By Allan Seccombe |
Circum Minerals, which is partly owned by a private equity fund invested in South Africa, is on the cusp of raising $2.6bn towards a potash project in Ethiopia, promising a mine that delivers some of the lowest-cost fertilizer ingredients in the world.
Circum, headed by Brad Mills, former CEO of the world’s third-largest platinum miner, Lonmin, plans to secure a mining and environmental permit before the end of this year, allowing it to seek out the funding, which could come from a strategic partnership.
The traditional way to finance these kinds of projects was to raise up to $1bn through equity and the balance through debt financing, Mr Mills said.
“The effort at this point is to find a strategic partner who would come in and write the equity check,” he said.
This partnership could be in the form of a large cash injection into the project in exchange for a stake in the business, or the project could be started with finance cobbled together, followed by further large investments.
“There is no immediate plan to list Circum. It would only occur after we raised most of the equity and debt for the project such that if we came to market it was with a fully funded project,” Mr Mills said. Circum has outlined a large potash deposit in the Danakil Basin, close to the Eritrean border.
The entire potash resource is 4.9-billion tonnes as well as a reserve of 108-million tonnes.
Potash is a potassium-rich salt from ancient seabeds and used to make fertilizer. Canada and Russia are the world’s largest sources of potash, with most of their mining done underground.
Circum plans to mine near the surface, using fluids to dissolve the salts so they can be cheaply extracted and processed.
African Minerals Exploration and Development Fund, a private equity group, holds nearly 36% of Circum. It has stakes in a number of African mineral deposits, including Sepfluor, a South African fluorspar company.
The fund includes founding partners Rudolph de Bruin and David Twist.
The attraction of starting the project close to the shores of the Indian Ocean gave both operational and transport cost advantages for Asian buyers of potash, Mr Mills said.
“It becomes a natural project to develop for anyone that wants to have a major stake in production of potash for the Southeast Asian markets,” he said.
Circum has started test work at the project and will extract 5,000 tonnes of potash to be sent to prospective clients as well as firming up its own operating assumptions.
Initially, the project, which will deliver 2.7-million tonnes of potash in the first phase, will entail trucking the minerals 600km to Djibouti.
The long-term alternative is to build a 30km rail spur to a railway line.
Production would need to get to more than 3-million tonnes a year to justify the construction of the railway line. The estimated cost of the spur and rolling stock would be about $600m for installed capacity of 5-million tonnes a year, Mr Mills said.
Production would be 2-million tonnes of muriate of potash, which will have a free-on-board cost at Djibouti of $83.89/tonne; and 750,000 tonnes of sulfate of potash at $158.95/tonne in the first phase, which is expected to start production from mid-2018, according to a definitive feasibility study.
These costs would come down once the railway was built.
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