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Salt Lake Potash Limited (SO4) is pleased to announce that a Scoping Study on development of a 50,000tpa sulphate of potash (SOP) Demonstration Plant at Lake Way supports a low capex, highly profitable, staged development model, with total capital costs of approximately A$49m and average cash operating costs (FOB) of approximately A$387/t.

Cautionary Statement

The Scoping Study referred to in this announcement has been undertaken to determine the potential viability of a Demonstration Plant constructed at the Lake Way Project (Project) and to reach a decision to provide a basis for proceeding with more definitive studies. The Scoping Study has been prepared to an accuracy level of ±30%. The results should not be considered a profit forecast or production forecast.

The Scoping Study is a preliminary technical and economic study of the potential viability of the Lake Way Project. In accordance with the ASX Listing Rules, the Company advises it is based on low-level technical and economic assessments that are not sufficient to support the estimation of ore reserves. Further evaluation work including infill drilling and appropriate studies are required before Salt Lake Potash will be able to estimate any ore reserves or to provide any assurance of an economic development case.

100% of the total production target is in the Indicated and Measured resource category.

The Scoping Study is based on the material assumptions outlined elsewhere in this announcement. These include assumptions about the availability of funding. While Salt Lake Potash considers all the material assumptions to be based on reasonable grounds, there is no certainty that they will prove to be correct or that the range of outcomes indicated by the Scoping Study will be achieved.

To achieve the range outcomes indicated in the Scoping Study, additional funding will likely be required. Investors should note that there is no certainty that Salt Lake Potash will be able to raise funding when needed. It is also possible that such funding may only be available on terms that dilute or otherwise affect the value of the Salt Lake Potash’s existing shares. It is also possible that Salt Lake Potash could pursue other ‘value realisation’ strategies such as sale, partial sale, or joint venture of the Project. If it does, this could materially reduce Salt Lake Potash’s proportionate ownership of the Project.

The Company has concluded it has a reasonable basis for providing the forward looking statements included in this announcement and believes that it has a reasonable basis to expect it will be able to fund the development of the Project. Given the uncertainties involved, investors should not make any investment decisions based solely on the results of the Scoping Study.

SCOPING STUDY OUTCOMES

DEVELOPMENT PROCESS

The Demonstration Plant is intended to validate the technical and commercial viability of brine SOP production from the Company’s Goldfields Salt Lakes Project (GSLP), providing the basis to build a world class, low cost, long life SOP operation across the 9 lakes in the GSLP.

The Company has previously established that larger production volumes (400,000tpa) can result in operating costs in the lowest cost quartile for SOP production globally*. This is principally a result of the economies of scale inherent in the GSLP’s advantageous location in the Northern Goldfields mining district, mostly in the main cost centres of transport, labour and power.

The Company will pursue a fast track, staged approach to the development of a Demonstration Plant at Lake Way, taking advantage of the unique circumstances of the Williamson Pit to accelerate the development timeline, while also de-risking the project at each stage.

Pursuant to the MOU with Blackham Resources Ltd (Blackham), the Company will construct an initial pond system to dewater the Williamson Pit, which contains approximately 1.2GL of super-saturated brine, with a very high average SOP content of 25kg/m³. These Williamson Ponds will comprise approximately 1/3 of the total Demonstration Plant pond area, and early dewatering of the Williamson Pit offers a much shorter development time due to its very high grade and saturation.

SLP plans to construct the Williamson Ponds by the end of 2018, in parallel with completing a Feasibility Study for the Demonstration Plant, followed by initial kainite salt harvesting in mid-late 2019.

After the Feasibility Study, the Company anticipates completing the balance of the on-lake infrastructure – evaporation ponds and trenches – while the fabrication of the process plant is completed offsite. Stockpiled kainite harvest salt will be used for commissioning when the plant is installed, also on existing Mining Leases, with the Company planning for initial SOP production in early 2020, subject to weather, permitting and other factors.

LONGER TERM OUTLOOK

The excellent economic parameters support the development of a Demonstration Plant on the Blackham Mining Leases at Lake Way, which would likely be followed by expanded production onto SLP’s current Exploration Permits, covering most of the Lake and including the paleochannel identified by previous exploration.

Expansion of production beyond the Demonstration Plant would capture substantial economies of scale inherent in bulk transport, reduced royalties and spreading the fixed cost base, amongst other things.

The Company has previously estimated Exploration Targets for the whole of Lake Way ranging from 28-54Mt of SOP (stored) and 3-19Mt (drainable), indicating potential for the Lake to support a much larger SOP operation. [The potential quantity and grade of this Exploration Target is conceptual in nature. There has been insufficient exploration to estimate a Mineral Resource and it is uncertain if further exploration will result in the estimation of a Mineral Resource].

Following demonstration of the viability of SOP production in the GSLP the Company plans to expand production to the other lakes, which have broadly similar salt production potential and transport solutions in some cases superior to Lake Way. The company is investigating integrated production scenarios across a number of lakes, ranging from centralised processing of intermediate concentrates to centralised stockpiling, transport staging, packaging and logistics.

As production volumes increase, particularly to the lakes south of Lake Way, the optimal transport solution is likely to be based on bulk rail haulage from Leonora or Malcolm sidings, through Kalgoorlie to port. Transport and handling is the largest cost centre for SOP production, and there is substantial potential to capture economies of scale from this logistics solution.

The Company has been in discussion with a range of parties about potential financing structures for a Demonstration Plant on the GSLP, including debt, equity, off-take, royalty and joint venture structures. The Company is well funded to continue Feasibility Study work while these discussions continue.

The Company is in the process of drafting a formal agreement with Blackham, in accordance with the MOU. Both parties currently anticipate dewatering of the Williamson Pit in late 2018/early 2019.

CEO Matt Syme said “This Scoping Study confirms our expectations that a Demonstration Plant at Lake Way is the ideal model for starting development of the broader SOP project across our extensive salt lake portfolio. The advantages inherent in our location and the cost benefits associated with low cost trench extraction and on-lake ponds are apparent, and these advantages will increase significantly with scale. The low capex, excellent operating margins and ability to de-risk the Project through staged development also give us the opportunity to optimise the numerous financing alternatives before us.  We are excited to be at the leading edge of a whole new industry in Australia and we are looking forward to developing the most sustainable and rewarding fertiliser project in the world.”

BACKGROUND

SLP is the owner of the Goldfields Salt Lakes Project (GSLP), which comprises nine large salt lakes in the Northern Goldfields Region of Western Australia.

The GSLP has a number of important, favourable characteristics:

Ø  Very large paleochannel hosted brine aquifers, with chemistry amenable to evaporation of salts for SOP production, extractable from both low-cost trenches and deeper bores;

Ø  Over 3,300km² of playa surface, with in-situ clays suitable for low cost on-lake pond construction;

Ø  The total “stored” Exploration Target for the GSLP is 290Mt – 458Mt of contained Sulphate of Potash (SOP) with an average SOP grade of 4.4 – 7.1kg/m³ (including Lake Wells’ Mineral Resource of 80-85Mt). On a “drainable” basis the total Exploration Target ranges from 26Mt – 153Mt of SOP. [The potential quantity and grade of this Exploration Target is conceptual in nature. There has been insufficient exploration to estimate a Mineral Resource and it is uncertain if further exploration will result in the estimation of a Mineral Resource].

Ø  Excellent evaporation conditions;

Ø  Excellent access to transport, energy and other infrastructure in the Goldfields mining district;

Ø  Lowest quartile capex and opex potential based on the Lake Wells Scoping Study;

Ø  Clear opportunity to reduce transport costs by developing lakes closer to infrastructure and by capturing economies of scale;

Ø  Multi-lake production offers operational flexibility, cost advantages and risk mitigation from localised weather events;

Ø  The very high level of technical validation already undertaken at Lake Wells substantially applies to the other lakes in the GSLP; and

Ø  Potential co-product revenues, particularly where transport costs are lowest.

The Company’s long term plan is to develop an integrated SOP operation of global scale producing high quality organic SOP from a number (or all) of the lakes within the GSLP, after confirming the technical and commercial elements of the Project through construction and operation of a Demonstration Plant producing up to 50,000tpa of SOP.

DEMONSTRATION PLANT

The Company believes the advantages of the Demonstration Plant approach are:

·     While substantial salt-lake brine production of SOP is undertaken in China, Chile and the USA, it is new in Australia and overseas production models need to be tested and adapted for Australian conditions.

·     Proof of concept for SOP production from salt-lake brines in Australia will substantially de-risk the full-scale project, with commensurate improvement in financing costs and alternatives. While the Demonstration Plant does not benefit from economies of scale, it will provide financiers and partners a very reliable cost basis for larger scale, longer term operations, while still being low capex and high margin in its own right.

·     Refinement of design and costing of engineering elements at Demonstration Plant scale should result in considerable time and cost savings at larger scale.

·     Market acceptance of a new product in conservative agricultural markets is best achieved progressively and in conjunction with existing, established partner(s). It is important to establish SLP’s product(s) as premium, sustainable nutrients in the key long-term markets, and staged production increments are the best way to achieve this objective.

·     A Demonstration Plant offers an accelerated pathway to initial production, with limited infrastructure requirements and a faster, simpler approval process. The Demonstration Plant is intended to operate for 12-24 months to establish parameters for larger scale production, and then be integrated into a larger operation. The Company’s objective is to commence construction in 2018, harvesting first salts in 2019, and producing first SOP in early 2020.

LAKE WAY

The Company’s recent Memorandum of Understanding with Blackham Resources Limited (see ASX Announcement dated 12 March 2018) offers the potential for an expedited path to development at Lake Way, possibly the best site for a 50,000tpa Demonstration Plant in Australia.

Lake Way is located less than 15km south of Wiluna. The Wiluna region is an historic mining precinct dating back to the late 19th century. It has been a prolific nickel and gold mining region with well developed, high quality infrastructure in place.

The Goldfields Highway is a high quality sealed road permitted to carry quad road trains and passes 2km from the Lake. The Goldfields Gas Pipeline is adjacent to SLP’s tenements, running past the eastern side of the Lake.

Lake Way has some compelling advantages which make it potentially an ideal site for an SOP operation, including:

·        Substantial capital and operating savings potential from sharing overheads and infrastructure with the Wiluna Gold Mine. This includes the accommodation camp, flights, power, maintenance, infrastructure and other costs.

·        The site has an excellent freight solution, located 2km from the Goldfields Highway, which is permitted for heavy haulage 4 trailer road trains to the railhead at Leonora or by road to Geraldton. It is also adjacent to the Goldfields Gas Pipeline.

·        A Demonstration Plant would likely be built on Blackham’s existing Mining Licences.

·        SLP would dewater the Williamson Pit, prior to Blackham mining, planned for early-mid 2019. The pit contains an estimated 1.2GL of brine at the exceptional grade of 25kg/m³ of SOP. This brine is potentially the ideal starter feed for evaporation ponds, having already evaporated from the normal Lake Way brine grade, which averages around 14kg/m³_.

·        The high grade brines at Lake Way will result in lower capital and operating costs due to lower extraction and evaporation requirements.

·        Historical exploration and initial sampling indicate the presence of clays in the upper levels of the lake which should be amenable to low cost, on-lake evaporation pond construction.

PROJECT OVERVIEW

The Demonstration Plant will produce up to 50,000tpa of high quality, standard SOP from hypersaline brine extracted from Lake Way via a system of shallow trenches.

The extracted brine will be transported to a series of solar evaporation ponds built on the Lake where selective evapo-concentration will precipitate potassium double salts in the final evaporation stage. These potassium-rich salts will be mechanically harvested and processed into SOP in a separation and crystallisation plant. The final product will then be transported for sale to the domestic and international markets.

The Company has previously tested and verified at Lake Wells all the major technical foundations for production of SOP from salt lake brine under actual site conditions and across all seasons. These technical achievements are broadly applicable across all the lakes in the GSLP and form part of the inputs into the Scoping Study.

The Study has established the indicative costs of the Demonstration Plant to +/- 30% accuracy for Operating Costs and -10%/+30% for Capital Expenditure.

MAJOR STUDY PARAMETERS

* Operating costs do not include deprecation or sustaining capital. The Demonstration Plant is intended to operate for 2-3 years to validate the production model, and a successful Demonstration Plant will naturally then be intregrated into a larger production operation.

STUDY CONSULTANTS

The Scoping Study was managed by Wood (formerly Amec Foster Wheeler). Wood is a recognised leader in potash mining and processing with capabilities extending to detailed engineering, procurement and construction management. Wood also managed the Company’s Scoping Study for Lake Wells released in August 2016.

In addition to Wood, the Company engaged international brine-processing experts Carlos Perucca Processing Consulting Ltd (CPPC) and AD Infinitum Ltd (AD Infinitum) and their principals Mr Perucca and Mr Bravo, who are highly regarded experts in the potash industry. Mr Bravo previously worked as Process Manager Engineer at SQM, the third largest salt lake SOP producer globally. He specialises in the front end of brine processing from feed brine through to the crystallisation of harvest salts. Mr Perucca has over 25 years of experience in mineral process engineering and provided high-level expertise with respect to plant operations for the processing of harvest salts through to final SOP product. AD Infinitum and CPPC were responsible for the brine evaporation and salt processing components in the Scoping Study.

The Company engaged Bis Consulting (Bis) to provide an independent transport study on the logistics options for SOP from Lake Way. Bis is a leading provider of resources logistics in Australia, offering bulk logistics and materials handling.

Independent expert potash market forecasts and assessments were provided by CRU International Limited and Fertiliser Sales Development Ltd.

CAPITAL EXPENDITURE

The initial capital cost to develop from the Demonstration Plant has been estimated at A$43 million (before growth allowance). Capital expenditure was estimated at an accuracy of -10% to +30%.

* Errors due to rounding

The benefits of Lake Way’s location are evident in the low area and regional infrastructure costs. The availability of a wide flat playa area amenable in-situ clays offers the opportunity to construct low capex evaporation ponds on the Lake.

OPERATING COSTS

The operating cost estimates are based on an accuracy of ±30%.

* Errors due to rounding

PROJECT GEOLOGY AND RESOURCE

Geological Setting

The investigation area is in the Northern Goldfields Province on the Archaean Yilgarn Craton. The province is characterised by granite-greenstone rocks that exhibit a prominent northwest tectonic trend and low to medium-grade metamorphism. The Archaean rocks are intruded by east-west dolerite dykes of Proterozoic age, and in the eastern area there are small, flat-lying outliers of Proterozoic and Permian sedimentary rocks. The basement rocks are generally poorly exposed owing to low relief, extensive superficial cover, and widespread deep weathering. 

A key feature of the Goldfields is the presence of paleochannel aquifers.  Palaeochannels are former deep river valleys that eroded into the bedrock within the broad palaeodrainages the sedimentary sequence in the northern goldfields is approximately 130m thick comprising basal Eocene sand overlain by plastic clay, which is in turn concealed by the lakebed sediments and surface alluvial cover.

The stratigraphy of the lake and paleochannel system is described below

Lake Bed Sediments

The hydrogeology of Lake Way is that of a terminal groundwater sink. The large area of the playa and the shallow water table observed at all sites beneath the playa will facilitate evaporative loss. The brine potash resource extends the full depth of the lakebed sediments, with higher permeability noted at the weathered bedrock contact.

The Lake bed sediments are dominated by red-brown lacustrine clays. Logging and observation of the stratigraphy from the test pits indicated that multiple paleosurfaces are evident within the lake sediments, with characteristics very similar to the current lacustrine and fringing environments. 

Moving east from the lake edge the sedimentary sequence consists of clean, evaporitic sands, beneath the surface sands there is evidence of vegetated type paleosurfaces. These surfaces are characterised by thin beds of dark brown to black (organic enriched) evaporitic sands overlying lacustrine clays with abundant remnant root channels. 

Beneath these the sandy silty clays are firm to hard and notably competent.

The lakebed sediments in the vicinity of the Williamson pit are approximately 3 – 4m thick, they were initially dewatered prior to mining and have remained dry since. Test pits excavated within the dewatered zone had a water level 2.5mbgl after 24 hours.

Paleochannel Sediments

The paleochannel sediments are overlain by the brine rich Lacustrine sequence. The paleochannel sediments are dominated by dense grey and redbrown clays. These clays have a low permeability and are not considered a principal source of brine. At the base of the clays there is a high permeability basal sand aquifer. 

Paleochannel Basal Sand Aquifer

Drilling conducted by AGC Woodward Clyde (1992)¹ on behalf of WMC Ltd in the early 1990’s located a Tertiary paleochannel beneath the eastern margins of the lakebed outside Blackham’s Mining Leases, the basal sands within the paleochannel were observed to be 20 – 40m thick. The hydrochemistry of the paleochannel water is high in Potassium, Magnesium sulphate and therefore represents a prospective exploration target and future source of brine, it is not included within the current resource estimate.

¹Woodward Clyde, 1992, Mt Keith Project Process Water Supply Study, Lake Way Area, Prepared for WMC Engineering Services Ltd.

Basement

The shallowness of sediments, particular to the west of the WIllaimson pit and the island, means that the weathered basement is at excavatable depths. Further to the east the lakebed sequence thickens to depth approaching 15 – 20m. Basement geology is complex with mafic, felsic and metasedimentary rocks existing in multiple, thin, NNW-SSE trending lineations along with an abundance of (often, recently activated) faults. Brine flows from basement contacts is highly variable but, in places, can be very rapid. 

Williamson Pit

There is a significant brine resource within the Williamson Pit. The top of the brine sits approximately 30m below ground level (bgl). There is only minor evidence of inflow from above the standing brine level from either the bedrock or the lakebed sediments. 

The annual sequence of seepage and rainfall followed by evaporation has, over the past 10 years since the pits closure, concentrated the salts to the point where they are almost twice the concentration than the brine contained within the lakebed sediments.

MINERAL RESOURCE

The Lake Way Mineral Resource (Blackham tenements only) was estimated by Groundwater Science Pty Ltd, an independent hydrogeological consultant with substantial salt lake brine expertise.

The Mineral Resource Estimate (MRE) underpinning the production target, classified as Indicated and Measured, was prepared by a Competent Person and is reported in accordance with the JORC Code (2012 Edition) in this announcement. 

Total Mineral Resource Estimate

(Blackham tenements only)  

Sediment Hosted Brine – Indicated (94%)

Williamson Pit Brine – Measured (6%)

Table 3: Lake Way Project – Mineral Resource Estimate (JORC 2012)

Hydrology Summary 

The Lake Way catchment as defined using Geoscience Australia’s 1 second DEM and MapInfo Discover Hydrology Package, the catchment area is 3,767 km².

A runoff model was developed for the Lake Way Catchment using the WaterCress software package. The model was constructed and calibrated to the adjacent and analogous Gascoyne River catchment, and then run using the catchment area defined for Lake Way and rainfall data from the Wiluna BOM station. Average calculated annual run-off is 3.9% of annual rainfall but is highly variable.

The morphology of the playa shape and surface is consistent with the classification system described by Bowler, (1986). The Northern part of the Playa exhibits morphology typical of significant surface water influence and periodic inundation (smooth playa edges, one island). The southern part of the playa exhibits morphology consistent with a groundwater dominated playa with rare inundation (irregular shoreline, numerous islands).

Exploration History

Significant historical exploration work has been completed in the Lake Way area focusing on nickel, gold and uranium. The Company has reviewed multiple publicly available documents including relevant information on the Lake Way’s hydrogeology and geology.  

A review of the Department of Mines and Petroleum’s WAMEX database was undertaken. The database contains more than 6,200 mineral exploration drill holes across the Lake Way region, with about 1,000 drill holes within the Blackham Mining Lease area above.

Recent Exploration Activities

A comprehensive surface aquifer exploration program was completed on the Blackham Mining Leases, comprising a total of 36 shallow test pits and 2 test trenches. This work provides preliminary data for the geological and hydrological models of the surface aquifer of the Lake and was used in the establishment of the Mineral Resource for Lake Way’s surface aquifer.

Estimation and Modelling Techniques

Area

The lateral extent of the indicated resource is defined by the tenement boundary and the Playa edge.  Within the tenement area there are two significant features that reduce the total area, namely the island in the central north of the tenement (3.2km²) and the Williamson pit and associated dewatered zone (4km²).  The total area of the resource is 55.4 km². The resource is open to the east and south of the Blackham Resources tenements.

Thickness

The top of the indicated resource is defined by the water table. The average water table depth beneath the playa surface noted in the piezometers and test pits ranged 0.3 to 0.5m averaging 0.4m.

The base of the indicated resource is defined by the depth to the base of the lakebed sediments within the Blackham Mining Leases as determined from the test pits, piezometers, air core drilling and previous work. Test pits to the west terminated in weathered basement at around 3mbgl whilst some air core holes to the east didn’t encounter base of the lakebed sediments until 9mbgl. All air core holes and test pits terminated in saturated material. 

The base of the lakebed sediments was interpolated from recent and historic drill hole information and the recent data using the Leapfrog software. The interpolation provided an average thickness of 5.3m.

Porosity

Total porosity (Pt) relates to the volume of brine filled pores contained within a unit volume of aquifer material. A fraction of this pore volume can by drained under gravity, this is described as the drainable porosity (or specific yield).  The remaining fraction of the brine, which is held by surface tension and cannot be drained under gravity, is described as the un-drainable porosity (or specific retention). The resource estimate is reported for both total porosity and drainable porosity to assess the Lake Way resource.

Twenty four (24) samples were selected from push tube locations next to test pit locations and from test pit excavations and LYTR01 (Trench 1) across the playa. The push tube samples were analysed by E-Precision Laboratories in Perth and the remaining samples by Core Laboratories in Perth. Samples were selected on the basis of spatial variability across the playa and being representative of the lakebed stratigraphy. Eighteen (18) of the samples were also tested for drainable porosity (Specific Yield). The samples selected, and the results are shown in Table.

The results show a broad concentration into two layers with the upper layer 0 – 1.5m having a porosity in the region of 50% and the lower layer having a porosity of around 40%.  Drainable porosity is generally lower towards the base of the lakebed sediments. This differentiation is consistent with the geology, the upper layer being more friable and sandy and the lower layers being more dense clay.

Table 4: Laboratory Derived Parameters – Total Porosity and Drainable Porosity

Long Term Test Pumping

Sustained pump tests on two test trenches provided reliable data for the preparation of a surface aquifer hydrogeological model for Lake Way.

The testing was conducted as a “constant head test” whereby flow rate was adjusted to maintain a constant trench water level. Drawdown was observed at nearby observation bores placed at distances of 10m, 20m and 50m from the trench.

Trench dimensions and pumping test results are presented in Table 5.

Average flow rates over the duration of testing ranged from 94 to 110m³/day. Higher flow rates are associated with evaporite deposits in the Playa Sediments.

These results are encouraging and continue to support the design of the SOP operation at Lake Way. 

Table 5: Summary of Trench Test Pumping

Brine chemistry was consistent throughout the duration of the test.

Analysis of the data from trench pumping trials at test trenches LYTR01 and LYTR02 yields estimates of drainable porosity of 13% and 15% respectively. These values are consistent with literature values for clastic sediment and are consistent with estimates of playa sediment drainable porosity reported by other Salt Lake Brine evaluation studies.

Williamson Pit

The Measured Resource is calculated as the tonnage of minerals dissolved in the liquid brine contained within the Williamson Pit shell.

The potassium tonnage of the resource is then calculated as: Brine volume times average concentration = tonnage

The Williamson pit was mined during 2005 and 2006. At the end of mining a detailed survey was undertaken (2006) prior to the open cut operation being allowed to fill with water.

This data represents the most recent information available on the pit shell.

A drone survey of the pit in 2016 established that the water level was at RL1462 (Referenced to Blackham mine grid). Using this RL and the pit shell the volume was calculated in Surpac to be 1,150,495m³.

Brine Chemistry

Lake Way

All brine samples are considered to be composite samples representing the whole excavated or drilled depth at each location. Given that the proposed abstraction techniques will involve trenches excavated to at least 4m across a large portion of the playa the use of composite samples is representative of the resource that will be extracted.

Table 6:  Lake Way Average Brine Chemistry

The spatial distribution of Potassium Concentration is quite consistent ranging from 5,910 to 8,760mg/L averaging 6,769mg/L.

Williamson Pit

A total of 9 brine samples were taken at different water levels in three locations in the Pit. Brine concentration was consistent laterally and vertically within the Pit and average of the nine (9) samples in estimating the Measured Resource is:

Table 7:  Williamson Pit Average Brine Chemistry

Mining Factors or Assumptions

The measured resource will be pumped directly from the pit into a holding pond for processing.  Mining of the indicated resource will be undertaken by gravity drainage of the brine by pumping from trenches. 

Metallurgical Factors or Assumptions

No metallurgical factors or assumptions have been applied.

The brine is characterised by elevated concentration of potassium, magnesium and sulphate elements and distinctly low in calcium ion. Such a chemical makeup is considered highly favourable for efficient recovery of potassium double salts from the playa brines (the main feedstock for SOP fertiliser production), using conventional evaporation methods.

Environmental Factors or Assumptions

Environmental impacts are expected to be; localized reduction in saline groundwater level, surface disturbance associated with trench and pond construction and accumulation of salt tails. The project is in a remote area and these impacts are not expected to prevent project development.

The project is located with the Goldfields Groundwater Proclamation Area. A license to take groundwater will be required under the Rights in Water and Irrigation Act 1914. This act is administered by the Government of Western Australia, Department of Water and Environmental Regulation.

MINING AND SCHEDULING

Brine Extraction

Brine will be extracted from the Lake using a network of surface trenches. A trenching system comprising of 30 km of trenches up to 5m deep will be installed.

The trench system will feed the evaporation ponds at an average annual demand of 163 L/s. The trenches will be excavated at a nominal gradient, with a single transfer point into the halite pond system.

Brine Evaporation

The extracted brine is concentrated in a series of solar ponds to induce the sequential precipitation of salts and eventually producing potassium double salts in the harvest ponds. Evaporation modelling, pond sizing and design was completed by international experts, Ad Infinitum and CPPC.

Evaporation Ponds

The operational area of the evaporation ponds required for the final 50,000 t/a SOP production rate is 350ha.

A comprehensive geotechnical investigation by the Company and Knight Piesold confirmed the availability of in-situ clays ideal for on-lake evaporation pond construction.

On-lake harvest ponds have considerable environmental and commercial advantages, as any seepage from the ponds simply return to the brine pool in the Lake.

The Demonstration Plant Scoping Study considers low cost, un-lined ponds for the evaporation and crystallisation of halite (NaCl) and small quantities of other rejected salts such as gypsum (Ca.SO₄.2H₂O).

The kainite and carnallite harvest ponds will be partially lined, with a HDPE liner around the inside walls (berms). Knight Piésold’s modelling confirm that the high clay content and low soil permeability of the Lake Way playa sediments mean seepage of unlined evaporation ponds is very low.

Ongoing testwork will determine whether the harvest ponds can also be constructed without partial lining as indicated by preliminary modelling, which would result in further capital savings.

The pond systems will produce, on average 326Kt per annum of harvest salts, with an average Potassium (K) content of 8.76%. The Company has developed a high level of understanding of salt harvest parameters through computer simulations, laboratory evaporation trials and SLP’s unique experience in operating evaporation trials in the field at Lake Wells. The combination of this experience has been used to build and refine the mass balance model for the Demonstration Plant.

The harvest salts will be drained, windrowed and harvested using conventional equipment, a cost-effective and reliable harvesting method in Australia. 

PROCESSING PLANT

Salts harvested form the evaporation ponds are then treated in a processing plant to first purify and then convert these salts into SOP, while minimising deportment of sodium chloride (the principal contaminant) to the product.

Key design parameters for the process plant are presented in Table 8, below.

Table 8: Process Plant Parameters

Overall potassium recoveries are lower in the Demonstration Plant as potassium reporting to the carnallite ponds is not processed at this scale. Carnallite salt will be stockpiled for Stage II processing.

The scale of the process plant is designed around the largest scale of standard road transportable modules that can be constructed off-site and transported to site, minimising site based construction costs. The majority of the process plant components are readily available, off the shelf items. There are several long lead-time items, such as the atmospheric draft tube baffle crystalliser, which will be sourced from international specialist vendors.

The Scoping Study anticipates production of 50,000tpa of high quality, organic standard SOP with the following specifications:

SLP’s research indicates that, once in production, organic certification for the product should be obtainable if desired.

Discussions with partners and end users around the optimal product preparation for the Demonstration Plant are ongoing, including the possibility of agglomerated or and compacted of a granular products.

WATER AND POWER

A raw water requirement of around 45m³/h is estimated, of which 7m³/h is treated in a reverse osmosis unit for potable and boiler feed water. A number of potential sources have been identified, as a consequence of the long exploration and mining history in the area, including from existing mining voids and known subterranean aquifers.

The operating power requirement for the plant is 0.8MW. There is substantial surplus capacity available from the Wiluna Gold Mine power station. The Company is also investigating stand-alone renewable energy alternatives.

TRANSPORT

The lakes of the GSLP are located close to the major regional transport and energy infrastructure corridors. Transport from site to port is the single largest cost for (export oriented) Australian salt lake SOP projects and the GSLP has a considerable advantage in this regard, with excellent proximity to the Kalgoorlie-Leonora rail line and the Goldfields Highway. The Company has made substantial progress in understanding and optimising its transport proposition, with major economies of scale to be achieved as the production volume increases.

The Lake Way development has been fast-tracked due to its significant infrastructure and transport advantages.

The Company engaged Bis Consulting to undertake a transport study for production from the Demonstration Plant. Bis is a leading provider of resources logistics in Australia, offering bulk logistics and materials handling processes.

Transport cost estimates were undertaken by Bis based on market data, industry databases, industry contacts and Bis’ existing knowledge of the Western Australian infrastructure market.

The outcome of the transport study provided a number of alternatives, however for Demonstration Plant production volumes, the most efficient route to international markets was via Geraldton port.

Total transport and handling costs have been estimated at $95/t of SOP product, packed in 2 tonne bags and loaded on flat bed trailers. The main road routes for Wiluna to Geraldton are currently permitted for quad road trains. 

Geraldton Port is capable of handling fully loaded Panamax size vessels up to 70,000 tonnes and 225m in length.  The Port handles approximately 19mt per annum of trade per year with significant excess capacity available for handling and storage.

At a slightly higher cost, a bimodal solution is available based on containerised product road hauled to Leonora and then by rail to Fremantle, Esperance or elsewhere from Kalgoorlie.

MINING INFRASTRUCTURE

Lake Way was identified due to its strategic location and significant infrastructure advantages. The Wiluna region is an historic mining precinct dating back to the late 19th century. It has been a prolific nickel and gold mining region and therefore has well developed, high quality infrastructure in place.

Lake Way has some compelling advantages which makes it an ideal site for an SOP operation, including the substantial capital and operating savings from sharing overheads and infrastructure with the Wiluna Gold Mine. This includes potentially the accommodation camp, flights, power, maintenance, infrastructure and other costs. There is also a large mining camp and sealed airstrip at the nearby Mount Keith Nickel Mine.

This proximity to existing infrastructure requires relatively minor area infrastructure upgrades and modifications for the Demonstration Plant development. The site has an excellent freight solution, located 2km from Goldfields Highway, which is permitted for heavy haulage 4 trailer road trains (refer to Transport section). It is also adjacent to the Goldfields Gas Pipeline.

PRODUCT QUALITY AND MARKETING

Fertilisers consist of essential plant nutrients that are applied to farmed crops in order to achieve favourable quality and yield. They replace the nutrients that crops remove from the soil, thereby sustaining the quality of crops, and are considered the most effective means for growers to increase yields.

The key components of agricultural fertilisers are nitrogen (ammonia and urea), phosphates (ammonium phosphates), and potassium (muriate of potash and sulphate of potash). In addition, sulphate has gained increased attention over the past several years due to soils becoming deficient in sulphur (the ‘fourth macronutrient’).

Global fertiliser demand is expected to increase significantly in the coming years due to the world population growth accompanied by decreasing arable land per capita, changes in diet and growth in income. These increases will provide an incentive for farmers to increase fertiliser use for improved yields and quality.

The most widely available source of potassium used by growers is Muriate of Potash (MOP or KCl), with around 65 million tonnes consumed annually. SOP is a speciality type of potassium fertilisers that is produced and consumed on a smaller scale.

MOP is widely used in all types of farming, however it can be detrimental to some plants, especially fruits and vegetables, due to its chloride content. SOP is primarily used as a source of potassium for crops intolerant to chloride. SOP is priced at a premium to MOP, due to supply constraints, high production costs and because of its ability to be used on chloride intolerant crops (such as fruits, vegetables, beans, nuts, potatoes, tea, tobacco and turf grass), which typically sell at sufficiently higher prices to absorb the premium cost.

SOP can be used in most applications where MOP is used and is preferred in many circumstances as it enhances yield and quality, shelf life and improves taste. SOP generally outperforms MOP in terms of crop quality and yield. SOP performs particularly well with crops that have a low tolerance to the chloride in MOP and in arid, saline and heavily cultivated soils. The low volume of SOP consumption relative to market demand is partly a result of the scarcity of reliable SOP supply.

SOP’s premium to the MOP price is correlated to the conversion costs from MOP to SOP (Mannheim Process) where MOP is used as an input in the process. The premium has been around 60% for the past decade. In recent years, this premium has expanded significantly, as decreases in the MOP price have not translated to similar declines in the price of SOP, indicating that the SOP market is supply constrained.

SOP can be sold as a standard powder or as a premium granular or soluble grade product. Granular and coarse SOP is generally priced at a premium. Salt Lake Potash plans to sell at a premium to the market price as a certified organic producer, similar to Compass Minerals.  The primary production of SOP from salt lakes allows for organic certification.

The current spot price for SOP ranges from US$580-US$635 per tonne in the main North American markets, with different (and less visible) prices in other global markets.

The Company’s Fertiliser marketing consultant, Fertiliser Sales Development (FSD) has over 25 years experience in the sales, marketing and distribution of various fertiliser products. FSD expects the long-term price for SOP FOB ex-Western Australia to be at least US$500/t for standard grade.

The Company’s main initial target market is the Asia-Pacific and East-Asia, a region forecasting significant increases in the demand for SOP. SOP production is not easily substitutable and is in supply deficit, therefore the Company is confident in the current and forecasted levels of demand.

Off-take

In April 2018, SLP executed a Memorandum of Understanding (MOU) with Mitsubishi Australia Limited and Mitsubishi Corporation (Mitsubishi). The Offtake Agreement will provide Mitsubishi with sales and offtake rights for up to 50% of the SOP production from the Demonstration Plant, for distribution into Asia and Oceania and potentially other markets. 

Discussions are ongoing with various parties for the balance of the Demonstration Plant production.

ENVIRONMENTAL & SOCIAL IMPACT ASSESSMENT

SLP’s consultants Pendragon Environmental under took a gap analysis to identify gaps in historical environmental knowledge, potential issues arising from the approval process, identify statutory approval requirements for the Demonstration Plant and provide a time frame for the environmental approvals.

As the proposed activities are to take place on active mining leases SLP has access to previous completed detailed environmental reports. The key findings for areas that required additional work:

·        Native Terrestrial Flora and Fauna – Ground truthing of specific infrastructure prior to submission of mining proposal.

·        Ground water – water balance and water quality requirements for plant operations.

·        Surface water – drainage study to be incorporated in to final location of trenches and pond layout.

·        Heritage – No registered Aboriginal sites were found within the impact area. Continuing engagement with the Aboriginal Community is required.

PERMITTING AND FISCAL REGIME

The Demonstration Plant will initially be based on Mining Leases held by Blackham Resources Limited, under the Memorandum of Understanding (MOU) described in the ASX Announcement dated 12 March 2018.

For supporting infrastructure or areas not included under Blackham’s ground, the Company will obtain Miscellaneous Licences.

The Company has agreed to extend the MOU timeline with Blackham Resources Ltd to 31 August 2018 as drafting of formal Spilt Commodity Agreement progresses.

The Company is also in ongoing discussions with the Native Title holders at Wiluna regarding an Exploration Agreement covering SLP’s exploration permits. We continue to work toward a mutually beneficial relationship with the Wiluna community.

Royalties

Potash has not been produced in Western Australia since 1950. The current royalty legislation does not include any specific rate for potash produced in WA. The ad valorem or value-based rate of royalty, which applies under the Mining Regulations 1981, is applied to a commodity based on the extent to which the commodity has been processed. As the SOP is sold in its final form (not subject to any further refinement or processing before sale to consumers) a royalty rate of 2.5% is expected. 

Other royalties provided for in the Scoping Study estimates include to the holder of Blackham tenements.

PROJECT TIMING

The Company will pursue a staged approach to development of a Demonstration Plant at Lake Way, taking advantage of the unique circumstances of the Williamson Pit to accelerate the production timeline, while also de-risking the project at each stage.

Completion of the Scoping Study provides the basis to now proceed with a Feasibility Study, to be completed in late 2018 or early 2019.

In parallel, SLP and Blackham have applied for a permit to construct the Williamson Ponds, to allow dewatering of the Williamson Pit in time to meet Blackham’s mine plan. Both companies aim to complete the construction and dewatering by late 2018/early 2019, subject to permitting, weather and other constraints.

The Williamson Ponds comprise approximately one third of the total Demonstration Plant pond area and will provide the opportunity to resolve design and construction processes and costs to a very high standard for the Feasibility Study. In order to manage the chemistry of the Williamson brines, ancillary brine trenches will also be required, which will similarly provide a high standard of hydrogeological and construction data.

Williamson brines are the highest grade brine resource in Australia, containing approximately 25kg/m³ of SOP. They are also super-saturated with other salts, boasting an average Total Dissolved Salt content of approximately 30%. This means that the brines will precipitate halite and gypsum salts almost immediately they are pumped from the Pit.

This offers the opportunity to use the Williamson brines to lay down a salt base in the harvest ponds much more quickly than would normally be the case for less concentrated brines. A salt base is an important element of evaporation pond construction, providing a platform or pavement for harvest equipment, and can take many months to develop depending on requirements, brine chemistry and weather.

The very high grade of the Williamson brines also reduces the evaporation time required for precipitation of kainite harvest salts.

Construction of the Williamson ponds, dewatering of the Williamson Pit and the initial evaporation and salt precipitation, will provide a very high level of information and understanding of the parameters for brine extraction and evaporation in an Australian context, at a scale directly representative of the complete operation.  For a very modest capital expenditure, this information will substantially reduce the perceived risk, and improve the financing parameters, for the balance of the project.

[Note that the capital expenditure estimated in the Scoping Study for the full Demonstration Plant evaporation pond system totals $7.8m, and the Williamson Ponds are one third of that area.]

Subject to permitting, performance, weather and other factors, the construction of the balance of the on-lake infrastructure – mainly the remaining ponds and brine trenches – will ideally follow on directly from completion of the Williamson Ponds and the Feasibility Study.

The Study estimates the extraction trench network capital expenditure is a further $1.6m, meaning the total capital expenditure for on-lake infrastructure is $9.4m, slightly less than 20% of the total capex.  If the construction and operation of the Williamson Ponds validates the modelled performance of unlined harvest ponds, then the potential savings from not using partial HDPE liners, will significantly reduce capex for the balance of the pond system.

The longest lead time for the main plant components is 36 weeks, for the crystalliser, which will be fabricated off-shore. The Scoping Study estimates total fabrication and installation time for the process plant at approximately 9-12 months, meaning a decision taken at the anticipated time of completion of the Feasibility Study would result in plant commissioning in early 2020, utilising stockpiled kainite harvest salts.

The Company will continue to investigate opportunities to reduce the development schedule by early ordering of long-lead time items and modular delivery and installation of plant components, an option available for a small scale, skid mounted plant.

The Company’s anticipated delivery schedule is naturally provisional at this stage, subject to permitting, performance, financing, weather and other factors.

SENSITIVITY ANALYSIS

The Scoping Study was prepared at a ±30% accuracy to investigate the technical and economic parameters of a SOP production operation at Lake Way, exploiting the identified brine resources. 

Key inputs into the economic assessment of the Project were based on the following sensitivities: