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LAKE CHANDLER POTASH PROJECT

The Lake Chandler potash project consists of a granted Mining Lease (M77/22) and a Prospecting Licence application (P77/3977) covering two salt lake deposits located 48km north of the Western Australian wheat-belt town of Merredin, 300km east of Perth.

Potash was produced from the deposit in the post war period from 1943 to 1947 but the operations have been idle since.

Summary

  • 100% owned by ActivEX Limited.
  • Granted Mining Lease.
  • Salt lake accumulations of concentrated alunite (potassium aluminium sulphate) clays.
  • Central WA wheat belt, close to markets and infrastructure.
  • Worked for Potash in the 1940s.
  • Extensive drilling 1980s - inferred resources, JORC compliant.
  • No major environmental issues.
  • Extensive bench scale testing already completed, atmospheric acid leach testing in progress.

                                      Figure 1. Lake Chandler location map

Lake Chandler is a salt lake with accumulations of potassium rich alunitic clay up to 6 metres thick which the Company is investigating with a view to proving the commercial extraction of potash as potassium sulphate (SOP) and other fertiliser products such as ammonium sulphate (SOA) with possible alumina by-products. Studies by ActivEX have shown that the Australian potash market currently relies completely on imports, principally from Canada, Taiwan and Germany. The lack of domestic production means that potash prices in Australia are at a significant premium to world prices. This premium is related to the lack of local production, tightness of world and local supplies and transportation costs.

Potassium sulphate (SOP), the likely product from the project, also demands a significant premium to the more readily available potassium chloride (MOP). SOP is better suited to Australian soil conditions where high salinities prevail and the Company believes that when established as a reliable local producer it can substitute SOP into the chloride market. Much of the SOP consumption in Australia is related to crop and pasture application and the Western Australian wheat belt is a significant consumer. Thus, transport of fertiliser product to market will also be at a significant cost advantage.

                      Figure 2. Lake Chandler Potash Project regional geology


                  Figure 3. Drill section 00mN of the Lake Chandler Potash Project

Extensive drilling of the lake in the 1980s has outlined the deposit and shows that the potassium content of the clays is consistent over the deposit. This drilling has been used to estimate a JORC compliant inferred resource of 5.8 million tonnes of 5.7% K2O. Limited drill testing is required to improve this estimate to measured and indicated status. The resources study also identified the potential for additional mineralisation peripheral to the current resource but within the confines of the Lake Chandler. No drilling has been carried out on Reward Lake but records show potash contents at the surface similar in grade to Lake Chandler.

                       Figure 4. Lake Chandler 3D view showing infrastructure

 

Figure 5. Drill layout on aerial photo of the Lake Chandler Potash Project (left) and Block Grade distribution with drill hole locations at 279m RL (right)

Following the definition of a JORC resource for the project in 2009, ActivEX has carried out extensive washing and settling tests, large scale leach tests, filtration and centrifuge tests to collect sufficient data to carry out a scoping study of the project. The initial scoping study was completed in July 2010 by engineering consultants Lycopodium Minerals.

The scoping study was carried out on a nominal throughput of 200,000 tonnes per annum. At this rate of production the project would have a mine life of 25 years. Mining would take place on a campaign basis during the drier months and stockpiled for year round processing.

The processing plant, which would operate continuously, consists of two stage scrubbing, five stage counter current decantation (CCD), washed ore filtration, high pressure ammonia leaching, leach discharge and filtration, ammonia stripping and recycling and potassium sulphate and ammonium sulphate crystallisation and bagging units.

The Study shows that operating and capital cost estimates for the project were shown to be between 20 and 30% higher than previous estimates. This, combined with the softness of the Potash market, means the project would be marginal under the current economic conditions.

The Company is continuing its investigations, striving towards establishing a viable operation by looking at areas for potential cost savings such as good quality second hand plant items and sources of low cost reagents such as ammonia, in addition to looking at ways to simplify the process flow sheet, in an effort to cut capital and operating costs.

Processing Options

ActivEX is reviewing mining and treatment options for the Lake Chandler deposit and production rates of 150,000 to 300,000 tonnes per annum (nominal 200,000tpa) are being considered. At these rates the defined resource of Lake Chandler is sufficient for a mine life of between 20 and 30 years.

Summary

  • Production rates of 150,000 to 300,000 tonnes per annum being reviewed.
  • Ammonia leach process selected due to improved technology, marketability of products and lower costs.
  • 90% of potash leached in approximately 60 minutes under mild leach conditions.
  • Products, SOP and SOA can be produced separately or as a blend.
  • Potential to produce high grade alumina byproduct.
  • Scoping study extended.
  • Currently atmospheric acid leach tests are being completed.

Several processing options have been considered and the Company is actively progressing research on the project utilising an ammonia pressure leach process. Important factors which have influenced this direction are the improvement in leach technology, the excellent marketability of the products and the likely lower capital and operating costs.

Test work researching this process from the last 15 years has been collated and a series of staged tests on new bulk samples to optimise the ammonia leach process have been carried out. In addition, tests to determine pre-washing, sedimentation characteristics, pre-concentration routes and post leaching crystallisation parameters have also been undertaken.

The Company is also undertaking atmospheric acid leach test at present.

                        Figure 6. Lake Chandler Potash Project bulk sample site

A series of preliminary washing/settling tests has been undertaken to confirm that soluble salts (sodium chloride and magnesium sulphate) in the Lake Chandler alunite can be efficiently scrubbed from the ore prior to its being fed as a slurry to the leach circuit. If the ore is not pre-washed these salts contaminate the final products. The tests indicate that slurries of the ore flocculate and settle well in a five stage CCD circuit with commercially available flocculants, thereby allowing removal of the soluble salts with reasonable water consumption. This is of particular importance to the Lake Chandler process flow sheet as fresh water is scarce in that location.

Initial leach tests conducted on alunite samples from the lake indicate that approximately 90% of the potash can be successfully dissolved under relatively mild conditions (approximately 60 minutes leach time at 160 deg C and 1000-2000kPa) using ammonia as the leachant in a standard autoclave system. In addition, an unexpected favourable outcome of the test work was that under these controlled conditions over 90% of the potassium leached from the ore will report to the insoluble leach residue and can thereby be readily separated from the ammonium sulphate (SOA) component which remains in the leach liquor. The precipitated potassium sulphate (SOP) is easily dissolved away from the residue (alumina etc.) with ammonia and can be crystallised as pure potassium sulphate by cooling. The process is elegant in that the soluble components resulting from the leach process are potassium sulphate (SOP) and ammonium sulphate (SOA) both of which are valuable fertiliser components. These products can then be sold separately or a fertiliser blend of the two can be simply prepared and could be marketed directly by the Company. The alumina values in the ore remain in the leach residue (45-50% Al2O3) and hence are effectively separated from the potash component of the ore. The alumina precipitate appears to have been activated in the leaching process and the Company believes this can be readily treated to produce high grade alumina or aluminium salts for subsequent sale.

              Figure 7. Processing flow sheet for the Lake Chandler Potash Project

The scoping study was carried out on a nominal throughput of 200,000 tonnes per annum. At this rate of production the project would have a mine life of 25 years.

Mining would take place on a campaign basis during the drier months and stockpiled for year round processing. The processing plant, which would operate continuously, consists of two stage scrubbing, five stage counter current decantation (CCD), washed ore filtration, high pressure ammonia leaching, leach discharge and filtration, ammonia stripping and recycling and potassium sulphate and ammonium sulphate crystallisation and bagging units. The Study shows that operating and capital cost estimates for the project were shown to be between 20 and 30% higher than previous estimates. This, combined with the softness of the Potash market, means the project would be marginal under the current economic conditions.

The Company is continuing its investigations, striving towards establishing a viable operation by looking at areas for potential cost savings such as good quality second hand plant items and sources of low cost reagents such as ammonia, in addition to looking at ways to simplify the process flow sheet. Simplification of the flow sheet is aimed to reduce operating and capital costs by reduced material handling costs by reducing the numbers of washing and filtration events within the process. Further bench scale testing is in progress focussing on confirming the viability of the simplified flow sheet.

  Figure 8. Lake Chandler Potash Project - machinery at site from post war mining period

Other studies which are in progress and give input to, or run parallel with the scoping study include water resource investigations, energy requirements and the identification of environmental and cultural heritage issues. These studies are designed to shorten the feasibility and permitting process and to ensure no significant impediments to rapid development are present.

Water supplies have been identified as critical to the project and research is being carried out to identify potential sources of underground water. Allowance has been made for treatment of this water (likely to be saline) through a reverse osmosis (RO) plant to upgrade it to process quality requirements. Other sources of water from the district and from the Goldfields pipeline are also being considered.

Previous cultural heritage studies have identified no cultural heritage issues within the mining lease. Environmental studies of invertebrate and vegetation communities have been carried out last winter and spring. No obvious impediments have been noted. Initial discussions with WA environmental authorities have been commenced and a program of consultation put in place.

Stakeholder liaison has commenced in the Merredin area with strong support for potential development coming from local government and business operators.

Potash Markets

Providing food for the world's quickly growing population is an enormous challenge for the future with the availability of arable land diminishing. Rising incomes worldwide mean shifting diets towards increased protein that requires grain intensive production of livestock. This means overall demand is increasing and the demand per capita is accelerating. In parallel, the demand for grain dedicated to biofuels is also on the increase. This combination of increased demand for foodstuffs from a fixed land base means farmers will have to become more productive, seeking to maximise their yields. The only way to achieve this is through improved farming practice and the use of fertilisers.

Summary

  • Demand for fertilisers expected to grow due to accelerating demand for food and agricultural products.
  • Potash growth curve higher than other fertilisers and sustained during recent price retractions.
  • Demand principally in Asia and South America.
  • Fertiliser fundamentals show strong growth in Asia.
  • Production principally from Canada, Russia, Belarus and Middle East.
  • Potash capacity failing to meet demand.
  • Capacity growth not keeping up with demand.
  • Prices predicted to stabilise at a new bench mark, significantly above the traditional price curve.

Figure 9. World soya bean production - an indication of accelerating demand for foodstuffs

The developing world can improve crop yields substantially (they currently have about half the yield of producers in the developed world). Fertiliser is responsible for about 40% of improved crop yields and combined with improving farming practice can transform outputs. As a result of the growth in demand, the use of fertilisers has shown a steady increase. Potash has shown the largest increase in growth with farmers recognising that potash is critical to yields. They have started to correct under-application practices of the past.

Potash is a vital fertiliser as it improves water retention, yield, nutrient value, taste, colour, texture and disease resistance of a variety of food crops. It has wide application to fruit and vegetables, rice, wheat and other grains, sugar, corn, soybeans, palm oil and cotton, all of which benefit from the nutrient's quality enhancing propeties. Potash is generally blended with phosphatic and nitrogenous fertilisers to suit local conditions but cannot be substituted by these other fertilisers as they fulfil different requirements in plant development.

    Figure 10. Fertilizer Consumption showing the growing consumption rate for potash

World Potash Consumption Growth

Since 2000, global potash demand has grown by 40 per cent with Asian and Latin American agriculture being the key drivers of growth. In the same time span, capacity growth has failed to keep up with demand. Capacity growth constraints are dominated by limited resources with no new potash mines coming on stream and major mine closures occurring in the period, only partly offset by increased production from existing mines.

                           Figure 11. Cumulative Potash Demand vs Capacity


                                 Figure 12. World potash supply and demand

World Potash Supply and Demand

Potash production is limited to 12 countries with 80% being derived from Canada, Russia and Belarus. Australia has little or no production and is a net potash importer with imports coming principally from Canada, Taiwan and Germany. The lack of domestic production means that potash prices in Australia are determined by world markets.

Australia is ideally located to supply high demand areas of Asia and Latin America.

                            Figure 13. World potash production and consumption

World Potash Production and Consumption Breakdown

Increased demand, tight supply and the recognition of Potash as a critical component of fertiliser treatment has lead to sharp but sustained increase in prices over the last five years to a point where there has been significant buyer resistance. Muriate of Potash prices (MOP) at the beginning of 2009 were at record levels (US$865) and despite recent sharp declines in other fertiliser, mineral and metal commodity prices, potash has remained relatively high. ActivEX believes the future markets for potash will stabilise after this period of extreme uncertainty in 2007-2008 and will settle at a new bench mark signifcantly above the traditional price curve. International potash prices are currently at a relatively low point as shown in the following chart. Over the last few years fertiliser prices have risen substantially which has caused buyer resistance and application rates have plummeted. While this can happen in the short term it will cause depletion of nutrients available in the soils and cannot be sustained without a reduction in yield. Return to more normal application practice will also lead to higher initial application rates to replace depleted soils. This trend of a return to normal application rates has shown a recent upswing in prices for other fertiliser products with potash showing a time lag but expected to follow.

ActivEX believes the future markets for potash will stabilise after this period of uncertainty and extreme price fluctuation.

There are few new potash developments throughout the world. This lack of new supply, combined with expected depletion suggests that prices will stabilise at a new bench mark significantly above the traditional price curve. Recent acquisition activity in the potash sector by major international mining companies seeking to establish a position in potash supports this positive outlook for the commodity.

Note: Sulphate of Potash (SOP) sells at 20-30% premium to MOP.

                                     Figure 14. Monthly average fertiliser prices


5 Year Monthly Average fertiliser Prices

                    Figure 15. Fertiliser prices, potash prices and forward estimates

Potash Markets in Australia

Summary

  • Potash fertilisers fully imported into Australia due to lack of domestic production WA, Queensland and Victoria are key consumer markets.
  • Annual Imports of around 350,000 tonnes of MOP and 45,000 tonnes of SOP.
  • Value of imports in 2008 - AUD$225.8M.
  • MOP principally imported from Canada and USA.
  • SOP principally imported from Taiwan and Germany.
  • In 2008, 39% of SOP and 45% of MOP imported into WA, with Victoria and Queensland other large importers.
  • SOP is a premium product for Australian conditions.

Potash is principally imported into Australia by two importers, based on the east and west coast. SOP (K2SO4) is ideal for Australian conditions and would be preferred to MOP (KCl) where high salt levels and acidity of the soils is a concern. The price premium of SOP however, dictates that MOP is the dominant product used in Australia with SOP being preferred mostly in Western Australia.

Western Australia, Victoria and Queensland are the major importers of Potash in either form.

                   Figure 16. Muriate of Potash (MOP) imports by State for 2008 (left)                                         and Sulphate of Potash (SOP) imports by State for 2008 (right)