Karnalyte Resources Inc. Announces Positive Pre-Feasibility Study for the Production of Magnesium Compounds
CALGARY, July 19, 2012 /CNW/ - Karnalyte Resources Inc. ("Karnalyte" or the "Corporation") (TSX: KRN) today announced that it has received a positive Preliminary Feasibility Study ("PFS") for magnesium co-products, portions of which are included in a new National Instrument 43-101 ("NI 43-101") compliant technical report (the "Technical Report") defining reserves and resources of its Wynyard Carnallite Project (the "Project") . The PFS was prepared by Lyntek Incorporated ("Lyntek") and provides for a facility ("Magnesium Product Facility") with an annual capacity of 100,000 tonnes per year ("tpy") of Magnesium Chloride ("MgCl2") brine at 32% MgCl2 concentration and 104,000 tpy of Hydromagnesite, a form of Basic Magnesium Carbonate ("BMC"), at 99% purity. The construction of the Magnesium Product Facility is contingent upon the development of the 625,000 tpy Potash facility.
"Karnalyte has developed an innovative process for producing 99% pure basic magnesium carbonate with characteristics that are superior to those of BMC currently available on the market," said Robin Phinney, President and CEO of Karnalyte Resources Inc. "This study further validates the value of our Wynyard Carnallite Project and confirms the viability of a diversified product stream that will help maximize future revenues."
Highlights of the PFS include:
- Estimated after-tax Net Present Value ("NPV") of $261.5 million for the Magnesium Product Facility, using a 11% discount rate;
- Return on Investment, after tax, of 295%;
- Estimated after-tax Internal Rate of Return ("IRR") of approximately 34.6%;
- Development capital expenditure ("CAPEX") for the plant is estimated at $156 million with annual operating expenses ("OPEX") of $6.32 per tonne of MgCl2 brine at 32% MgCl2 concentration and $319.00 per tonne of Hydromagnesite; and
- An estimated 7.6 million tonnes of MgCl2 produced from the reserves with the planned magnesium facility.
Magnesium compounds, made from the magnesium chloride, are used in a wide range of applications, including raw materials for steel and cement industry refractories, fire extinguishing chemicals, additives and fillers for rubber and other polymers; and in the chemical, petrochemical, detergent, and pulp and paper industries. Karnalyte has been actively investigating new and emerging markets for its proposed magnesium products to increase value and market stability of the end products. Market development into the use of Hydromagnesite instead of precipitated calcium carbonate in the pulp and paper industry and TiO2 extenders in the paint pigment industry has produced positive results. Further market development is underway.
The economic analysis for the proposed facility was based on the following assumptions:
- A 100% equity case;
- A 60 year planned production life;
- Estimated construction costs of $155.9 million including a total Contingency of $28.2 million calculated at 25% Direct & Indirect Costs and 10% Owner Costs;
- A closure provision at the end of the planned mine life of 10% of development CAPEX;
- Estimated transportation costs of $65.00 per tonne precipitated calcium carbonate replacement;
- Price point of $30 CAD per ton of 32% MgCl2 brine; and
- Two price points of $600 per tonne for use as pre-precipitated calcium carbonate replacement and $1,800 per tonne as an extender in the titanium dioxide ("TiO2") market. A 50/50 split between these two price points has been used.
Summary of Economic Analysis
Based on the foregoing assumptions, the magnesium co-product portion of the Project yields an estimated full equity base case after-tax IRR of approximately 34.6% and an after-tax NPV estimate of $261.5 million at a discount rate of 11%. The following table evaluates sensitivities based on a reduction in product prices, increase in OPEX, increase in CAPEX and a decrease in planned production. The most significant factor that could impact the economic viability of the magnesium co-product part of the Project would be a decrease in sales volume.
|After Tax Financial Indicators||
(in Million CAD)
|Base Discount Cash Flow Model (DCFM)||261.5||34.6|
|10% Decrease in Product Prices||212.0||30.7|
|15% Increase in OPEX||241.3||33.0|
|10% Increase in CAPEX||252.4||32.1|
|20% Decrease in Sales Volume (planned production)||190.6||28.9|
The following tables provide an estimate for CAPEX and OPEX costs. The production level for the 100,000 tpy MgCl2 brine and 104,000 tpy BMC was estimated with an accuracy of ± 25% and contains a contingency of 25% on Direct & Indirect costs and 10% on Owner costs. A 10 % contingency for brine and a 15% contingency for Hydromagnesite OPEX is also included.
Estimated Development CAPEX
|General Plant Equipment||$6,058,000|
|Magnesium Chloride Production||$164,000|
|Magnesium Carbonate Production||$6,299,000|
|Ancillaries and Miscellaneous||$1,322,000|
|Plant Building (Metal Building, Includes Concrete and Steel)||$5,281,000|
|Structural and Plate Steel and Walkways||$1,400,000|
|Plant Electrical (Bulk Materials &Labour) (% Equipment Cost)||$3,462,000|
|Instrumentation (Bulk Materials &Labour) (% Equipment Cost)||$2,046,000|
|Plant Piping (Bulk Materials &Labour) (% Equipment Cost)||$3,147,000|
|Vehicles and Mobile Equipment||$450,000|
|Subtotal Direct Costs||$79,618,000|
|Engineering (% Total Direct Cost)||$7,962,000|
|Construction Management (% Total Direct Cost)||$3,981,000|
|Process Control System Programming||$600,000|
|Freight (% Equipment Cost)||$3,935,000|
|Reagent First Fill||$360,000|
|Construction Equipment Rental (% Installation)||$1,306,000|
|Contractor Small Tools and Consumables (% Installation)||$1,306,000|
|Start-up and First Year Spare Parts||$1,640,000|
|Mobilization and De-Mobilization (% Installation Cost)||$653,000|
|Start-up and Commissioning||$1,001,000|
|Project Insurances (% Total Direct Costs)||$598,000|
|Subtotal Indirect Costs||$23,342,000|
|Contingency (25% Direct & Indirect Costs, 10% Owner Costs)||$28,220,000|
|Total Base Estimate of Process Capital Cost||$155,980,000|
Estimated Annual OPEX
|Maintenance (5% of Equipment Capital)||8.7||0.09||3,440||33.10|
|Contingency (10% Brine, 15% Hydromagnesite)||57||0.57||4,330||41.61|
Summary of Reserve and Resource Update
Only "Probable Reserves" can be estimated for Magnesium Chloride from "Measured Resources" and "Indicated Resources."The total amount of KCl that can be mined from the proven and probable reserves remains at 62.9 and 92.0 million tonnes of KCl respectively, for a total of 154.9 million tonnes of KCl.
Based on the brine composition from the Technical Report, about 191,000 tpy of MgCl2 in feed brine, to the Magnesium Product Facility is required for the planned annual production of 100,000 tonnes MgCl2 brine and 104,000 tonnes Hydromagnesite, which translates to 141,000 tpy of MgCl2 in the final products. This amounts to:
- 19.7% of the annual amount of MgCl2 mined from Sylvinite and Carnallitite to produce 625,000 tpy of potash product, or
- 5.8% of the annual amount of MgCl2 mined from Sylvinite and Carnallitite to produce 2.125 million tpy of potash product.
Magnesium Chloride mineralisation can be estimated from the "Measured Resources" and "Indicated Resources." These Resource areas have been reduced by the definition of technical exclusion zones, where mining should not take place to avoid any problems at the surface due to potential subsidence. Mineral Reserves have been estimated by placing caverns over the license area in grid as defined by the mining method. For each drill hole a typical cavern recovery of mineralized material at given grade has been estimated. This amount was reduced by 10% to account for any anomalies below the resolution of 3D seismic. Reserves were estimated by counting the number of caverns in the "Measured" and "Indicated" Resource areas for each drill hole and multiplying this number with the typical cavern recovery. Plant recovery of 5.8% is used, which takes into account the relation between plant capacity and MgCl2 availability from the Potash plant as well as Magnesium plant recovery.
Assuming that during the first years of potash production only MgCl2 brine will be produced, and only when full potash production is reached will the Hydromagnesite be produced, the following "Probable" MgCl2 reserves are as follows:
The total amount of MgCl2 products that can be produced is not dependent on the available reserves but on the capacity of the plant and the market. The MgCl2 reserves can be increased, without further exploration, by investment in a plant expansion and identification of a market for the additional product.
In addition to the Mineral Reserves, the Technical Report provides an estimate of the "Inferred Resources". It cannot be assumed that all or any part of the Inferred Resources will be upgraded to Indicated or Measured Resources due to additional exploration. Inferred Resources have not been considered in the PFS as they are considered too geologically speculative.
The estimated Inferred Resource includes Resources for two areas: a) The Radius of Influence ("ROI") Areas and b) The "Restricted Areas". The ROI from cored drill holes is 1.6 to 6.0 km for Patience Lake, Interbed and Belle Plaine inside the 3D seismic area and 2.2 - 6.0 km outside of the 3D Seismic area. For the Esterhazy the ROI from cored drill holes is 1.6 - 6.0 km both inside and outside the 3D seismic area. The "restricted areas" are areas located within the ROI's defined for "Indicated" and Measured" Resources that have been reclassified to an inferred resource based on the Qualified Person's ("QP's") judgement that there are some impediments or doubt as to the 'reasonable prospects for economic extraction' for these areas (despite the confidence in the geology provided by closer proximity to drill holes). These areas include: 1) small parcels of land along the perimeters of ROIs 2) small parcels of land next to collapse anomalies 3) small parcels of land next to the property boundary, and 4) areas around the plant area and the major highway in the area. Further deductions of the area around each drill hole were made to account for the presence of anomalous zones at a size below the resolution of the 3D seismic. A 10% deduction has been made in areas with 3D seismic coverage and a 25% reduction has been made for areas with no 3D seismic coverage.
For estimation of the Inferred Resource a cut-off grade of 15% KCl was used in the sylvinite Esterhazy Member and a cut-off grade of 10% KCl was used in the carnallitite Belle Plaine and Patience Lake potash Members, with no exclusion of halite layers (i.e. the broad definition of the solution mining horizon is included.). The volume is multiplied by a density factor being calculated from the mineral composition of the carnallitite and sylvinitic rock as determined from assays, typically in the range of 1.8 to 2.1 t/m³, respectively, for the in-situ sylvinite and carnallitite tonnage.
Summary of Recommendations
The authors of the Technical Report recommend continuing with the Magnesium Production Facility and taking the following steps:
Step 1: Extensive laboratory and pilot testing4 program consisting of tests for:
- exact composition of the potash production end brine;
- ammonia brine dissolution and brine dilution in the selected absorption tower;
- ammonia reclamation in selected column;
- carbon dioxide dissolution to properly size equipment; and
- Hydromagnesite dewatering and drying tests.
Concurrent with the test-program, the basic engineering required for the feasibility study can be completed. Furthermore, base line studies for the Environmental Impact Assessment (EIA) should be conducted and the EIA finalised with the market and pricing of the Hydromagnesite as a TiO2 extender established. The cost for testing is estimated at $2 million CAD, and is included in the CAPEX as part of the owner's costs.
Conditional upon a favourable outcome of step 1, step 2 can be initiated which consists of:
- detailed engineering and advancing to a point where equipment packages can be awarded; and
- performing detailed engineering to support preparation of construction license application.
The costs for this stage are estimated at $12 to $14 million CAD and these costs are included in the development CAPEX. Additionally, full project financing (approximately $156 million CAD) for the Magnesium Products Facility has to be secured before construction can start, although there is an option to get the MgCl2 brine plant constructed earlier.
The Magnesium Products Facility would be built south of the potash production plant. This potash facility is expected to initially produce 625,000 tpy of potash and ultimately increase to 2.125 million tpy of potash.
Technical Report and Qualified Persons
A copy of the Technical Report has been filed on SEDAR at www.sedar.com titled "KCl and MgCl2 Reserve and Resource Estimate for the Wynyard Carnallite Project, Subsurface Mineral Permit KP 360A and Subsurface Mineral Lease KLSA 010, Saskatchewan, Canada" and is effective June 27, 2012. The principal author of the Technical Report is Dr. Henry Rauche, EurGeol, of ERCOSPLAN. Further authors are Dr. Sebastiaan N.G.C. van der Klauw, EurGeol of ERCOSPLAN, Ms. Lola Piché P. Geo. of North Rim Exploration Ltd, Messrs Arun Balakrishnan, M.B.A., P. Eng. of Foster Wheeler Canada Limited, and Douglas K. Maxwell, P. Eng. and Rodrick C. Smith, P. Eng., of Lyntek Inc. The authors are Qualified Persons under NI 43-101 and have reviewed the scientific and technical information contained in this news release as it pertains to sections of the Technical Report for which they are responsible.
The Preliminary Feasibility Study was prepared under the supervision of Douglas K. Maxwell, P. Eng. and Rodrick C. Smith, P. Eng., of Lyntek Inc. who are Qualified Persons under NI 43-101 and are independent of Karnalyte. Messrs Maxwell, Smith and Klauw have reviewed and are responsible for the technical information contained in this news release and have verified all the data disclosed in this news release.
Lyntek is located in Lakewood, Colorado and has been in existence since 1982. Lyntek offers a full range of engineering and construction services to the natural resources and environmental remediation industries. Lyntek provides services from process engineering and feasibility studies through detailed engineering, procurement, construction management, plant start-up, and pilot plants. Lyntek's projects range all over the globe, and have been developed on all seven continents from the Arctic Circle to the South Pole. For more information about Lyntek, please visit http://www.lyntek.com.
About Karnalyte Resources Inc.
Karnalyte is engaged in the business of exploration and development of high quality agricultural and industrial potash and magnesium products. Karnalyte intends to develop and extract a carnallite - sylvite mineral deposit through a known solution mining process at competitive costs and with minimal environmental impact. Using a staged approached to potash plant construction, the Corporation plans to operate a solution mining facility that will initially produce 625,000 tpy of potash, increasing to 2.125 million tpy of potash. Karnalyte owns a 100% interest in Subsurface Permit KP 360A and Subsurface Mineral Lease KLSA 010 located near Wynyard, Saskatchewan, comprising a total of 85,126 acres.
This press release contains forward-looking statements. More particularly, this press release contains statements concerning the Corporation's future operations, reserves and resources. The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Karnalyte, including with respect to the Corporation's future operations. Although Karnalyte believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Karnalyte can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the failure to obtain necessary regulatory approvals, risks associated with the mining industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Karnalyte's operations and financial results are included in documents on file with Canadian Securities regulatory authorities and maybe accessed through the SEDAR website (www.sedar.com). The forward-looking statements contained in this document are made as of the date hereof and Karnalyte undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
1 "Average KCl grade" and "Average MgCl2 Grade" refer to weighted averages
2 Variable Extraction Ratio (27.5% for the Patience Lake and Belle Plaine, 30% for the Esterhazy)
3 "Net Product" for KCl and MgCl2 represent current plant design considerations and includes a plant recovery of 90% for KCl from the production brine and 5.8% recovery for MgCl2 from the production brine
4 Pilot testing is understood to be a continuous (as opposed to batch) test to be conducted either in a third party independent laboratory or a manufacturers laboratory with the specific intent of deriving the required design parameters to allow detailed engineering of the individual unit operations during the Feasibility Study phase
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