Gensource Announces Results of the Vanguard One Feasibility Study
GENSOURCE ANNOUNCES RESULTS OF THE VANGUARD ONE
FEASIBILITY STUDY
SASKATOON, Saskatchewan – May 31, 2017 – Gensource Potash
Corporation (“Gensource” or the “Company”) (TSX.V: GSP) is pleased to
announce the results from the detailed feasibility study (“Study” or “FS”) for its
Vanguard One Potash Project (“Vanguard”, or “Project”) in Saskatchewan.
The FS was completed by an integrated team, consisting of ENGCOMP
Engineering and Computing Professionals Inc. of Saskatoon, SK and its
engineering sub-consultants, South East Construction L.P. of Esterhazy, SK,
Terra Modelling Services Inc. of Dalmeny, SK, Innovare Technologies Ltd. of
Carlyle, SK, Golder Associates Ltd. of Saskatoon, SK, and Whiting Equipment
Canada Inc. of Welland, ON. These companies are experts in their respective
fields, and bring best-in-class Saskatchewan potash knowledge and experience to
the Project. The integrated team joined together the engineers, designers,
fabricators, and construction contractors to collaborate on the design,
constructability, and optimization of key projects elements. This integrated
approach supports the development of a solid capital cost estimate and project
schedule, which bolsters confidence in the overall Study.
Gensource’s President & CEO, Mike Ferguson, said, “We are delighted to have
completed the feasibility study for Vanguard, and are even more pleased that, as
we dig deeper into the detail, the chosen mining and processing methods
continue to affirm that Gensource has selected the right approach to potash
production. Not only do we have a world class resource, but the project also
provides a strong return on investment, in part because it is small and easily
scalable, and all the while setting a new bar for environmental responsibility in
the development of new potash production. The results of the Study speak for
themselves: even in this time of low potash prices, and even with Gensource’s
conservative assumptions on potash price into the future and on-going
sustaining capital costs for the operation, the project is technically and
economically robust. We are excited to take the Vanguard Project to the next
step – confirming the construction financing and then into construction and
ultimately, operation. We are more convinced more than ever that this is the
way to produce potash in the 21st century.”
The Study was initiated in October 2016 with a planned completion date of Q2
2017, a goal which has now been met. Effort invested in engineering, design,
management, procurement, estimating, planning, and report preparation
exceeded 20,000 hours over the Study period. A National Instrument (NI) 43-
101 technical report will be filed within 45 days of this news release, and will also
be available on the Company’s website.
The FS was undertaken, financed and completed directly by Gensource Potash
Corporation and it represents the next step in the Company’s drive to bring new
technologies and new business approaches to the potash industry. It is based
on engineering and cost estimating methods and levels of effort sufficient to
support an AACE International Class 3 capital cost estimate – key to adding
certainty to both the engineering design as well as construction costs and
schedule for the project.
As background, the Company’s new “business + technology” approach to potash
utilizes a small-scale production model that has the following features:
- It allows for vertical integration of the mine with an identified market
partner,
- It facilitates lower capital expenditures (CAPEX), and is therefore more
readily financed, together with site-based operating costs (OPEX) that are
at the low end of the lowest quartile of all potash operations globally, and
- The selective solution mining techniques continue to exhibit a significantly
reduced environmental footprint, with no salt tailings on surface, no brine
ponds or other brine control structures, and no requirement for surface
water consumption. Consequently, the Company hopes that permitting
the Vanguard One project will be easier than a typical potash project.
Figure 1: 3D Model of the Gensource Small Scale Potash Facility
FS SUMMARY
The following are general highlights from the Study:
General:
Table 1: FS Highlights
Parameter Results
Project capacity: 250,000 t/y final product, standard grade (“MOP”, or “potash”)
Mine life: See Geology section below
Mining method: Selective dissolution using horizontal caverns
Processing:
Cooling crystallization incorporating innovative energy efficiency
measures
Product storage:
Intermodal shipping containers covering 7 days of operation
(typical) on rotation, with an additional 14 days of container storage
available on-site as needed
Product Transport:
$100/t transportation and logistics to overseas destination included
in the economic analysis, based on quotations received
CAPEX:
$CAD 279M including contingency – (~$US 210M at today’s nominal
exchange rate of 1.33)
OPEX:
$CAD 53.23/t final product ($US 39.54/t at today’s nominal CAD/US
exchange rate of 1.345 as set by the Bank of Canada May 25, 2017).
The major components of OPEX are natural gas delivered to site at
$CAD 3.71/GJ and operating personnel count of 46 full time staff. All
operating costs were inflated at 1.5% per annum. Natural gas prices
were taken as a 5-year forecasted average as per Sproule Associates
Ltd., April 2017 and inflated annually.
Sustaining CAPEX:
Average annual sustaining capital of $CAD 3.29 million ($US 2.91
million) or $CAD 15.68/t ($US 11.65/t) per year includes full cavern
replacement every 14 years, annual well work-overs and 2% of plant
site equipment. Sustaining capital is inflated at 1.5% per annum.
Construction:
22-month construction period, peak construction work force of
approximately 150.
CAPEX:
The total project capital construction cost is estimated at $CAD 279M, including
contingency – (~$US 210M at today’s nominal exchange rate of 1.345)
The following is a summary of the Class 3, Capital Cost Estimate, summarized by
project area:
Table 2: CCE Summary
AREA $CAD
Mining $ 23,738,000
Wellfield $ 17,304,000
Process Plant $ 70,610,000
Product Storage &
Loadout $ 957,000
Site Infrastructure $ 27,297,000
Offsites $ 6,877,000
Non-Process Facilities $ 29,550,000
Project Indirects $ 77,972,000
TOTAL (Pre-Contingency)* $254,305,000
Contingency (P75) $ 25,564,000
GRAND TOTAL $279,869,000
*A statistical analysis was completed, using Palisade’s @Risk software, to yield a
range of probable project costs and aid in the determination of a probabilistic
contingency to apply to the project. A contingency of $25,564,000 was selected,
representing the value from the 75th percentile of the analysis output. The 75th
percentile (or Level of Confidence) value means that 75% of the total project
cost outputs from the statistical analysis were equal to or less than this value.
Economic Analysis:
The financial performance of the project is shown in table below, for a range of
product prices and costs of capital.
Table 3: Financial Performance Post Potash Production Tax, Royalties, Levies and Surcharges
At a base case potash price of $US 300/t, a 45-year economic project life, 1.5%
operating cost inflation, $CAD 100/t ($US 74.29) shipping cost to East Asia,
operating costs of $CAD 53.23/t ($US 39.54), sustaining capital reinvestment
totaling $CAD 15.68/t ($US 11.65/t) and a constant exchange rate of 1.30
$CAD/$US the financial performance of the project can be summarized as:
Table 4: Financial Performance Summary
Indicator Pre Sask. Profit
Tax
Post Sask. Profit
Tax
NPV8 $329,403,545 $235,822,250
IRR 18.32% 16.31%
The following defines the input parameters and assumptions used in the
discounted cash flow model (DCFM) for the Gensource Vanguard project:
- The economic analysis is based on a 100% equity scenario.
- Potash production is 100% standard grade.
- Cash-flow model constructed in $CAD.
- Base-case pricing for standard product is $US 300/t, CFR Asia starting in 2019
with an escalation of 1%.
- Operating costs and sustaining capital reinvestment costs have been inflated at
1.5% per annum.
- There will be no expansion beyond 250,000 t/y.
- Consideration was given to the expected timing of construction expenses.
- Operating costs and sustaining capital costs are included in the model.
- Annual sustaining Capital cost averages $CAD 15.68/t ($US $11.65/t)
- Insurance during construction is included in the models.
- The cash flows include Saskatchewan Resource Surcharge (3% of revenue),
Provincial Royalties (4.4% of K2O), and Saskatchewan Potash Production Tax.
- The economic model includes a 3% per annum “Other Royalty” on net revenue.
- Transportation costs to destination are assumed CFR Asia. $CAD 100/t has been
included under the OPEX section of the cash flow.
- Revenue generated from future potash sales are converted into $CAD at a long-
term historical exchange $CAD:$US of 1.30.
- Working capital requirements of $CAD 2.66/t.
- Head office general and administrative expenses of 1.1% of Revenue or $CAD
5/t.
- Spot $CAD:$US exchange rate used as of the date of this report is 1.345 as set
by the Bank of Canada May 25, 2017.
Schedule:
Gensource’s small-scale concept facilitates a development timeline of
approximately two years from construction to first production.
Conclusions and Recommendations:
The conclusions and recommendations made in the report are to:
- Complete the environmental assessment approval process and move into
the permitting phase to ensure the appropriate permits, approvals, and
licenses are obtained to advance the Project into the construction phase,
followed by operations.
- Complete the full project financing package
- Initiate procurement for key long-lead items
- Initiate detailed engineering including final trade-off studies.
- Complete advanced modelling and testing of cavern temperature and
dissolution rates
FURTHER FS DETAIL
Geology:
From the 17Feb2017 NI 43-101 Technical Report, the following tables define the
Indicated and Inferred Resource in the Vanguard area (Base Case Highlighted).
Note that the Indicated Resource data is inclusive of the Reserve data listed in
Table 7.
Table 5: Indicated Resource
INDICATED RESOURCE
Member Sub-
Member
Total KCl
Grade
Carnallite
Grade
Insoluble
Grade
Average
Thickness
Total
Sylvinite
Tonnage
Sylvinite
Tonnage
with
Deductions
Sylvite
Tonnage
(KCl), 30%
recovery
Sylvite
Tonnage
(KCl), 40%
recovery
Sylvite
Tonnage
(KCl), 50%
recovery
Weight % Weight % Weight % meters Weight % Million tons Million tons Million tons Million tons
Patience
Lake
Member
PLM1 39.03 0.75 6.21 4.40 290.00 232.00 27.16 36.22 45.27
PLM2 28.91 0.60 7.03 3.65 240.07 192.06 16.66 22.21 27.76
PLM3 39.33 0.60 9.24 2.91 145.84 116.67 13.77 18.36 22.94
PLM4 36.32 0.67 10.43 1.90 125.48 100.38 10.94 14.58 18.23
Sub-Total 35.63 0.67 7.67 12.86 801.39 641.11 68.53 91.37 114.21
Belle Plaine
Member
BPM1 37.82 0.98 6.20 0.79 35.24 28.19 3.20 4.26 5.33
BPM2 41.18 0.44 2.69 2.06 81.79 65.43 8.08 10.78 13.47
BPM3 33.36 0.45 2.38 1.27 59.09 47.27 4.73 6.31 7.88
BPM4 28.70 0.70 3.58 2.00 130.12 104.09 8.96 11.95 14.94
BPM5 35.65 1.40 4.83 1.26 82.05 65.64 7.02 9.36 11.70
BPM6 26.53 1.62 2.00 1.70 110.51 88.41 7.04 9.38 11.73
BPM7 55.73 1.64 0.63 0.45 8.58 6.86 1.15 1.53 1.91
Sub-Total 33.00 0.98 3.29 9.53 507.37 405.89 40.18 53.57 66.96
Total 1047.01 108.70 144.94 181.17
Base Case
Table 6: Indicated Resource
INDICATED RESOURCE
Member Sub-
Member
Total KCl
Grade
Carnallite
Grade
Insoluble
Grade
Average
Thickness
Total
Sylvinite
Tonnage
Sylvinite
Tonnage
with
Deductions
Sylvite
Tonnage
(KCl), 30%
recovery
Sylvite
Tonnage
(KCl), 40%
recovery
Sylvite
Tonnage
(KCl), 50%
recovery
Weight % Weight % Weight % meters Weight % Million tons Million tons Million tons Million tons
Patience
Lake
Member
PLM1 39.10 0.69 6.61 4.27 743.30 557.47 65.39 87.19 108.99
PLM2 29.59 0.73 8.52 2.82 441.02 330.77 29.36 39.15 48.94
PLM3 35.09 0.83 11.58 2.39 296.75 222.56 23.43 31.24 39.05
PLM4 36.86 0.65 9.38 2.29 336.86 252.64 27.94 37.25 46.56
Sub-Total 35.72 0.72 8.40 11.77 1817.93 1454.34 146.12 194.83 243.53
Belle Plaine
Member
BPM1 54.80 4.16 0.72 0.83 70.53 52.90 8.70 11.60 14.49
BPM2 27.29 3.82 2.19 2.07 190.20 142.65 11.68 15.57 19.46
BPM3 35.02 3.22 4.77 1.23 165.83 124.37 13.07 17.42 21.78
BPM4 28.55 0.78 3.68 2.00 343.42 257.57 22.06 29.41 36.77
BPM5 32.18 0.56 2.58 1.31 224.79 168.60 16.28 21.70 27.13
BPM6 41.04 0.47 2.75 1.61 276.84 207.63 25.56 34.08 42.61
BPM7 42.28 1.05 8.20 0.59 40.33 30.25 3.84 5.12 6.39
Sub-Total 34.28 1.62 3.20 9.64 1311.95 983.96 101.18 134.91 168.63
Total 2438.31 247.30 329.73 412.17
Base Case
Based on the geological work completed to date, including the 3D seismic
program just completed, the following Reserve is defined as the base case for
the Vanguard One Project FS:
Table 7: Proven & Probable Reserve
Potash
Sub-Member Reserve
Grade KCl
(Weight %
KCl)*
Recoverable
Tonnage KCl
(Mt)
PLM1
Proven 44.0 5.19
Probable 41.2 2.67
*cutoffs: 24.6% KCl, 6% Carnallite, no insoluble or thickness cutoff
Cautionary Notes on Geology:
- The above Reserve data represents only the base case for the FS for the
Vanguard One project. Since the mine plan is focused initially only on the
Patience Lake sub-member 1 (PLM1) within the Patience Lake member of
the Prairie Evaporite, and focuses on a relatively small component of the
area of 3D seismic coverage, only a small portion of the overall Resource
is converted to Reserve for the base case.
- Modelling and analysis work is not 100% complete at the time of this
news release, and on that basis, the final Reserve data is subject to
change in the final 43-101 Technical Report, however the QP does not
anticipate that the base case mineral reserve will change materially.
Mining:
Vanguard will implement a selective mining approach, using horizontal caverns.
A total of 6 caverns, covering nominally 2 sections (1 section = 1 square mile) of
mineral resource will be required to attain the planned 250,000 t/a production
rate. Calculated cavern life, using only the PLM1 sub-member of the Patience
Lake member of the Prairie Evaporite formation (as defined in the Technical
Report) is 11.9 years. Allowances for cavern replacement costs and pipeline
extension costs have been made in the sustaining capital estimate.
Processing:
The process plant is designed to recover 250,000 metric tons per annum of
standard grade Muriate of Potash (MOP) from the solution mining operation.
The production of potash product (nominally 96% purity KCl) is accomplished by
the removal of KCl from the recirculating brine stream by temperature reduction.
Temperature reduction is accomplished by a vacuum crystallizer, followed by a
surface cooling crystallizer operation. The brine stream continuously recirculates
between the solution mining caverns and the process plant, picking up KCl in the
caverns and crystallizing it into solid KCl in the process plant.
Utilities:
Plant utilities, including steam, natural gas, water, power, etc. are distributed
from central locations to each process/mining unit operation.
All power required on-site will be self-generated by a natural gas fired steam
turbine-driven generator. Construction Power and Temporary “backup” power
will be provided by a 25kV, 2MVA service from SaskPower.
Based on field drilling investigation and aquifer modelling completed during the
study it has been determined that raw water for the entire site can adequately
be supplied from a local and accessible aquifer should deep brackish sources not
be identified.