Worth its salts? Australia's SOP revolution

23 October 2017 13:54 Source:ICIS News

LONDON (ICIS)--With endemic oversupply forcing muriate of potash (MOP) players to restrain production – lest they lose what little margin they’ve regained in recent years following the potash price crash of 2008/2009 – many investors are instead looking to MOP’s more expensive cousin, sulphate of potash (SOP), for a good return on investment – and the Australian outback is rapidly becoming a hotbed of activity for this high-quality crop nutrient.

SOP is a premium form of potash fertilizer, and contains two of the six macro-nutrients essential to plant growth: potassium and sulphur.

Estimated global potash consumption in 2015 was around 67m tonnes, comprising approximately 60m tonnes of MOP, plus more than 5m tonnes of SOP.

However, despite this shortfall when compared to MOP’s bumper sales, Australia’s prospective SOP producers are betting that as world’s population expands and China’s middle class continues to emerge, increasing consumption of specialty crops will drive demand growth for SOP, and net big profits.

SOP can be produced from ‘primary’ and ‘secondary’ sources, with primary production mainly conducted at five salt lake brine deposits in China, India, the US, and Chile.

However, the balance of SOP production comes from secondary production, including underground mines in Germany and volumes produced via the Mannheim Process, which involves the addition of sulphuric acid to MOP in a Mannheim furnace to produce SOP and a hydrochloric acid by-product.

Against this backdrop, Western Australia’s SOP investors are betting on three key factors to retain a good return-on-investment: the nation’s salt lakes are largely untapped; the region offers a low geopolitical risk from disgruntled locals, and Western Australia is strategically located to supply the fertilizer-hungry markets of Southeast Asia.

Of the start-ups working to launch Western Australia’s SOP industry, Kalium Lakes is arguably leading the charge.

Kalium has completed a ‘pre-feasibility study’ and maiden ore reserve at its Beyondie SOP project, claiming Beyondie is not only low-cost and offers a long life cycle, but could also return high margins.

The study revealed an estimated capital cost of Australian dollar (A$) 220m ($172m) to bring the project into operation, with full production targeted at 150,000 tonnes/year of SOP, and an initial mine life of 21 years.

There is an indicated resource of 4.37m tonnes, and an inferred resource of 13.74m tonnes, offering the company plenty of room for expansion.

Kalium Lakes estimates SOP operating costs of A$244-253/tonne which, if realised, officials say would place them in the lowest quartile cost of global SOP production.

The company is also closing in on its first buyer, after signing a non-binding memorandum of understanding (MOU) with Yunnan Jingyifeng Supply Chain Management Company (JYF) for the sale of SOP from the Beyondie project.

The firm said JYF proposes to consider purchasing 50,000-80,000 tonnes/year of the project’s annual SOP production, which will then be marketed to its customers in South West China, including the Guangxi, Yunnan, Guizhou and Sichuan provinces.

Meanwhile, competing start-up Salt Lake Potash stands to make a substantial saving on the construction of its Goldfields SOP scheme’s evaporation ponds, after successful field trials of an unlined, on-lake model showed minimal brine seepage.

The six-month trial involved construction and testing of four test ponds on the firm’s Lake Wells prospect, built solely from in-situ clay materials and using a standard excavator.

The trial ponds enjoyed levels of brine seepage well below the threshold for successful operation of halite evaporation ponds - and potentially also for the project’s planned potassium salt harvest ponds.

The company’s construction lead, Amec foster Wheeler, estimated that 400 hectares of on-lake ponds would cost $42.2m if lined by high-density polyethylene (HDPE), but just $1.6m if left unlined, representing a saving of $40.6m for those dimensions.

Salt Lake plans to construct a 44 acre pilot-scale pond system to further improve the pond design and construction model – and likely to prove its cost-saving measures will remain effective for the long life of the project.

The final contender in this Australian ‘white gold-rush’ is Perth-based Agrimin, which has commenced long-term pump testing at its Mackay project, and just announced the completion of 12 pilot trenches.

The Mackay project will extract large volumes of hypersaline brine from a trenching network on the lakebed surface. Once transferred into large-scale solar evaporation ponds, the brine will be concentrated to facilitate the precipitation of potash salts.

After a drying period, the potash salts will be harvested from the ponds as feed material for the processing plant and converted into SOP.

Agrimin intends to construct a total of 20 trenches at Lake Mackay, and a scoping study completed last August indicated the potential for production of 370,000 tonnes/year of SOP over a 20-year mine lifespan.

However, despite the strong investor interest and positive early results, ‘boom-town’ Australia is not without competition.

In Europe, long-time German SOP producer K+S will likely not take kindly to rivalry from ‘down under’, while US-based producers including Potash Ridge and Compass Minerals will attempt to insulate their customers from the allegedly low-cost Aussie mines’ volumes.

Meanwhile, additional start-ups as far afield as Eritrea – where Danakali is developing its Colluli project – and the Gulf Mining Group’s $40m SOP project in Oman’s Umm As Samim region also threaten Australia’s burgeoning SOP industry.

The stage is set for a SOP trade tussle in years to come.

Focus article by Andy Hemphill

Additional reporting by Mark Milam

By Andy Hemphill