Financiers circle as Arianne seeks funds to advance Lac à Paul project

TORONTO (miningweekly.com) – With a Ministerial decree in hand, issued on December 22, to advance its Lac à Paul phosphate project, in the Saguenay-Lac-Saint-Jean region of Quebec, Arianne Phosphate hopes to put Canada – where potash is king – on the phosphate map.

However, the market it seeks to enter is competitive, albeit growing. China dominated production in 2015, with 100-million tonnes of phosphate produced; Morocco accounted for 30-million tonnes; and the US 27.6-million tonnes. Other Middle Eastern nations have notable footprints as well.

GOOD YEAR
The Ministerial decree completed the permitting process and represented government go-ahead for the company to fund, develop and operate Lac à Paul. It also acted as a vote of confidence, CEO and director Brian Ostroff told Mining Weekly Online.

“It’s fair to say we’ve got the attention of the provincial government and the province in general, and we’re hopeful they’ll play a significant role as the final financing gets put in place,” he said. “There certainly seems to be interest to be economic partners with us.”

Capital expenditure (capex) for Lac à Paul was estimated at $1.2-billion under its feasibility study. But many people simply looked at the capex number without also assessing the project’s finer points, Ostroff noted.

Lac à Paul will produce three-million tonnes a year at an average grade of 38.6% phosphorous pentoxide (P₂O₅), with a mill recovery rate of 90%. “It should do close to $600-million a year in revenue,” he added.

Total gross revenue in real terms is estimated at $16.1-billion and operating cash flows will stand at $7.4-billion.

Excluding preproduction, the mine life is estimated at 26 years, while the measured and indicated resources at the Paul zone stand at 590-million tonnes for an average grade of 7.13% P₂O₅ at a 4% cutoff. That does not include 164-million tonnes at the Manouane zone.

The internal rate of return is 20.7%, with a capital payback of 4.4 years before taxes and duties.

“So the capex is fairly manageable when viewed in that context,” Ostroff said. “And we’ve started a dialogue with potential financiers since receiving our permit . . . There’s a fair amount of interest in providing project finance.”

Debt will be both senior and subordinated, while there will also be an equity component.

He also stressed the feasibility study was released later in 2013, with many of the pricings based on 2012 data sets. The cost of contractors, builders, equipment and service providers had fallen since then; Arianne believed the capex at today’s rates would prove under $1.2-billion.

BIGGER PIE
Although competitive, the company argued the inherent strength of its output would help secure the necessary market share.

Lac à Paul material is igneous and cleaner compared with phosphate sourced from sedimentary deposits, Ostroff said. That means Arianne’s material could enter the speciality arena of phosphate products for human consumption, such as within food or detergents, and achieve a premium price.

By comparison, sedimentary material sometimes contains unwanted or harmful elements, including uranium, cadmium or thorium, which precludes use in this field.

Ostroff is bullish on demand in general, noting it is growing by between 2% and 3% a year. The growth is also somewhat decoupled from macroeconomic issues; for example, phosphate demand grew even during the global economic crisis of 2008.

“And the world is going to continue requiring an additional 4- to 6-million tonnes of phosphate every year [for the foreseeable future],” he added.

Dovetailed with this, Ostroff stressed Arianne’s proximity to US and Canadian markets estimated to be in deficit by around four-million tons a year. The company estimates this supply-demand gap will grow to about eight-million tons by 2020.

Phosphate demand globally is increasingly because of population growth and shifts in dietary habits towards protein-rich food, particularly in the developing world.

Canada was also considered a safe jurisdiction, compared with many producers in the Middle East and North Africa, and represented security of supply, Ostroff added.

Much of the necessary infrastructure for the project is already in place. That includes the Chute des Passes hydro plant run by Hydro-Quebec located 40 km away and with which Arianne has contracted to secure Lac à Paul’s energy supply.

Heavy-duty roads are available, including routes to the Port of Saguenay. However, the loading facilities are on the south shore and the company will have to build a facility on the north shore.

“At that point our product then has access to markets all over the world,” Ostroff said.

UPTAKE FOR OFFTAKE?
Alongside financing there have been expressions of interest from potential offtakers. “We’ve had some loose conversations over the last year and year-and-a-half,” Ostroff said. “The fact that there’s deficit in North America and that we’ve got this rather rare type of phosphate has interested a lot of players.”

The Ministerial decree has helped spur dialogue not only with offtakers, but also with phosphate traders. They were potentially keen to have Arianne output on their books to differentiate themselves from other traders, Ostroff said.

In the meantime, he expects government support for the project to continue. “We’re in regular dialogue with government and various Ministries, and I think they’re going to be supportive of the project going forward.”

The company has also engaged the First Nations in the area, the Pessamit, Mashteuiatsh and Essipit, achieving a cooperation agreement in 2015 that details aboriginal desires to secure job opportunities and infrastructure development around their communities.

“But this is an enormous project that benefits not only the First Nations and Saguaenay but Quebec as a whole,” Ostroff said, noting $12.5-billion in economic benefits to the region had been projected.

Taxes are estimated at $4-billion, while around 2 000 jobs will be created during the construction phase, with about 1 000 jobs needed for operations.

“The company is going to have a lot more to say in the coming months, showing that we can get this done,” Ostroff added.