Gensource to form JV partnership with Essel Group Middle East to develop Vanguard

VANCOUVER (miningweekly.com) – Potash project developer Gensource Potash has signed a memorandum of understanding (MoU) with Essel Group Middle East (EGME), a subsidiary of Essel Group India, to form a joint venture (JV) company that will focus on the development of one of Gensource’s potash projects in Saskatchewan, Canada.

Under the terms of the MoU, EGME will provide business and logistics expertise and will deliver financing totalling $200-million in two stages.

“This is an exciting milestone for Gensource. Our fundamental business plan has been to create a JV with a strategic partner who wants the potash product for its own use and is capable of bringing the required financing to the project,” stated Gensource president and CEO Mike Ferguson on Tuesday.

The first financing tranche will fund the completion of the feasibility study that is currently under way for the Vanguard project, and expected to be completed in spring 2017.

The second injection of capital will fund the construction of the project, which is situated in Gensource’s Vanguard area, within the Saskatchewan province. Gensource will commit its project execution team to the JV, as it possesses the necessary technical experience of selective solution potash mining and specialised processing that will enable the low-cost, small-scale company to enter the highly controlled potash industry.

When construction financing has been committed, EGME will hold a majority 70% stake in the JV.

PROJECT ASSESSMENT
Gensource is currently in the detailed development stage of its Vanguard project. A two-well resource confirmation drilling programme is currently under way on the first well near Tugaske, Saskatchewan, and the detailed feasibility study is under way and expected to be complete by March or April 2017.

Gensource cautioned that, until the completion of the feasibility study, the technical and economic viability of the Vanguard project remained unconfirmed.

The agreement is EGME’s second significant investment in the potash industry after the company acquired the exploration licence for the Bada potash mine, in Eritrea’s Danakil Depression, in August 2015. The investment is notable for being EGME’s first natural resources investment outside of Africa and marks an important step in the group’s ambition to become a global, diversified natural resources company, EGME stated.

Gensource had in May published a preliminary economic assessment (PEA) on the Vanguard project, outlining a base-case scenario assuming a $300/t price for potash product with an after-tax net present value of $212.7-million, at an 8% discount rate. The internal rate of return came to 16.86%, also on a post-tax basis.

According to the PEA, which was based only on an inferred resource of 64-million tonnes, the C$247-million mine could have a life spanning a century, producing potash with a minimal purity of 96% potassium chloride.

The company planned to mine the resource through selective dissolution using horizontal caverns and processing ore through cooling crystallisation, incorporating advanced energy efficiency measures.

According to the PEA the project is expected to produce, the planned operation would be able to produce potash at an operating cost of C$52.39/t, providing leverage to the greenback in which it would denominate sales at an exchange rate of C$1.30.