Overview: Salt Lake Potash Ltd (“SO4″, “the Company”) is an Australian minerals company with operations in WA. Its most advanced asset is the Lake Wells Sulphate of Potash Project (“Lake Wells”), approximately 200km north of Laverton. SO4 has delineated a Sulphate of Potash (“SOP”) resource of 80- 85Million tonnes (“Mt”) at Lake Wells, classified as Measured, Indicated, and Inferred. A Scoping Study into an initial 200,000tpa operation was completed in August 2016, which estimated capital costs of $223million and operating costs of $241/t.
Catalysts: The Scoping Study highlighted the potential for Lake Wells to rank amongst the world’s lowest-cost sources of SOP in terms of operating cost and capital intensity. Delivery of a Pre Feasibility Study (“PFS”) now underway, may reinforce its economic potential and address technical risks. In an industry with a tightly held supply base, procurement of offtake partners stands as a major value driver.
Hurdles: There are no guarantee existing resources at Lake Wells can be converted into reserves, or the potash resource economically mined. SO4 is reliant on external capital and is likely to require further funding prior to completion of its PFS. There is no guarantee it can procure the funds necessary to develop a mining operation at Lake Wells. The Scoping Study assumed SO4 can secure a circa 10% share of the SOP market without negatively impacting prices, neither of which is assured.
Investment View: SO4 offers speculative exposure to the potash mining industry. We are attracted to the Company’s management team, resources delineated at Lake Wells, and its potential to deliver new low-cost SOP supply into domestic and international markets. With Australia yet to develop a commercial potash mine, principal risks include the Company’s technical capability and entry barriers imposed by existing producers in the SOP market. With the delivery of the PFS and offtake partnerships as the primary catalysts, we initiate coverage on SO4 as a ‘speculative buy’.
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