Jul 242013

By Nick Worth
Prospect Global Resources Inc. officials announced last week that a team of engineering and consulting firms has completed work on a pre-feasibility study for the company’s potash project in the Holbrook Basin.
The study was performed by Tetra Tech Inc., a leading provider of consulting, engineering, construction management and technical services worldwide.
Some of the highlights of the pre-feasibility study include:
* 1.42 million tons per year operation, based on average production from years six through 10.
* $825 million estimated capital cost.
* $1.4 billion net present value at an eight percent discount rate. This is based on prices of $430 per tonne freight on board (FOB) Vancouver for standard product, $450 per tonne FOB Vancouver for granular product and $480 per ton delivered to the U.S. Midwest for granular product.
* 27 percent after-tax internal rate of return.
* Initial mine life of 26 years.
* Life of mine operating costs of $115 per ton.
* Peak production of 1.55 million tons, expected to be reached in the seventh year of the mine’s operation.
* Approximately 1.3 million tons per annum of production over the 26-year life of the mine.
According to a press release announcing the pre-feasibility study, it includes two cases. The first is a “base case,” which evaluates only “measured” and “indicated” resources. The second is referred to as a “de-velopment case,” which includes the anticipated conversion of “inferred” resources into measured and indi-cated potash deposits. These results are expected to be converted in Prospect Global’s upcoming infill drilling program and form the basis of the results in the press release.
“The completion of the pre-feasibility study represents a significant milestone in the development of our Holbrook Project,” said PGR President and Chief Executive Officer Damon G. Barber. “The goal of our work was to lower the risks of financing, development, construction and mining operations while simultaneously increasing returns on capital. The PFS shows the results of that effort.”
Barber went on to state that PGR has optimized the operation for the current resource and significantly reduced the risks of the project for investors.
“The PFS estimates confirm our view that the Holbrook project has the potential to become a high quality, long-life, conventional potash mine with robust economics,” Barber said. “We look forward to completing our definitive feasibility study as soon as possible and developing a scalable, low-risk, mining operation.”
PGR commissioned a team of engineering and specialized consulting firms to prepare the pre-feasibility study, including:
* Tetra Tech Inc., which prepared the processing plant and site engineering, mining, permitting, cost esti-mating and project economics.
* North Rim Exploration, which handled the geology and resource estimation.
* John T. Boyd Company, owner’s engineers, professional mining consultants.
* Novopro Projects Inc., owner’s engineers, processing and surface facilities.
* Brownstein Hyatt Farber Schreck, which prepared permitting, land and offsite infrastructure.
* Saskatchewan Research Council (SRC), which performed metallurgical test work.
* Huffman Laboratories, which performed assaying and ore characterization work.
* Advanced Terra Testing, Inc., which performed rock mechanic test work.
* RESPEC, which performed rock mechanic test work and mine design review.
The study states the potash in the Holbrook Basin lies in two primary seams within the Supai Formation, the KR-1 and KR-2 seams. The KR-1 seam lies above the KR-2 seam and is unevenly distributed throughout the basin. The KR-2 seam is the primary target for mine development.
North Rim reported the KR-2 seam has a total of 5.7 million tons of KC1 potash, an indicated resource of 44.2 million tons and an inferred resource of 52.8 million tons for a total on 102.7 million tons of finished potash. The KR-1 seam has an additional 38.8 million inferred tons of KC1.
The report also gives some specifics about the character of the mine and its operation. According to the pre-feasibility study, the mine access will be via shaft, and the mine design incorporates room and pillar min-ing techniques utilizing continuous miners.
“The shaft locations were sited to maximize the flexibility for underground development and to minimize the time from seam access to full production, thereby accelerating revenues and cash flow,” the report states. “The mine orientation is based on the results of rock mechanic analysis, and is intended to enhance opera-tional efficiency, underground stability and employee safety.
Once fully operational, the mining production rate is expected to be approximately 9.5 million tons of ore per year. Plans call for this to be achieved by running eight continuous miner units on a DuPont rotating shift schedule to provide 24/7 coverage.
Start-up capital expenditures are estimated at $825 million over a 2½-year construction schedule. Within mining, mine labor accounts for 33 percent of operating expenses, followed by equipment O&M, 27 percent; roof support, 17 percent; hoisting and ventilation power, 13 percent; and conveyance, 10 percent.
PGR also said the company has selected drillers for its upcoming infill drilling program and will begin drilling in early August. The company also expects to complete a new resource estimate by end of 2013 that will include the results from the infill drilling program.
The company said it will complete the remaining rock mechanic and metallurgical test work required for the definitive feasibility study, with core samples obtained from the infill drilling program. Once that step is done, PGR will optimize the mine plan and plant engineering based on the new resource estimate.
PGR officials have also stated they will put together a build-out management team, to which key additions have been identified, and will complete their definitive feasibility study by the third quarter of 2014.