MagIndustries Reports on the Progress of the 1.2 million tpy Mengo Potash Project
MagIndustries Corp. (TSX:MAA) (the "Company" or "MagIndustries") is pleased to report that it is progressing well with the implementation of its proposed 1.2 million tonnes per annum Mengo Potash Project (the "Project") in the Republic of Congo (the "ROC"). The Company has reported on the progress of its application to the China Development Bank ("CDB") which has resulted in a Letter of Commitment (LOC) from China Development Bank, China’s lead policy bank, related to a major component of Project funding (see the Company’s Press Release of November 21, 2013).
The Company has achieved important Project milestones in other respects. On the technical front, MagIndustries recently released the “Update of the NI 43-101 Technical Report for MagMinerals Mengo Permit Area, Kouilou Region, Republic of Congo” (the “Update”, press released November 14, 2013). The Update reported cost estimates and an economic analysis of the Project which, in the view of MagIndustries management, are highly competitive relative to other proposed potash developments. For the 1.2 mtpy Project, the initial capital expenditure ("CAPEX") is estimated at US$1.270 billion, or approximately US$1,000 per tonne of capacity. Estimated CAPEX includes costs for the solution mining brine field, evaporation and crystallisation plant including all related utilities and infrastructure, gas and water supply, product transportation to the port site, drying and compaction, product storage and a ship loading facility on a dedicated jetty.
The annual operating expenditures ("OPEX") for full production have been estimated at US$131.8 million annually for the production of 1.2 mtpy of a K60 product. These operating costs include estimates for labour, maintenance power generation, consumables, diesel, product transport and electricity. In addition, sustaining CAPEX has been estimated for the operation at US$4.6 million. Combined OPEX and sustaining CAPEX equate to approximately US$114/tonne of KCl. Relative to a projected potash price of US$380 per tonne FOB Pointe Noire, ROC in 2016, when production is targeted to start, the implied gross operating margin for the Project is approximately 70%.
As reported in the Update, the economic analysis calculated a Net Present Value (NPV) of US$1.263 billion before tax and US$1.002 billion after tax, using a nominal discount rate of 10%, The Internal Rate of Return is 21.6% before tax and 20.6% after tax, indicating strong economic viability. Payback is achieved within Year 10 of the Project (or Year 8 of production) considering discounted cash flows. Relative to the net cash flows from operations in 2018, assumed for the purposes of the Technical Report to be the first full year of production at 1.2 million tpy after a two year ramp up period, payback is approximately four years (CAPEX/Cash Flow from Operations at Full Production).
We have also entered into key contractual arrangements and achieved major milestones on the ground:
- March 18, 2013 - the Company signed the indicative terms and conditions of a contract with Project general contractor East China Construction and Engineering company ( ECEC);
- March 13th-18th 2013 – organizational meetings between the Company and ECEC resulting in project management documents such as management plan, construction plan, general process plan, coordination process, documents management regulations, quality plan, Health Safety and Environmental (HSE) management and application plan, procurement plan, and construction management and application plans;
- March 18, 2013 - ECEC appointed China Wuyi Co.,Ltd as sub-contractor for civil engineering;
- June 12, 2013 - a shipment of 4,900 tonnes of materials and construction equipment organized by ECEC arrived in the ROC;
- July 9, 2013 - MagIndustries signed a definitive general contract with ECEC;
- July 17, 2013 an inauguration ceremony for the Project was held in the ROC with senior Congolese and Chinese government officials in attendance;
- July 20, 2013 first pile driver was assembled to begin the process of driving approximately 12,000 piles to stabilize the ground under the Project building sites;
- August 10, 2013 - completed field-leveling of main installation sites;
- August 16, 2013 - preliminary design review of potash shipping jetty was completed;
- September 16, 2013 - pile foundation for the construction of the Project's thermal power station was completed;
- October 21, 2013 a dedicated quarry to supply gravel for the construction of the Project was put into operation.
Mr. Longbo Chen, MagIndustries CEO summarized the progress to date on the construction of the Project: “All temporary construction facilities and living facilities are in place; a detailed geological survey was completed; 70-80% of pile foundation work has been completed; reinforced concrete foundation construction has been fully launched and is in progress; assembly of plant/building structure steel has started; tenders are out for the construction of the permanent living and working base, brine extraction and well development; pipe installation has started and jetty engineering, design and construction preparation have received intensive effort.
In terms of key Project modules, in the processing plant area we have completed the foundation concrete work; for the thermal power plant poured concrete foundations have been completed for the chimney, flues, boiler room and turbine room and associated equipment; and foundation pilings are in place for the cafeteria, administrative building, and residences. In the compaction plant area we have completed the leveling of the construction site, built temporary construction facilities, are nearing completion of foundation piling and have delivered earth fill for road construction."
Staff and Equipment on Site
Currently, Company subsidiary MagMinerals Potasses Congo SA has s60 staff at the site, ECEC has 24 and construction sub-contractor WUYI has about 480 staff on site including managers, technicians and workers, of whom 300 are local Congolese.
There are more than 100 pieces of large and medium-sized construction equipments on site including: loading machines, rotary machines, punching machines, excavators, cranes, rollers, dump trucks, concrete tank trucks, cement mixers, concrete pump trucks, pile drivers, crushing and screening equipment, generators, bulldozers, graders and test devices, plus a full complement of smaller equipment. Additional machinery will be added as needed.
Mr. Chen noted that “In general, the Company is satisfied with what it has achieved to date funded by its own financial resources with the support of its contractors and suppliers and anticipates a sharp acceleration of Project implementation with the finalization of the CDB loan in coming months.”
The authors of the Technical Report, EurGeol Dr. Henry Rauche, EurGeol Dr. Sebastiaan van der Klauw and EUR ING Ralf Linsenbarth of ERCOSPLAN Ingenieurgesellschaft Geotechnik und Bergbau mbH ("ERCOSPLAN") are the Qualified Persons with respect to the Technical Report that forms the basis for the technical and scientific information contained in this news release.