Salt Lake Potash – wake up and smell the Potash! #SO4
Since covering Salt Lake Potash back in November and selecting the company as my potash play of choice the company’s shares have barely moved:
The quarterly report released on the 31st January is full of excellent progress. I’m going to dissect the quarterly RNS which will demonstrate why I believe the current share price is ridiculous (latest share price 24.5p, market cap £52 million).
Key approvals obtained – construction of Williamson Ponds Imminent
“Mining Proposal and Project Management Plans for the Williamson Ponds approved by the Department of Mines, Industry Regulation and Safety (DMIRS)
Initial fleet of construction equipment mobilised to Lake Way and site preparation works being undertaken in preparation for imminent construction of the Williamson Ponds
Detailed design of Williamson Ponds completed”.
Approvals from department of mines significantly de-risk the project and bode well for future lake approvals. There are many projects on AIM which have defined resources and may even have construction funds but without mining approvals those projects are worthless.
‘Whole of Lake’ Resource Program for Lake Way Advancing
“Work well advanced to enable the Company to report:
- A Mineral Resource Estimate for the lake bed brine and the paleochannel aquifer for the 100% owned Salt Lake tenements
- Upgraded Mineral Resource Estimate for the Blackham tenements
‘Whole of Lake’ Mineral Resource Estimate will enable the Company to examine larger production scenarios”
In the last sentence I believe the company is hinting that it may look to produce more SOP. Due to economies of scale this would decrease costs and increase revenues and therefore profits. This could mean increasing throughput at the 50ktpa demonstration plant. After the demonstration plant the original plan was for a 200ktpa plant which would then fund an increase up to 400ktpa – these stages could be combined.
Salt Lake’s recent placing may have been oversubscribed given the “strong demand” which indicates to me that Salt Lake may not require additional equity funding for the demonstration plant. Alternatively, non-equity financing could be possible – the new CEO worked at ASX listed Fortescue Metals when it raised A$2.7bn debt which was “one of the world’s largest for a project finance deal within the high-yield bond market”. Given Tony’s senior position he may have been involved with the financing and/or knows those who did.
Field Trials at Lake Way Confirm Salt Production Process
“Comprehensive field evaporation trials at Lake Way are successfully producing substantial volumes of potassium Harvest Salts validating the modelled salt production process.
Field evaporation trials have produced over 2 tonnes of high grade Harvest Salts at Lake Way.
Over 100,000l of brine from both high grade Lake Way playa brine and the super high-grade Williamson Pit brine have been extracted for the field trial and evaporated separately. Both brines have rapidly produced quality harvest salts amenable for conversion to Sulphate of Potash (SOP).
Potassium Harvest Salts produced from the field trial will be processed at Saskatchewan Research Council (SRC), where a pilot plant will duplicate and refine the Lake Way process flow sheet, as well as producing further product samples for offtake partners.”
Successful field trials further de-risk the project. Salt Lake already has off-takers for 100% of what the 50ktpa demonstration plant can produce. Increasing the number of off-take partners will allow Salt Lake to sell more product and will help when raising debt/equity.
“In its first act of support, the Government will introduce a new rental rate for potash projects which will reduce the existing rate of Mining Leases from $18.70 per hectare to $2.32 per hectare in the first five years and then $4.64 per hectare thereafter.”
Salt Lake Potash’s Chief Executive Officer, Mr Tony Swiericzuk, said:
“The commitment by the Government towards the development of the Potash industry will provide significant benefits as we progress the Lake Way Project. We look forward to working with the Government in the development of a new industry in Western Australia that will create vast opportunities to remote regions including Wiluna.”
Having strong government support in the form of reduced taxes increases project returns and de-risks the project from a permitting and licensing point of view as it shows the government wants the project to proceed.
The only fly in the ointment – Investor Relations
I currently view Salt Lake’s investor relations efforts as sub-par. Its Twitter account (which was managed by Brand Communications) hasn’t had an update since January 8th despite RNS announcements being released. I’d really like to see the new CEO come over to London and explain the project to investors. However, given business progress that’s been made since his appointment, I don’t think he’s had time to come over. At the end of the day, I’m glad that “The Company is focused on rapidly progressing” the project.
I again increased the size of my Salt Lake position, viewing the market’s apathy to the shares as an opportunity to buy what I think will become a valuable, profitable and cash generative business in the future. Unlike many AIM stocks, Salt Lake’s share price remained stable during December’s sell off and I consider Salt Lake’s shareholder base, like the shares, to be high quality. I am of the opinion that the market will eventually wake up and smell the potash.
At the time of publication, the author holds a long position in SO4.