Government lending agencies size up Australian Potash project

The Federal Government’s export credit agency, Export Finance Australia, or “EFA” has agreed to undertake due diligence on Australian Potash’s proposed Lake Wells sulphate of potash project development in WA that has a CAPEX of A$208 million.

The Perth-based aspiring sulphate of potash developer says the EFA intends assessing the project, located about 180km north-east of Laverton in the Eastern Goldfields, for the possible lending of a tranche of funding that would be in addition to the potential Northern Australia Infrastructure Facility, or “NAIF” tranche.

Australian Potash is also now reviewing indicative terms sheets from prospective commercial lenders following due diligence carried out last month and is hoping to appoint a senior lender for the multi-tranche syndicated corporate debt facility before the end of the year.

Perth broking firm Hartleys says in a research note it anticipates CAPEX for the proposed Lake Wells development of roughly $220 million, which includes some additional working capital. It also estimates project funding to consist of a mix of 65 per cent, or about $143 million, in debt and 35 per cent, or $77 million, in equity.

Australian Potash will likely be aiming to lock in a greater percentage of the 65 per cent debt financing component via the NAIF and EFA government lending agencies. Accessing a greater percentage of NAIF and EFA funding should in turn reduce the reliance on debt funding from the more expensive corporate loan facility.

The export opportunity that our new WA-based ag-minerals project development at Lake Wells presents is compelling, with 130,000 tonnes of the forecast output under contracted offtake agreement.

Export Finance Australia is instrumental in delivering simple and creative solutions for Australian companies to help them grow internationally, through achieving export success. We very much look forward to assisting EFA in the next steps in their process.

Since the definitive feasibility study, or “DFS” on Lake Wells was put out last year, the company has been working on the front-end engineering design program, which it is close to completing, as well as finalising offtake discussions and securing financing to develop the fertiliser project.

Australian Potash is looking to make a final investment decision on the development in the first quarter of calendar 2021.

The DFS indicates that the proposed Lake Wells operation will be a long-life, high-margin sulphate of potash – or fertiliser – producer, churning out impressive free cash flows after tax averaging $70 million per annum and average EBITDA of $114 million per annum across a forecast mine life of 30 years.

Estimated production has been predicated on 3.6 million tonnes of probable ore reserves, with potential to extend the life of the proposed mine past 30 years via 18.1 million tonnes of measured resources that include the reserves.

Australian Potash has already tied up offtake agreements for 86 per cent of the forecast average annual output of about 150,000 tonnes of premium-grade potash fertiliser. Predicted all-in sustaining costs of production at about US$285 per tonne place Lake Wells in the first quartile of the sulphate of potash cost curve.

An updated DFS is expected to be released by the end of 2020.

Is your ASX listed company doing something interesting? Contact: matt.birney@wanews.com.au