PWN to Acquire Stake in New ASX Company Following Asset Sale

Published at Aug 28, 2015, in Mining

Potash West NL (ASX:PWN), the Perth-based phosphate explorer, has announced its intention to acquire an estimated 28% stake in Davenport, a subsidiary of Arunta Resources (ASX:ARJ).

The acquisition is to be done solely through the sale of PWN’s partly-owned subsidiary, East Exploration Pty Ltd in exchange for Davenport shares.

The deal has yet to be formally ratified by shareholders of PWN and ARJ and is subject to due diligence and also comes with a slew of performance milestones that could take PWN’s holding in Davenport beyond 55% over the next 6 years.

Davenport intends to fund the South Harz project through a key drilling phase with the aim of defining an inferred JORC resource on the project and going on to build a 500,000tpa mine.

Currently, the project is believed to contain a 4-5 billion tonne potash exploration target, with grades of 7.2% – 25% potassium oxide (K2O).

Since 1960, over 100 million tonnes of potash were mined in the South Harz region, adjacent to PWN’s current project. In tandem with Davenport, PWN estimates approximately $20 billion in commercial potential from the project given current potash prices.

As a subsidiary of Arunta Resources, Davenport will soon be divested into a separate, independent entity with its own ASX listing. The deal to sell EE to Davenport will go through assuming Davenport can raise $4 million as part of its Initial Public Offering (IPO), expected to conclude later this year.

Streamlining its Strategy

PWN intends to sell its 55% stake in East Exploration Pty Ltd. (EE), the current licensee at the South Harz Project in Germany in exchange for a 28% stake in Davenport.

The deal will see an immediate $250,000 non-refundable option granted to EE in addition to 36 million fully paid shares at a price of 20c per share. PWN will receive its 55% allocation of 19 million shares.

A further 67 million performance shares to be converted to ordinary status upon Davenport achieving the following pre-set project milestones:

  • Confirmation of an Inferred JORC Resource
  • Mining approval for a 500,000 tpa potash mine

Commenting on the deal, PWN Managing Director Patrick McManus explained that, “Whilst maintaining a significant exposure to South Harz, PWN can continue to progress its other projects: The Dinner Hill phosphate and potash project in the Dandaragan Trough and our ground breaking extraction technologies, the 100% owned K-Max technology and the 25% owned L-Max technology”.

The agreement to involve Arunta/Davenport in its South Harz exploration activity should allow PWN to focus on its flagship WA project alongside progress in its technology research and development.

Focus on Dandaragan

PWN’s core project continues to be Dinner Hill in the Dandaragan Trough:

Dandaragan PWN project

Map of PWN’s Dandaragan Trough Project in Western Australia

At Dinner Hill, PWN is targeting production of 250 million tonnes of phosphate ore.

The current exploration target is 550-800 million tonnes of phosphate mineralisation at a grade of 2%-2.7% P2O5. Additionally, PWN is targeting 1.2-1.8 billion tonnes of greensand containing potash mineralisation at a grade of 3.5%-4% K2O.

Dinner Hill is a prime location because detected phosphate mineralisation is close to the surface and therefore relatively cost-effective to extract.

PWN’s long-term plan for Dinner Hill is to construct a sophisticated processing plant that utilises the cutting-edge K-Max technology developed by Strategic Metallurgy/Lepidico.

PWN intends to generate revenue from existing technology in order to fund the development of a $590 million production plant by 2021. The new production plant will produce single superphosphate (SSP) fertiliser with a grade of 18% P205, attracting premium sale prices in excess of $350 per tonne.

K-Max Technology

Strategic Metallurgy aka Lepidico, has developed a unique way of treating glauconite extracted from the Dandaragan Trough to produce potash – otherwise known as potassium sulphate.

The method behind this technology is based on low-energy conversion based on chemical processes as opposed to traditional, high-energy ‘roasting’ methods.

First patented in 2012, PWN owns 100% of the intellectual property rights of this technology and continues to work closely with Lepidico on further research and development of its applications.

According to estimates, PWN could generate around $60 million in annual free cash flow as and when its high-tech production plant goes online sometime before 2021.

PWN also owns a 25% stake in a similar ‘L-Max Process’ that converts hard rock lithium deposits into high grade lithium carbonate.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of Maven Capital Pty Ltd (AFSL No. 418504). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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