Deals with Chinese and Indian buyers have recently given the potash market greater price direction, but now project costs, national politics and labor relations are taking center stage.
This month, Vale (NYSE:VALE) announced plans to indefinitely shelve its $5.9-billion Rio Colorado potash project in Argentina’s Mendoza province after halting work back in January.
In a press release, the Brazilian mining giant cited “the current macroeconomic environment” as the deciding factor that led to its decision to halt work for an indeterminate period. Projected costs to complete the project have risen to $11 billion, according to Bloomberg.
The mining group also pointed to the Argentine peso’s annual inflation rate of 25 percent and to the refusal of the Argentine government to provide $3 billion in taxes breaks and other incentives as factors that contributed to the decision, MINING.com reported.
The news resulted in strong language from the Argentine government, which sees Vale’s move to halt work as a breach of concessions. The government stated that it will revoke Vale’s licences and impose significant fines if at least 6,500 workers on the mine, which is capable of producing 4.3 million metric tons (MT) of potash per year, are not kept on, the Financial Times reported.
Vale executives told Bloomberg that the company remains confident that the law will “prevail,” leaving the company with the option to restart construction when a conducive macroeconomic environment allows for it.
On Monday, hundreds of workers blockaded the entrance to Israel Chemicals’ Dead Sea potash plant, with 1,300 workers going on strike in protest of the proposed deal.
While the strike was also in response to a number of unrelated issues, including the payment of bonuses, Bloomberg reported that Israel Chemicals workers do not agree with the proposed merger with PotashCorp.
PotashCorp’s proposed merger would have large implications for the company, expanding its market share in growing Asian markets like India and China. If the deal is approved by the Israeli government, the Saskatchewan company would gain a 51-percent stake in Israel Chemicals’ assets, including its Dead Sea potash plant.
Based on production of 1 million MT per year of muriate of potash via solution mining, the report shows an after-tax net present value of $1.32 billion at a 10-percent discount rate (based on a potash price of $430 per MT) and an after-tax internal rate of return of 33 percent.
The mine is expected to have a life of about 25 years “extracting only Sylvinite through solution mining” and a production capex of $579 million, the company’s press release states.
The PEA provides a more detailed financial picture of the projected costs and revenues associated with the company’s 397.94 million MT of measured and indicated resources, which have an average potassium chloride grade of 14.38 percent (measured) and 14.68 percent (indicated).
With an estimated upfront capex of $1.949 billion and opex of $114/MT KCl, the current $430/MT potash price gives the project a pre-tax net present value of $3.25 billion, discounted at 12 percent, and an overall projected internal rate of return of 31.59 percent.
Passport also gained greater legal certainty over land surrounding its Holbrook project this week after a lawsuit filed in Utah by North American Potash Developments and other parties (NAPD Group) was dismissed with prejudice. The exploration permits held by NAPD Group have been assigned to Passport.
Across the ocean, Sirius Minerals’ (LSE:SXX) York potash project is facing delays due to concerns from the North York Moors National Park Authority (NYMNPA) and the Ministry of Defense (MoD), The Telegraph reported.
Specifically, NYMNPA requires further information regarding Sirius’ planning application, while the MoD is worried that the project could “interfere with the UK’s missile early warning system,” according to the Financial Times.
Sirius has until April 3 to provide the information requested by the NYMNPA and should receive a decision in mid-May.
For its part, Sirius remains unconcerned. Chris Fraser, managing director and chief executive at Sirius, commented to the Financial Times that the company believes it has “an exceptionally strong planning case and remain[s] committed to providing all the information that is reasonably requested in order for the national park to meet its required timescales.”
The company also believes it will have no trouble demonstrating that its project will not impact the missile warning system.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.