South Boulder Mines Ltd (ASX: STB) (“South Boulder” or “The Company”) wishes to provide an update on negotiations with the Eritrean Government regarding its participation interest in the Colluli Potash Project.
In March 2012, South Boulder provided the Eritrean National Mining Corporation (“ENAMCO”) with a proposal for ENAMCO to acquire a 30% paid participating interest in the Colluli Potash Project (in addition to ENAMCO’s right to a free-carried 10% interest).
During the course of the negotiations and the ongoing development of the Colluli Potash Project, it became apparent to both the Eritrean Ministry of Energy and Mines (“MOEM”) and South Boulder that Colluli is a strategic and significant asset.
As a consequence, South Boulder has agreed to submit an alternative proposal for ENAMCO to participate in the Colluli Potash Project by way of a 50/50 profit share, where South Boulder would pay 100% of the development costs.
The profit share negotiations need to address a range of matters, with a keen focus on potential financing strategies. In this regard, both the MOEM and South Boulder intend to work together in good faith to determine the appropriate structure and commercial arrangements to develop the Colluli asset.
In discussions MOEM has made it clear that it fully supports the development of the Colluli Potash Project by South Boulder and is keen to conclude negotiations to enable licensing and development to proceed in a timely and expeditious manner.
ABOUT SOUTH BOULDER MINES LTD.
Listed in 2003, South Boulder Mines (ASX: STB) is a diversified explorer focused on potash, nickel and gold. South Boulder has a 90% interest in the Colluli Potash Project in Eritrea and a 100% interest in the Duketon Gold Project in Western Australia.
The Colluli Potash Project has a current JORC Compliant Measured, Indicated and Inferred Mineral Resource Estimate comprised of 261.81Mt @ 17.94% KCl or 11.33% K2O of measured Resources, 674.48Mt @ 17.98% KCl or 11.36% K2O of Indicated Resources and 143.50Mt @ 18.00% KCl or 11.37% K2O of Inferred Resources for a total of 1,079.00Mt @ 17.97% KCl or 11.35% K2O (total contained potash of 194.09Mt KCl or 122.61Mt K2O). This includes higher grade Sylvinite of 114.60Mt @ 28.56% KCl or 18.04% K2O. The current resource is included in an Exploration Target of 1.25 – 1.75 billion tonnes @ 18-20% KCl.
An Engineering Scoping Study for the production of 1Mt p.a. of potash demonstrated an estimated capital cost of US$0.74bn generating a Pre-tax NPV12 of US$1.33bn. A Definitive Feasibility Study into open pit mining and processing of the resource is underway with initial production scheduled for 2016 or sooner. South Boulder has strong support from the Eritrean Government to build a long term, economically and environmentally sustainable resource project.
In a lay man’s term, here is what South Boulder Mines proposes to the Eritrean Government:
(1) Pay in advance one third of the total cost of developing the project in exchange of a 30% share besides your right for a free-carried 10%, which makes your total share to 40% (according to the country’s mining code) OR
(2) Let us pay the entire (100%) cost of developing the potash mine and on top of that you get 50% share instead of 40% on the project.
To understand the deal even further, let’s put it this way. The total cost of the Colluli potash project was estimated to be around US$740 million. If Eritrea goes with the first option, it needs to pay, in advance, one-third of the total cost for its 30% participating share and that could reach around US$246 million cash. On top of that a few hundred million to build and upgrade the crucial infrastructures like rail way and the Marsa Fatuma port. The burden is obvious.
So, we all might want to say the government should go for the second option because it asks nothing except (may be) developing the infrastructure.
The question is now what is the catch in this proposal? It is like a choice of putting your hand in to water or fire and South Boulder seems to us chose the fire. They are not stupid though. So what is the reason behind that drives South Boulder to the extent of alluring the Eritrean Government with deals that can force it to disregard the fundamental laws of it’s own mining code? Are they looking for the long term gain while we see the short term pain? Can it be considered a win-win deal?
I want you to have your say on this “God Sent” deal in a civil way, please. Thanks!