In maintaining a Speculative Buy recommendation on APC, Hartleys has also highlighted the project’s ‘enviable position’ of straightforward reserve estimation and brine extraction.
With APC’s shares trading at 7.5 cents, Hartleys has also set a price target of 25 cents.
The updated research note has been released before delivery of the Lake Wells SOP Project definitive feasibility study (DFS) in the second half of 2019.
Following is an extract from their report:
DFS in final stages for delivery
APC continues to progress development studies for its 100%-owned Lake Wells Sulphate of Potash (SOP) Project in WA. The DFS is now due to be delivered in H2 CY19, and we see potential for the study to be released in Q3 CY19.
The company has commenced activities to assess the optimal commercial-scale pond construction technique for the project.
APC is planning on using un-lined ponds on the playa lake (Lake Wells), taking advantage of a surface clay layer to seal the base of the ponds and with this work assessing (economically and technically) the best wall construction technique to seal the walls of the ponds.
READ: Australian Potash adds confidence to Lake Wells SOP Project resource with strong production well development results
A pond wall barrier is required to minimise lateral seepage, with APC now testing four different construction techniques - natural material on-site, a steel sheet pile, a bentonite clay layer mixture and a geo-polymer liner.
Construction of the trial ponds is expected to be completed in June, upon which time the test ponds will be filled with brine and seepage monitored.
The important design information will feed into the DFS, with the cheapest and most efficient wall construction technique adopted.
APC has an envious position of having a deep palaeochannel (3-4 times deeper than peers) which is expected to make the estimation of reserves, and the abstraction of the brine easier.
The other field work required prior to the DFS release is the test-pumping program on the production wells. Five production wells have thus far been installed with another 2-3 bores due to be installed as part of the current work program.
It should be noted that about 30% of the Stage I bore-field is now expected to be production-ready at the completion of the DFS.
Once developed, Lake Wells is expected to be serviced by some 35 bores, enabling the production of 150ktpa of SOP (Stage I), scaling up to 75 bores for production of 300ktpa of SOP (Stage II).
Well located, logistics solution and developing offtake channels
The Lake Wells SOP project is about 280 kilometres from a rail terminal at Leonora, making it the closest SOP project in Australia to bulk rail infrastructure. In addition, the local shire of Laverton continues with works to tar-seal the Great Central Road, providing about 70 kilometres of bitumen for improved transport logistics.
The upgrade of the access road into Lake Wells (about 90 kilometres) is also being considered, and under an agreement with the shire, will be partly funded by offsetting some annual rates.
APC already has MoUs in place for a combined 200,000 tonnes per annum of SOP in off-takes. Potential Chinese partners (Sino-Agri and Hubei-Agri) have received SOP trade samples (high-grade and purity) from field evaporated feeder salts for detailed test work. Formal offtake relationships continue to be progressed.
DFS release will be a major milestone, funding seen as key risk
APC remains undervalued on peer comparisons and we would argue offers compelling value in regards to highly favourable economics, transport infrastructure, low capital intensity and high-quality SOP product offerings.
APC’s current cash position is approximately A$3.4 million, which funds the completion of DFS studies, and provides some working capital. Project development funding is seen as the key risk, assuming a favourable DFS outcome is delivered.