Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
After releasing a feasibility study with few surprises, Western Potash (TSX:WPX) nevertheless jumped as much as 8.8% in busy morning trade on Thursday.
Western Potash’s new report shows its Milestone project’s proven and probable reserves pegged at 137 million tonnes KCl with a 2.8 million tonnes per year mining capacity using the lower cost solution method.
Capex comes in at $2.9 billion with deferred capex and contingency totaling $940 million for the Saskatchewan project. Commercial production is set for 2016 with full operating capacity will be reached six year later with a life of mine of 40 years.
In November Western Potash announced it has inked a $200 million deal with the City of Regina to pipe treated waste water to Milestone.
Today’s spike has not been enough for Western Potash to get out of negative territory and the counter is still trading down 50% since the start of the year. It is worth just under $80 million on the TSX main board.
Western Potash has long been considered a takeover target – India’s Rashtriya Chemicals and Fertilizers has been named as a possible candidate – and the Vancouver-based company may also be actively looking for a big partner as going it alone on a project of this size would probably be too much to bite off alone.
Western Potash also operates in a busy corner of the market with BHP’s massive Jansen project, which if built would be the world’s largest potash mine, competing for scarce labour and skills in the Canadian province.
There is continuing belt-tightening in the potash industry with the big players in Saskatchewan idling mines to offset weak demand.
Prices have held up relatively well however, with Vancouver FOB hovering between $450 and $500.
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