Millennial Potash Corp.

PEA Confirms Viabilty of a Low-Cost Potash Mine in Africa

Published: 5/13/2024

Author: FRC Analysts

Thumbnail of the report PEA Confirms Viabilty of a Low-Cost Potash Mine in Africa
*Millennial Potash Corp. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.

Sector: Basic Materials | Industry: Other Industrial Metals & Mining

Ticker Symbols:MLP.V - TSX 🔹
Rating and Key Data
MetricsValue
Current PriceCAD $0.28
Fair ValueCAD $1.52
Risk5
52 Week RangeCAD $0.14-0.50
Shares O/S (M)58
Market Cap. (M)CAD $16
Current Yield (%)N/A
P/E (forward)N/A
P/B1.6

Report Highlights

  • A Preliminary Economic Assessment (PEA) on the Banio potash project in Gabon, Western Africa, returned robust economics, with an AT-NPV10% of US$1.1B, and a high AT-IRR of 33%, using US$387/t granular Muriate of Potash (gMOP) vs the spot price of US$305/t. MLP is trading at just 1% of the AT-NPV10%.
  • The project can be advanced to production within three to four years. We believe Banio stands out among undeveloped potash projects with its comparatively low initial CAPEX of US$480M, and OPEX of US$61/t, attributed to its amenability to solution mining. 
  • We believe there is significant resource expansion potential as the current estimate only covers 1.5% of the project area. MLP is aiming to complete a resource update in H2-2024.
  • The target markets for Banio’s potash are Brazil and Africa.  Brazil imports 95% of its potash demand from Canada, Russia, and Belarus. 
  • Potash prices are down 22% YoY, but up 11% QoQ, to US$305/t vs the 15-year average of US$302/t. With fertilizer prices stabilizing, we are cautiously optimistic, and anticipate a recovery in demand in 2024, driven by increased spending by farmers.
  • Upcoming catalysts include project financing, and an updated resource update.

Price and Volume 

  YTD 12M
MLP 27% -35%
TSXV 8% -3%
S&P 500 Fertiizer & Ag Chemicals 5% -8%

*See important disclosures at the bottom of this report rating and risk definitions. All figures in US$ unless otherwise specified.

 

Banio Potash Project

Located in the potash-rich Congo Evaporite basin in Gabon, which hosts several large potash deposits

Gabon’s hosts several majors such as Fortescue (ASX: FMG), Eramet (ENXTPA: ERA), Total (NYSE:TTE), and Shell (NYSE: SHEL)

Based on a 25-year mine life, the PEA returned an AT-NPV10% of US$1.1B, and a high AT-IRR of 33%, using US$387/t MOP vs the spot price of US$305/t

Compared to our estimates, the PEA used higher annual production, CAPEX, and product prices, but lower OPEX .  

We note that OPEX/CAPEX are relatively low as the deposit is amenable to solution mining 

 

Per the PEA, enriched brine extracted through solution mining will be transported via pipelines to a processing plant in Mayumba, located 50 km north of the Banio project. The processing plant transforms brine into granular fertilizer through evaporation, crystallization, drying, and compaction. The final product will be shipped to market from a deep-water port in Mayumba. The PEA assumes MLP will build its own independent power station.

The Gabonese government, in collaboration with its partners, is advancing plans to construct a deep-water port in Mayumba. We believe that unforeseen delays or cancellations could prompt MLP to seek alternative transportation solutions for potash exports to international markets.

Banio hosts a large-tonnage/low-grade potash deposit

The deposit is dominated by low-grade carnallite mineralization. The resource envelope measures 5 km (length) x 3 km (width) x 0.2 km (thickness) 

Mineralization has been identified at depths ranging between 230 m and 520 m below surface; we note that Banio’s potash beds are shallow compared to projects in Saskatechwan (800-1,500 m deep)

We believe there is potential for resource expansion as the current resource accounts for only 1.5% of the project area

 

Management’s Target Timelines

Management aims to complete a resource update in H2-2024, followed by engineering studies for a feasibility study

 

Financials 

$1.25M in working capital at the end of February 2024 .We anticipate an equity financing shortly

 

FRC Valuation 

After incorporating inputs from the PEA, our DCF valuation increased from $1.02 to $1.52/share, primarily driven by higher annual production

Source: FRC

Our valuation is more conservative, with lower long-term product prices, and higher discount rates (unchanged)

Our valuation is highly sensitive to key inputs

 

We are reiterating our BUY rating, and raising our fair value estimate from $1.02 to $1.52/share. We believe the robust PEA, driven by low CAPEX/OPEX, has significantly enhanced the project's attractiveness, and ability to secure project financing. 

 

Risks

We believe the company is subject to the following key risks:

  • The value of the company is dependent on potash prices
  • Exploration and development 
  • FOREX and geopolitical
  • Access to capital and potential for share dilution 

Maintaining our risk rating of 5 (Highly Speculative)