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Great post Ted thanks.
Market pricing this to fail - no value attributed to the assets as far as I can see this has the potential for enormous upside. Here’s hoping sooner or later gla genuine holders
Great post Ted... Many thanks.
Be weird to be called Tedoby and be called Neil. Just making sure mate you are protected. All the best
Neil? Is Neil around? Where is Neil? We need more Neil's on here :)
Smilemore Neil's a nice name but it's not mine!
Who is Neil? You shouldn't share people's names on here as it is their data to do so. You should check with them first before disclosing their name.
Good posts indeed. All worth remembering... as is the fact that the so-called "liquidity event" has been touted by George for years now... one feels it has GOT to be soon though! GR's face when asked about it, in the last proactive interview... priceless. He's pretty fed up too I guess of waiting! Will it be worth the wait... we all hope so! :) GLA.
One of the best posts I've seen in ages. Detailed and factual, this is what there should be more of....not the ramp/deramp we see too much of
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As things stand Prem holds 5,010,333 shares in Circum Minerals Limited ("Circum"), who in turn own 100% of the Danakil Potash Project in Ethiopia. The project has the potential to be a world class asset and one of the largest potash mines on Earth producing both Muriate of Potash (MOP) & Sulphate of Potash (SOP).
Circum has held a majority ownership in the project since 2013. It was originally owned by AgriMinco but they sold 70% of it to Circum and the balance of 30% to Prem. Circum subsequently bought out Prem in 2014. But Prem have been buying shares in Circum since then and currently own just over 5%.
The project as we all probably know is situated in the Danakil evaporite basin which is recognised as one of the hottest places on earth. An ideal climate for the mines evaporation process .
The potential resource there is nothing short of mind blowing. The licensed area covers 3500ha. So over three times the area of Paris or Manchester and about a third of the size of Cornwall. So it’s big! Ha ha.
There's an NI 43-101 compliant reserve and resource of 5 billion tonnes of potash salts at grades of over 18% KCI in place for the project. There's also a further 7 to 9 billion tonne ipotential identified reasonably accurately by a seismic survey.
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Again just for perspective that would give the project an in ground value of nearly $1 trillion. Using the adage of valuing the project from 1% to 2% of its in ground resource we get to roughly a $10 bn Market Cap at its height. That may not be too far away if 7.5mt's to 10mt's/ annum was produced which appears to be possible.
Arguably at present Prems shares can be substantially valued at over US$10 million. The substance being the latest price at which Circum has accepted subscriptions. For perspective that on it's own is as much as Prems current Market Cap!
I believe Circum now has a new DFS for Danakil. But as far as I'm aware it's a private document that’s currently undisclosed. For now we’re only able to consider Circums latest presentation along with any information we're given by Prem. Significantly amongst other things the document will enable a bankable valuation to be made on the project and the importance of that to both Circum and Prem cannot be overstated.
There is a benchmarking exercise to do against the neighbouring Danakali potash mine in Eritrea too as a comparison . Whilst that’s interesting Danakali in Eritrea is a few years ahead of Danakil. It's much smaller too and is a j.v. project which makes quite a difference. It's reported to be one of the world’s most advanced and economically attractive SOP projects. It has a Market Cap US$902M an IRR of 29.9% and almost a 200-year LOM. There's a JORC reserve estimate of 1.1 bnt's at 10.5% K2 O.
Like it or not Circums Danakil mine at over five times in size and with far better grades will overturn all of those bold statements. A valuation using Danakali as a benchmark would put Prems investment higher than $10m. Much higher which is why you'll often hear GR say that benchmarking should be the preferred valuation method. But I personally think a valuation based on Circums last subscriptions is probably the safest and most conservative way. For now at least
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So at the steady state production planned of 3.5mt's/ annum planned for the mine and based on the estimated total resource that would give the project a Life Of Mine of roughly 750 years which is the best part of a kiloyear or 1 Millennium to you and me. So it’s big from that perspective too.
Circum was granted its mining license two years ago and since then they seem to have been working on getting the $1bn Capex finance arranged. No doubt all aspects necessary for making a start on constructing the mine this year too not least of all selecting a suitable contractor to build the mine..
Circums plan is to ramp up production to 3.5mt's/annum in four phases in order to minimise the Capex needed and to mitigate the risk. Potash mines are renowned for needing a quite high Capex so the planned construction period for the mine of two years at first appears long is probably commensurate.
Phase 1 production target of 750kt's /annum is set 2021 leading up to a phase 4 optimised and steady state production of 3.5mt's /annum by sometime in 2024 I believe.
SOP & MOP have both cost and value differentials. Cash Costs (CC’s) or mining production costs if you prefer are said to be less than $40/t for MOP and $112/t or thereabouts for SOP. Both of those rank amongst the lowest costs in the world.
Revenues after offtake commissions is more difficult to assess but I have at about $150/t for MOP and nearer $350/t for SO
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The SOP & MOP will be a extracted in solution from the same boreholes. They can be kept entirely separate as they are situated in well defined layers at different levels.It's quite an important point to make as it brings flexibility in the mining plan and will allow the mine to vary the output for each type potash to its advantage.
Initially I imagine the mine will produce mainly SOP which should enable it to ramp up from phase 1 to 3 out of profit rather than dilute or take on further debt.
The Capex needed to get to phase 4 is said to be $1bn. Although the figure mentioned in Prem's recent Webinar was $1.1bn. I'm not sure but I imagine the addition $100k is for contingencies which is an allowance that always features.
In the Webinar we were also told that Circum had secured the $750m debt finance it was looking for and two Brokers were negotiating the $350m balance needed to be raised in equity with eight funds.
All of that seems a while ago now so perhaps the negotiations are nearing conclusion if not already complete.
The intention is to ship the potash from the mine to the port using huge “roadtrains” via a newly built dedicated road. But even so to ship 3.5mt's /annum is going to be a big ask.The mine will be capable of producing considerably more than 3.5mt's/annum. But to do so the mine is going to need a rail link and freight train without doubt. As big as these monster road trains are a freight train is capable of carrying 40 to 50 times more at up to 6,000t's. It's a much cheaper cleaner and safer too.
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World fertilizer prices ebb and flow on the basic law of economics of supply and demand as we all would expect. In recent history we've seen potash prices fall and they only bottomed out last year. They now continue to follow an upward trend and slow rally in line with the forecast by many experts. All of this bodes well for Danakil project. SOP prices also continue to demand a considerable premium over those for MOP and I can't see that changing.
However a noteworthy event that happened last year too but doesn't appear to be quite so well known. In or around August India being one of the largest end users entered into a huge long term offtake agreement with Belarusian Potash Company (BPC) one of the worlds largest producers. The prices agreed were at a premium to the then market prices of about 25% or $50/t for MOP.
The effect of that has been not only to lift the market prices generally but more importantly to lay a floor on future prices falling close to or below cost which is good news for Danakil. This is what Londons ICIS said at the time “The global Muriate of Potash (MOP) market is bracing for a flurry of trading and price fluctuations after Indian buyers finalised negotiations for a crucial long-term import contract at a $50/tonne increase”.
So what does all of this come down to for Prem and it’s shareholders. Well for starters it tells us that we have a 5% holding in what is looking very likely to be a world class potash mine. It’s reasonable to assume that a bankable valuation will have been made on the project using Circums DFS by now which will give support to values arrived at by the other methods. Those of you familiar with the NI 43-101 Certification that it’s mandatory for valuations to be made on the project at key milestones once it’s in production. Unfortunately for us however that document also remains undisclosed. For the time being at least.
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The shares Prem own are not “locked- in” and a “locked-in” situation cannot be imposed on Prem by Circum without prior agreement. To do so would be unlawful and place Circum in breach of contract. If Circum wanted such a situation then it can only request it or alternately offer to by back Prems shares at a reasonable price. In terms this means that Prem is free to liquidate it’s holding in Circum in whole or in part and to sell to anyone at any time it wants. There are no impediments.
The up to date timing milestones and fundamentals of the project are given to us by Circum in it’s latest presentation issued very recently and on its website. From those it’s reasonable to assume there must be a Corporate Action of sorts in the very near future if the milestones set are to be met. For me the IPO route looks the most likely. The Government have invested in and largely completed the necessary infrastructure works. Capex debt finance has been arranged. Capex equity finance is either being resolved or in place. Permitting is granted. The teams is in place and so on.
I hope some of the thoughts I’ve shared are of interest and as always they’re AIMHO
GLA all genuine shareholders.