Potash is a group of potassium minerals (oxides, chlorides, sulphates, nitrates and carbonates) used for fertilizer production with the most commonly extracted being potassium chloride salts deposited as sedimentary salt beds formed by the evaporation of ancient seas.
The main potash mineral of potential economic interest on the Colorado project is sylvite – a high-potassium chloride salt (KCl) containing 63% potassium (K2O) by weight. Sylvite is water soluble and the most favoured salt mineral for potash solution mining. The sylvite-bearing rock is called sylvinite and typically contains about 10-50% sylvite mixed with halite, minor shale beds and other salts. The main saleable product after mining and processing of the sylvinite is muriate of potassium (MOP) a sylvite and halite mix containing greater than 95% sylvite.
Potash, being a high value bulk commodity and a water soluble salt is commercially mined throughout the world from deposits at significant depths utilising conventional underground mining or solution mining techniques. Conventional mining practices are used to about 1200 metres depth in Canada after which solution mining techniques are employed. Compared to conventional underground mining solution mining offers significantly lower up-front capital cost and an ability to go into production early which can result in a higher rate of return on capital. Solution mining also provides a potentially safer working environment and can produce a smaller environmental foot print. Geological factors that effect a projects ability to be profitably solution mined include the mineralogy (sylvite preferred), grade (amount of sylvite), thickness, depth, dip and continuity of the potash horizon as well as the ambient temperature of the wall rocks.
Solution mining costs are directly related to drilling cost and the quantity of potash produced from each well. A variety of production well configurations for solution mining are available dependent upon the geology of the deposit. Most solution mining has involved extracting potash-bearing solutions from flooded underground mines or used well designs which access the potash with vertical drill holes (technique recommended for the Colorado Potash Project). These extraction techniques are the lowest cost solution mining operations and enable large tonnages to be mined. With improved controlled drilling methods horizontal well designs are being employed that enable thinner, high-grade beds to be cost effectively extracted but these are generally higher cost, lower tonnage operations compared to the vertical well configurations.
Once the solution has been extracted the potash is crystallised using pond evaporation or more commonly, a forced evaporation method that recycles the water resource. Potash can then be trucked or slurried along a pipe line to the nearest rail head for export.
“Potash” or potassium is the third major plant and crop nutrient after nitrogen and phosphate. About 90% of world potash consumption is used in fertilizers, with wide application to fruit and vegetable crops, rice, wheat, corn and other grains, sugar, soybeans, palm oil and cotton.
While about 150 countries use potash for their crops, it is only produced in about a dozen of them. Canada is the world’s leading producer, followed by Russia and Belarus; the United States ranks seventh.
Potassium, like phosphate and nitrogen, is an essential element for all plant growth which can not be substituted using other elements. As such, over 95% of global potash production is used to supply the expanding global fertiliser industry with the remaining production used in the manufacturing industry. Potash fertilisers are used throughout the world to increase crop quality and yields particularly in regions with high rainfall, leached soil profiles and/or intensive agricultural practices.
The current annual global potassium chloride production is estimated to be over 52 million tonnes with supply constrained by two major producing regions in Canada and Russia which combined produced about 70% of global supply in 2008. The potash market was once characterised by stable pricing and supply management but a lack of investment in new production capacity and growing global demand has caused a dramatic increase in the commodity price from a base of about US$120 per tonne before 2003 to a spot price up to US$750 per tonne in 2008 and it continues to remain strong at about US$340 per tonne.
The growing need for potash fertiliser is being driven by the need to increase crop quality and yields for food production as global populations increase, diets in once third world countries improve and land area used for agriculture decreases. This coupled with rising demand from the bio-fuel industry has seen many market analysts forecast continued strong long term demand for potash. Significant new growth markets developing in India, China, South East Asia and Brazil provide the demand necessary for investment in greenfield sites like Red Metal’s new Colorado Potash Project.
Profit margins on the mining of potash can be very significant and prices are forecast by many analysts to remain strong into the future. This interpretation is supported by recent high values paid for potash solution mining projects at the feasibility stage - BHP Billiton’s purchase of Anglo Potash Ltd’s 25% residual stake in its Saskatchewan project for $US282 million and Vale’s US$850 million purchase of the Potassio Rio Colorado solution mining project in Argentina from Rio Tinto.