Most fertiliser used in Australia – indeed, in the world – is potassium chloride, or “muriate of potash,” known as MoP, which fills almost 90% of global potash production (potassium is one of three essential nutrients for plant growth). MoP is the most commonly used potash fertilizer, but some crops can’t tolerate the chloride: while most of the bulk crops, such as wheat, oats, barley and rice, can tolerate the chloride, other crops – for example, fruits, grapes, vegetables and nuts, cannot. As it happens, these crops are the higher-value crops that are burgeoning in Australia’s agriculture and horticulture industries and the country’s high-end food industry.
SoP is not a naturally occurring mineral, and typically must be produced through the resource-intensive “Mannheim process,” in which MoP is combined with sulphuric acid and heated to 800 degrees Celsius in a furnace, to create a manufactured potassium sulphate, with a by-product of hydrochloric acid. That uses a lot of energy and creates a lot of emissions.
Another method, representing about 25%–30% of global supply, is by reacting potassium chloride with various sulphate salts, to form what is called a double salt.
The West Australian producers are in the very fortunate geological position of tapping into potassium-rich brines formed by rainfall over millions of years, carried through palaeo-channels below what is now desert, that have formed under old salt lakes. Producing SoP from these brines naturally, mainly through solar evaporation, perfectly suits the premium end of the SoP product – it is the only source of SoP that can be certified as organic.
“Every plant product that you buy in the fresh-food section of the supermarket, or the deli – the leafy green vegetables, the tomatoes, avocados, berries, tree nuts, coffee, cocoa, even cut flowers – is a plant that cannot tolerate chlorine,” says Keren Paterson, managing director of SoP project developer Trigg Mining.
Australia currently imports all of its SoP requirement, about 63,000 tonnes a year, but the nation’s food producers are demanding a local supply – and the growing Australian high-value food industry is particularly loud in that demand.
Australian natural SoP will also have export markets straight away. SoP is important in semi-arid regions with salinity problems; it improves crop yield and resilience; and also, will be required by countries that (like Australia) are also moving toward increasingly intensive agricultural applications, through hydroponics (growing crops without soil, by using mineral nutrient solutions placed in the water supply) and “fertigation,” or fertilisation delivered through the irrigation system. These uses include intensive urban-based farming and organic farming.
All up, SoP is at the forefront of a sustainability revolution in food – and Australia has several companies bringing SoP projects to development.
The local industry (and share market) has been rocked by the collapse earlier this month of Salt Lake Potash (SO4), which had been touted as the first West Australian project to begin production, at its Lake Way project. The project was due to begin production this year and pump out up to 245,000 tonnes of premium SoP a year. But Salt Lake’s shares had been suspended since late July after operational issues at the Lake Way plant saw it almost halve its planned 2021 production to 85,000–105,000 tonnes, with the potassium grades extracted and evaporated from the lake lower than expected.
But the company hit funding problems and was unable to raise enough new equity to continue.
That tells you that this industry is not a lay-down misere for guaranteed success – but it does have huge tailwinds.
This year has been a strong year for the global potash market on the back of rising demand, poor international crop yields, surging crop prices and margins, and curtailments to supply Belarus. All of these factors have combined to drive regional potash prices up by 200%–300% – and SoP trades at a premium above potash prices. Historically, the 10-year average premium of SoP to MoP is $US221 a tonne – current MoP prices (at Vancouver port) are about $US550 a tonne.
Of the Australian hopefuls, I prefer Kalium Lakes and Agrimin. But investors have to do their homework – while the tailwinds of more sustainable farming, better crop yields and a fertiliser source more beneficial to the soil are blowing hard behind this industry, the collapse of Salt Lake Potash was a shock to investors (including the Australian government’s Clean Energy Finance Corporation, the nation’s “green bank,” which loaned $US47 million to Salt Lake). There is plenty of promise, but the players have to get the mining engineering right.
1. Kalium Lakes (KLL, 19 cents)
Market capitalisation: $193 million
Three-year total return: –20.7% a year
Analysts’ consensus target price: 32 cents (Thomson Reuters), 36 cents (FN Arena)
Kalium Lakes will take the crown as the first producer, delivering its first batch of SoP from its Beyondie project in Western Australia in October, seven years after establishment. Kalium Lakes initially projected annual production capacity at Beyondie at 90,000 tonnes a year but has lifted that to 100,000 tonnes a year and flagged the potential for a further increase to 120,000 tonnes a year. KLL’s stage-one production is already tied up in a ten-year offtake deal with German fertiliser heavyweight K+S, which currently supplies more than 60% of the Australian and New Zealand SoP markets. An initial mine life of 50 years is anticipated for a project designed to be a low cost, long life and high margin producer, with an estimated gross (EBITDA, or earnings before interest, tax, depreciation and amortisation) margin of 41%, which would translate to annual EBITDA of $70 million.
KLL also has potential market upside from by-products including magnesium sulphate (or Epsom salts), magnesium chloride (Bischofite) and magnesium hydroxide (Mg(OH)2) which Kalium Lakes believes could be produced from the Beyondie brines. This month, Kalium Lakes raised $50 million through a placement and share purchase plan.
2. Agrimin (AMN, 48 cents)
Market capitalisation: $99 million
Three-year total return: –13% a year
Analysts’ consensus target price: $1.27 (Thomson Reuters)
Agrimin is developing the Mackay SoP project at Lake Mackay, on the Northern Territory/WA border, which is the largest sulphate-of-potash salt lake in Australia. The company describes its project as the world’s “largest and lowest-cost SoP project under development outside Africa,” with an ore reserve of 20 million tonnes of SoP, which will underpin a 450,000-tonnes-a-year production rate, with an initial mine life of 40 years, at a gross (EBITDA) margin of 66%. That would equate to annual EBITDA of $220 million.
The Mackay Potash Project has been awarded Major Project Status by the Australian federal government, on the basis that it will make an important contribution through employment, economic infrastructure and $350 million a year in export revenue. Agrimin bills the project as a “low-carbon footprint” project, with a “high renewables penetration” planned for the energy source, “supported by a world-class wind resource”. The front-end engineering design (FEED) work began in May, and environmental approval and final investment decision (FID) are on track for mid-2022.
Lake Mackay is the largest SoP-bearing salt lake in Australia, covering an area of about 3,500 square kilometres, comparable in size to the two existing major sources of brine SoP production, being the 4,400 square-kilometre Great Salt Lake in the USA and the 5,500 square-kilometres Lop Nur in China. The project ore reserve is based on the extraction of only shallow brine resources using surface trenches and gravity flow: Agrimin says that all other Australian SoP ore reserves are based on mine plans that include the extraction of deeper brine resources using bores and pumping.
3. Australian Potash (APC, 13.5 cents)
Market capitalisation: $88 million
Three-year total return: 23.9% a year
Analysts’ consensus target price: 31 cents (Thomson Reuters)
Australian Potash Limited’s flagship project is the Lake Wells SoP project, which is presently going through FEED and borefield development work, and finalising pre-development plans for commencement of construction. By the end of 2021, APC expects to have established 60% of the production borefield capacity, by volume. Initial production at Lake Wells is scheduled for mid-2023.
APC claims to have Australia’s biggest measured SoP resource of about 18.1 million tonnes, from which it plans production of 170,000 tonnes a year, 120,000 tonnes coming from direct brine evaporation and a further 50,000 tonnes from the conversion of muriate of potash to sulphate of potash using a low energy agitation process referred to as salt conversion. It will build a hybrid-renewable power station at Lake Wells. The high-quality, premium SoP products will be marketed under the brand K-Brite: APC has achieved organic and biodynamic certification for its K-Brite product, and the company has secured offtake agreements for 90% of its forecast annual production, or 150,000 tonnes a year, across Europe, the US, Australia and New Zealand, China and SE Asia.
In March, APC struck a $140 million debt financing facility with the federal government’s Northern Australia Infrastructure Facility (NAIF) to assist the development of the Lake Wells Project. Another federal agency, Export Finance Australia, has also pledged $45 million to Australian Potash. The company followed this funding with a $10 million share placement in May.
4. Trigg Mining (TMG, 8.5 cents)
Market capitalisation: $10 million
Three-year total return: n/a
Analysts’ consensus target price: n/a
Trigg Mining wholly owns the Lake Throssell and Lake Rason SoP projects in Western Australia. Lake Throssell is a large, high-grade SoP project, at which drilling has identified brine returning samples of up to 12.93 kg/cubic metre SoP, with an average grade of 10.01 kg/cubic metre SoP. The maiden resource for Lake Throssell totals 14.2 million tonnes of drainable SoP at 4,638 milligrams per litre of potassium (or 10.34 kilograms per cubic metre of SoP).
At the nearby potential satellite project, Lake Rason, the inferred mineral resource is 6 million tonnes at 5,080 mg/litre SoP equivalent. Combined, the two projects give Trigg Mining a total mineral inventory of more than 20 million tonnes of SoP – enough for a multi-decade operation – with big exploration upside to boost that figure even further.
In October, Trigg announced that a scoping study on Lake Throssell gave an annual nameplate production target of 245,000 tonnes a year of SoP over a 21-year life of mine, based on a total drainable mineral resource of 14.4 million tonnes at 4,665 milligrams per litre of potassium (or 10.4 kilograms per cubic metres of SoP).
The study estimates an initial capital cost of $378 million, with the project forecast to generate average EBITDA of $97 million a year at an SoP price of US$550 per tonne. Lake Throssell has a net present value of $364 million with an internal rate of return of 18% and a payback period of 4.5 years. Trigg is now progressing to the next stage of the Lake Throssell project with a preliminary feasibility study (PFS) which is expected to be completed by early 2023: the company is targeting an investment decision for the project in mid-to-late 2025.
5. BCI Minerals (BCI, 50.5 cents)
Market capitalisation: $306 million
Three-year total return: 53.1% a year
Analysts’ consensus target price: 77 cents (Thomson Reuters),
Iron ore producer BCI Minerals is also developing the Mardie salt and potash project, from seawater, located on the West Pilbara coast. Mardie is primarily a salt operation – the first large-scale salt project in Australia for 20 years – with an “inexhaustible” seawater resource to be concentrated through solar and wind evaporation to sustainably produce 5.35 million tonnes a year of high-purity sodium chloride (NaCl) salt, and 140 thousand tonnes a year of SoP fertiliser for supply to the growing chemical and agricultural industries in Asia, over an operating life of at least 60 years. The SoP will be produced from the salt waste.
With a cash balance of $110 million at 31 July 2021, zero debt and ongoing royalty earnings from its Iron Valley iron ore mine, BCI are in a strong position to advance Mardie. It made a final investment decision earlier this month, citing a projected annual EBITDA of about $260 million and a projected net present value of more than $1.6 billion. It also announced a $740 million project finance debt package. Federal government agency, Export Finance Australia, has pledged $110 million to BCI.
BCI says Mardie is the first salt operation in Western Australia to produce salt and SoP from seawater. It says the project has strong green credentials with the Indian Ocean the inexhaustible feedstock, and natural solar and wind energy providing 99% of the energy required to produce salt and SoP: Mardie’s sustainable production of agricultural fertiliser from salt waste, pollution prevention and materials recovery and re-use were key criteria in obtaining “green” loans as part of the project finance package.
6. Danakali (DNK, 47 cents)
Market capitalisation: $173 million
Three-year total return: –15.2% a year
Analysts’ consensus target price: 85 cents (Thomson Reuters)
Danakali also deserves a mention here, although its flagship Colluli SoP development is in the East African nation of Eritrea, where it is in a 50/50 joint venture with the Eritrean National Mining Corporation (ENAMCO). Colluli is a huge project, with a mineral resource estimated at 1.289 billion tonnes at 11% K2O, for 260 million tonnes of contained SOP equivalent. That would support more than 200 years of production.
The high-grade Colluli orebody starts is very shallow, which means a more cost-effective open-cut mining development. Colluli was going to use desalinated seawater, but will now use filtered seawater, which lowers the cost significantly. Danakali claims that Colluli will be the world’s first zero-carbon producer of SoP, through using geothermal energy The SoP resource also comprises an 85 million-tonne resource of kieserite (magnesium sulphate), which is a suitable fertiliser for magnesium-deficient soils; and a 347 million-tonne resource of rock salt (sodium chloride). Unprocessed rock salt can be used for de-icing, while processed rock salt can be used as table salt.
Colluli was expected to be completed in April 2020 but COVID-19 forced a halt in May 2021.
Completion is expected in January 2022. Danakali is aiming for a 2022 production target date, with a binding offtake agreement confirmed with EuroChem Trading of Germany for up to 100% (minimum 87%) of Colluli’s first-stage production.
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