Categories: Base Metals
Topics: General Base Metals

Potash Ridge (TSX-V: PRK) COO Ross Phillips Explains the Importance of Its Recent Offtake Agreement

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is CFO and COO of Potash Ridge (TSX: PRK)(OTC: POTRF), Mr. Ross Phillips. Mr. Phillips has 10 years of experience in the resource and energy sectors, much of which has involved working on large scale capital products. From 2009 to 2011, Mr. Phillips was senior manager, financial analytics, and later director of business development at Capital Power Corporation, which is one of Canada's largest power generation companies. Prior to that time, from 2003 to 2009, Mr. Phillips held various senior roles at Sherritt International Corporation, a diversified resource company that produces everything from thermal coal, nickel, cobalt, oil and electricity.

Potash Ridge is a near-term producer of premium fertilizer with world-class development assets in both Utah and Quebec. The company presents a very unique opportunity to develop a mine and processing facility to produce sulfate of potash, or SOP. SOP is a premium-priced, low-chloride potash fertilizer. Ross, thank you so much for joining me today. (For an earlier interview with Ross that covers a bit more background on Potash Ridge and its two assets, click here.)

Ross Phillips: Thank you very much for having me.

Gerardo Del Real: I provided a brief introduction of you and the company there, and you just released some important news yesterday that I want to get into shortly. Before that, it would be great if you could provide listeners with a better idea of just what sulfate of potash is, and what kind of market exists for SOP.

Ross Phillips: Absolutely. This is the essential element to our company. Potash is potassium-bearing minerals. So fertilizers, or NPK fertilizers, the three numbers you see on a fertilizer bag, and the third is K. It's potassium. There's two kinds of potassium in the world that's marketed as potash. One is potassium chloride. That's the common kind produced out of Saskatchewan and Russia and Belarus, and it's potassium chloride. It's a great fertilizer for row crops like corn and wheat, but it's challenged when it gets to the high end crops like fruits and nuts and vegetables, because the chloride is a salt and it doesn't really work well with those kinds of plants.

SOP is potassium sulfate and it gives you potassium which is a nutrient and sulfur which is now a nutrient. We've done a great job getting the sulfur out of our atmosphere and now we have sulfur-deficient soils. By having two nutrients, it really helps crops and especially these high-end crops of fruits and nuts and vegetables. It's really demand-driven. The market for SOP is about a tenth of what MOP is. SOP market worldwide is about 5 to 6 million tonnes a year right now, but CRU out of London estimates that the global demand is closer to 10 million tonnes. It's supply constrained. There's not a lot of opportunities for additional supply to come on the market. That's where we offer a great opportunity in that we have a near-term production project in Quebec that we're working on right now, as well as a larger, longer-term, or medium-term, to be honest, opportunity in Utah that's a world-class facility that would be lowest-cost producer of SOP in the world.

Gerardo Del Real: Excellent. You mentioned that you have the two main assets, Valleyfield in Quebec and Blawn Mountain in Utah. The focus right now, as you mentioned, and the subject of yesterday's news release is obviously the Valleyfield project in Quebec. I'd love to talk in detail about Valleyfield and the funding and product offtake agreement with Jones-Hamilton that was announced yesterday. From our conversation, it sounds like the supply/demand fundamentals are very favorable and existing producers appear unable to expand to meet that supply deficit. Can you share the details of the agreement and how that fits into the company's strategy to take advantage of that lack of supply in the market?

Ross Phillips: What we're doing in Quebec at Valleyfield is we're using 100-year-old technology called Mannheim technology that takes regular potash, MOP, and converts it to SOP. It's a technology that's used in China. It's used in Europe, but it's not used in North America because it has one key challenge. It produces a by-product, hydrochloric acid, and you really need to find a localized market for the hydrochloric acid to be able to place one of these furnaces, or production facilities, in an area. We have found the perfect location for this in Valleyfield, Quebec, just outside of Montreal. What you really need is you need to be able to have a home for that hydrochloric acid so that you can produce your SOP and make really good returns.

By partnering with Jones-Hamilton, which is one of North America's leaders in marketing hydrochloric acid, we have a partner that's going to do the offtake for us. It's going to place the hydrochloric acid for us. In addition, they're going to provide us with some funding for the Valleyfield facility to assist in the construction. We have a great world-class partner in Jones-Hamilton, and as we noted in the press release, we've secured funding for up to 15 percent of the capital cost of Valleyfield. This really helps us keep it on schedule to bring it in production and start producing 40,000 tonnes a year of SOP by the end of 2017.

Gerardo Del Real: Wonderful. You mentioned how critical it was to have that perfect location and in regards to permitting, the Quebec government is viewed as very supportive. How has the communication been in regards to this project as it relates to the permitting aspect of it?

Ross Phillips: It's been very good. We're working with the Quebec government. They have a very good permitting process. From the time you put the permit in, it's going to take about 90 days to get approval. Valleyfield is actually a wonderful community that has industrial companies already within the community. They're supportive of us. The Quebec government is supportive of development in Quebec, and what we've found here beyond the permitting, is the business community in Quebec is actually very tight-knit and supportive of development within the province. We're working with some provincial agencies to help us with some of the funding and some debt and some equity, but once you start talking to these agencies of the province, they put you in touch with business people or other funds that are looking to invest in companies like Valleyfield, either through debt or some form of equity, to assist us in funding the project to bring it fruition and bring jobs to Quebec. It's a really nice business community that's supportive of development and really is helping us get Valleyfield funded and constructed.

Gerardo Del Real: That's perfect. You mentioned the business community there. The other fine point in that news release was a part there where you mentioned that you're in the advanced stages of securing project financing for Valleyfield. How is that coming along as far as what you can share?

Ross Phillips: You know what? We're working on it, but we look at this as there's three key elements to getting Valleyfield funded. The first is offtake agreements with someone that's going to buy the SOP now that we've taken care of the hydrochloric acid, and we're in discussion with a number of parties on that. It's a great market. There's a lot of demand for it locally, so that's very positive. Once you do that, you look at the debt and you look at the equity, and we're talking to a number of parties, about 8 different parties, that are looking at debt and equity and various combinations. Our goal here is to do the equity as preferred shares at the project level, so we don't dilute the Potash Ridge shareholders, but we retain the ownership of the project. There's a lot of support and interest for that form of financing. It's really positive. We're moving along. We're going through due diligence, and we're quite positive about being able to fund it and maintain our timelines.

Gerardo Del Real: Excellent. Lastly, I'd like to talk a bit about Blawn Mountain, your world-class facility in Utah. The facility has the potential to be the lowest-cost producer and one of the largest producers of SOP in North America. The NPV is approximately a billion dollars, but so is the capex. Is there an opportunity to operate on a smaller scale and if so, what do the margins there look like?

Ross Phillips: Right now, at Blawn Mountain, this is a really unique world-class project. Based on our pre-feasibility study, which is the numbers you quoted, it would be the lowest-cost producer of SOP in the world, producing it at about $180 a tonne, when currently it's selling for somewhere between $650 and $700 a tonne. There would be really health margins there at the PFS level. What we've done is we've come up with some modifications to the flow sheet and we're looking at ways to do it at about a third of the original scale, taking advantage of a really positive climate right now for developing projects in terms of production costs, ability of resources. We believe we can maintain, or come close to maintaining, the original PFS margins, while bringing it online at about a third of the original scale, which kind of is a better way to go into it. We're still going to do over time, develop it to the full scale of 640,000 to 700,000 tonnes a year, but do that in steps and phases, as the market develops and do it in financeable size. It's a really positive developments there. We're working with SNC-Lavalin, and we anticipate to have something out and announced by the end of the year on Blawn Mountain.

Gerardo Del Real: Excellent. I know yesterday's news marks an important milestone for the company, and it appears there are several potential catalysts on the horizon, near- to mid-term. What can shareholders expect from the company here in the coming months, Ross?

Ross Phillips: You know what? We're focused on those three essential elements on both projects: get the offtake in, work with parties, as well as get equity and get debt in so that we can fund Valleyfield at the project level and not dilute shareholders. Our focus on Valleyfield is getting it financed by the end of the year, including offtake commitments. Our focus on Blawn is to finish the scaling study, as well as work towards getting offtake agreements with it, and maybe some funding by the end of the year. We're working hard on both projects in parallel with the focus on getting Valleyfield financed by the end of the year at the latest.

Gerardo Del Real: Fantastic. It sounds an exciting time for the company. Ross, I want to thank you so much for joining me today. Is there anything you'd like to add, maybe something I missed?

Ross Phillips: No. I think this has been a great chance to chat. It builds on our previous conversation with Nick Hodge. These are both great assets, near-term production in Quebec, world-class asset in Utah that we want to have in production in the 2019 time frame and it's really an exciting time for our company.

Gerardo Del Real: Excellent. Just for a little context, can you provide, do you know the market cap right now for the company? I know you have a billion-dollar asset there in Blawn Mountain and a lot of excitement there with Valleyfield. What does the market cap look like?

Ross Phillips: It's right now, somewhere about $35 or $40 million Canadian right now, 125 million shares outstanding and we're trading at 36 cents, as of yesterday.

Gerardo Del Real: Fantastic. Ross, thank you so much for your time this morning, sir.

Ross Phillips: Thank you very much. Have a good day.

Gerardo Del Real: All right. Look forward to having you back as those catalysts develop.

Ross Phillips: Absolutely.