Since we are an exploration company, it is perhaps more appropriate to talk about the annual exploration costs . The exploration budget for 2009 will be approximately 14 million CAD, which will include a resource definition drill program and 3D seismic program leading to an NI 43-101 independent resource calculation.
While we are keeping a very close eye on our purse strings, the company has a strong treasury that allows for continuing our exploration and development plans. The company is able to do this without having to immediately worry about the state of the markets, with the advantage to continue to bring the projects forward in anticipation of better markets. We have been highly encouraged by the latest drill results which suggest similar grades and thicknesses as are mined at Mosaic’s Belle Plaine Solution Potash mine. In view of these results we are expanding the drill program on the Milestone property in order to delineate and define the resource that has been indicated by the first round of drilling.
In July 2009 we saw the Russian producer’s lower prices to the Indian consumer by 26% which reset the potash target price to $460.00 MT. In an interesting development the Russian producers denied that they had actually set those prices. This sets the stage for a critical contract with China to be signed before year end. Russian analysts have predicted a price of $420.00MT. However, we believe that the reduction in application of Potash cannot last forever and when the demand returns the prices will rise closer to a $500.00 MT benchmark.
Our strategy in Milestone is to define a world class potash deposit and to prepare the project for development. To do this we will aim to complete at the very least a pre-feasibility study showing prospective developers the quality of the project and therefore creating value for our shareholders. Once that is done we will begin to look for global partners that can put a project of this scope into production.
Solution Mining has many benefits.
It is less expensive to drill a series of production wells than to construct a pair of conventional shafts, undertake the initial underground development work and install mining machinery.
Conventional potash operations yield large amount s of waste salt that is usually piled at the mine site, as back filling of the salt is costly and difficult to undertake. Solution mines can avoid this problem by pumping back underground any solid waste in the form of a slurry. As the environmental regulations begin to tighten up this is a clear advantage for solution mines.
Solution mines do not have the specific problem of water inflow that threatens conventional underground mines.
Solution mines are able to mine irregular deposits, access deep reserves and have the option of making a high grade of its final product.
Traditional mining has the advantage of utilizing established technologies and therefore standardized economic models.
While the Capex may be higher than solution mine, operating cost may actually be lower in many situations as the primary source of energy would be electrical.
To reiterate, our current focus is to establish an NI 43-101 compliant resource on our Milestone Saskatchewan property. An estimate of a timeline that will deliver production of potash depends on the mining parameters established at the pre-feasibility and feasibility phases of the projects, so any comment on production timelines is likely very premature at our stage. However, the real timelines will be dictated by the availability of funding which would have to be secured and the timing it will take to permit a project like this, especially with environmental regulations and concerns. A realistic timeline for a project like this to go into production is at least 4 years.
That answer lies in the results of an order of magnitude study/pre-feasibility phase, which basically gives the economic parameters for various size operations contemplated. Depending on market conditions, and a combination of equity and debt financing a project like this can cost in the order of $500 Million to a couple of billion dollars, and that depends much on who is constructing the mine. For the multinationals, a 2.0 million tonne per year mine is totally within their financial scope and would have a price tag of a couple billion. Because development of a solution mine can be scalable, current estimates of the cost to develop are running between $900-1000 per MT.
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