The bullish Robin Phinney is marching Karnalyte Resources (TSX:KRN) towards developing an innovative solution mining potash project in Saskatchewan. Having built a platform on which to develop the project Phinney and the experienced management team are on the verge of unlocking a substantial high grade production unit with numerous key elements in its favour. RGN speaks to Phinney to discuss how the Wynyard Carnallite Project has progressed, the unique prospect Karnalyte has and how to achieve Phinney’s mission to become a leading low-cost producer of high quality/low sodium potash.
Karnalyte listed on the TSX in 2010 and has spent the last six years defining a deposit at Wynyard and optimising a process to get potash out of the ground and process it. In that time Karnalyte has completed a 3rd party bankable feasibility study and technical report which was updated in 2016, prepared the project environmental impact statement that was permitted and the basic mine and plant designs have been completed. Earlier this year the company operated a test well and cavern to validate the model working on a commercial pilot scale. From September until November 1st Karnalyte ran continuous test operations. The Company expects that a final report on the test programme will be released in late December, 2016.
“We were successful in continuously mining our potash at significant flow rates,” beams Phinney. “It’s a relief for me because now I can see it operating at the large scale, which is very exciting.”
The major interest in the project is not just on the test well operation, it is the process of how Karnalyte is going to extract the resource. The solution mining process does not require anyone to go underground in order to retrieve the product.
The conventional and most widely used method for extraction of potash in North America is underground longwall mining – which is always very costly on the capital expenditure side. However, Karnalyte is employing solution mining which involves introducing a fluid (water or brine) into the mineral deposit via a drilled well. The carnallite mineral dissolves into the fluid and is brought back to surface in the form of a concentrated brine. The brine is then processed to extract the value minerals, potassium chloride and magnesium chloride. The process separates waste minerals and returns them underground into disposal wells or spent caverns, and leaves no tailings on surface.
The three key advantages of solution mining over underground mining are lower capital expenditure, shorter lead time to production and a significantly reduced environmental impact – Phinney says this method will be a ‘game changer’ for the Saskatchewan potash industry.
“The reality is we don’t have to send anyone underground in order to get our product. We were able to prove that we can commercially get our potash just by pumping water down and bringing the potash back. It is far cheaper and now we have everything else in our favour.”
Wynyard is also blessed with a strategic geographic location and strong infrastructure access. The project is situated in the heart of the Canadian potash country and that means a lot of the required infrastructure, experienced potash plant workers, vendors, and contractors are easily accessible.
Sitting 2.7 kilometres south of a major highway means easy land access, and Wynyard is also the town where the rail line is built so Karnalyte will be able to export the product to market with ease once it reaches that stage. In addition, the company has just updated its NI 43-101 technical report– the building blocks are firmly in place.
“When I combine the high grade and one of the lowest capital expenditures in the industry due to the plant design, Karnalyte’s capital costs are far less than the industry average. We have a really economical mine plan and it will confirm that we will be one of the lowest cost potash producers in the world,” says Phinney.
Super high grade
Wynyard’s biggest strength and its key differentiator in the potash market dominated by majors like PotashCorp, Mosaic and Agrium, is grade. Wynyard can produce at such a high grade that its product will not be competing with the big companies in terms of product line. Phinney is targeting the premium global market through 99% purity products that will be competitive thanks to the low cost nature of production.
“I can’t take on the big players straight up but I can take them on in the specific areas where we will make high grade product lines,” explains Phinney. “We will compete with our costs to produce high grade and superior quality granular products…”
Karnalyte has also entered into a 20-year offtake agreement with Gujarat State Fertilizers and Chemicals Limited (GSFC), who will purchase around 56% of the agricultural grade (97% purity) product, approx. 350,000 tonnes, of the forecast phase I annual production of 625,000 tonnes. Phinney explains this relationship will be used as a backstop for the plant and the remaining 275,000 tonnes will be targeted to the high grade market at a premium price.
Despite having high grade product in the ground and a strong strategic partner in GSFC, the price of potash was too low last year to launch into full scale production. Phinney expects the potash industry to require US$265 per imperial tonne/US$300 per metric tonne for profitable production. According to Karnalyte’s technical report the Wynyard potash project has a net present value (NPV) of about $3.8 billion. There are huge rewards to be had if the team can manage the project into production.
With those numbers behind him Phinney exudes the kind of confidence in the project you might expect.
“This is one of the greatest opportunities for a contrarian investor. If they are interested in the potash industry then I am the guy, don’t bother with anything else because in my opinion this is the best potash project on the planet.”
Phinney’s primary focus through 2017 will be to secure a strategic partnership in the industry and then return to the capital markets to raise the funding necessary to take the project to the next level.
“I am looking for strategic partnerships because I have lots of offtake material for sale. I am looking for an industry partner but I have to be able to access our capital markets to get bigger money. I’m sure there are contrarian investors who would like to have a look at us. Now we need US$600 million and we will be able to launch the project.”
Karnalyte is on track to turn a corner in 2017 and realise the substantial value it has in the ground at Wynyard. With Phinney at the helm it has the optimistic and confident leadership necessary to deliver a project of such quality.