Arianne Phosphate Scores Big with Bankable Feasibility Study

Arianne Phosphates Inc.(CVE:DAN) announced receipt of the bankable feasibility study on its Lac-a-Paul phosphate project in Quebec yesterday – a development that is likely to spur takeover interest in the company by major phosphate suppliers such as Mosaic (NYSE:MOS) or Agrium (NYSE:AGU).

According to the press release, the study stipulates:
Net Present Value (“NPV”) of US$ 1,910.1 million at an 8% discount rate;

  • Gross revenue, in real terms, of US$ 16,124.8 million and operating cash flow of US$ 7,379.6 million;
  • Internal Rate of Return (“IRR”) of 20.7% with a capital payback of 4.4 years before taxes and mining duties;
  • A 25.75 year mine life (excluding pre-production) with an average annual phosphate concentrate production of 3 million tonnes with a grade of 38.6% P2O5 and with average mill recovery of 90.0%;
  • The Initial Capital Cost of the Project is US$ 1,214.7 million comprising US$ 982.5 million for the mine and US$ 232.2 for the concentrate transport system that delivers product to the deepwater Port of Saguenay open 365 days per year;
  • The All-In Cost onboard the Ship in the Port of Saguenay is US$93.7/tonne life of mine (LOM) (i.e. FOB Port of Saguenay), yields an operating margin of 56% with an average selling price of $213/tonne at the port;
  • Measured and Indicated Mineral Resources in the Paul Zone alone of 590 million tonnes grading an average of 7.1% P2O5 at a 4.0% cut-off grade (does not include 164 million tonnes of Manouane Zone mineral resources);
  • 75.7 million tonnes of saleable concentrate at 38.6% P2O5 in Proven and Probable Mineral Reserves reported at 3.5% P2O5 cut-off grade of 472.1 million tonnes at an average grade of 6.9 % P2O5 (taken from the Paul Zone Mineral Resource);
  • Confirmed power availability of 115MWatt at the Chute des Passes power plant located 30 km from the mine.

According to Brian Ostroff, who is a principle shareholder of the company:

“The project has a $1.9B NPV which is DOUBLE that of Arianne’s pre-feasibility which indicated a $1B NPV in 2012.  Further, this $1.9B NPV represents ONLY the Lac a Paul deposit and does not include the additional 160M tons in the Manouane deposit which would add an additional 8 years of mining life (and enhance the $1.9B NPV).  At today’s closing price of $1.25 (a market cap of roughly $100M), Arianne is trading at less than 6% of its NPV!!

The number of greatest significance as far as I am concerned is the all-in cost on the ship.  As I have said in the past, a number under $115/ton would have been good; at under $94/ton it is phenomenal.  Arianne can produce a 39% concentrate and put it on a ship 365 days/year in a deep sea port for less than $94/ton.  From there they can sail it wherever it needs to go.  I would say that this compares very well to those who have to pay $145/ton on a boat, halfway around the world for a 30% concentrate and ultimately question the security of that supply at any price.

Obviously a capex of $1.2B is not a trivial matter but I believe very manageable.  This is not one of 10 copper or gold mines waiting to be built to supply a market that already has hundreds/thousands of mines operating.  This is the largest Greenfield phosphate asset, on a continent that runs a deficit and, with players who have balance sheets that dwarf the needed capex.  In 4 ½ years you get your money back and then you save hundreds of millions of dollars a year for many years.  Of that $1.2B, over $230M is for an advanced transport system that allows that $94/ton on a ship and as I will always say, opex trumps capex; capex costs you once and opex, like diamonds, is forever!!  I also believe that this project was engineered (and budgeted) for the future.  It will accommodate growth and longevity; again, both qualities required if you are going to interest a major.”

The stock as of the time of this writing has appreciated by about 10%, or up$0.12 at $1.37 per share.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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