concern.

As Allison has evaluated the potential for potash mining in the Holbrook Basin, he said the biggest surprise he’s experienced is how uninformed people around the state are about the topic.

“It’s been fascinating as we give talks around the state to all kinds of places like the commerce committee, where we talked about the potential economic impacts. People are surprised. No one knows about this. No one knows what potash is,” said Allison. “I keep hearing, ‘We had no idea’ and ‘I just never thought you’d build an underground mine to mine fertilizer.’”


Image courtesy of the Arizona Geological Survey According to the Arizona Geological Survey, the thickest potash beds in the Holbrook Basin are found under and adjacent to the Petrified Forest National Park.


Image courtesy of the Arizona Geological Survey The United Nations estimates approximately 75 million people are born each year worldwide, increasing the global demand for food, and fertilizer to increase yield.