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Australian Potash running competitive process for off-take amid strong demand

Australian Potash Ltd. CEO Matt Shackleton says Australia's fledgling sulfate of potash sector is gaining traction in international markets, to the point where his company has the luxury of running a competitive process for off-take agreements for its West Australian Lake Wells project's sulfate of potash.

Australian Potash released the definitive feasibility study for Lake Wells the day after Australia's only other sulfate of potash, or SOP, company to have hit that milestone, Kalium Lakes Ltd., announced the final component of funding for its Beyondie project.

SNL Image
Australian Potash CEO Matt
Shackleton
Source: Australian Potash

Shackleton said in an interview that his company would leverage the momentum generated by Kalium Lakes' success in funding the A$248 million Beyondie project to finance the A$441 million Lake Wells project through a potential combination of debt, equity and off-takes.

S&P Global Market Intelligence has learned that several entities from Japan, Germany and China have approached Australian Potash unsolicited in the past two months, and that the junior is discussing with them not only off-take but options for strategic investment and project development capital.

The key criteria Australian Potash has set is a floor price and commitment to volume, which will make Lake Wells more attractive to major institutional funds.

Shackleton believes a floor price of between US$400 per tonne and US$425 per tonne of SOP delivered is "very realistic," given SOP is selling out of Canada for about US$685 per tonne, and SOP has traded above roughly US$425 per tonne for the last five years.

Among the new parties that have approached Australian Potash in recent months are a large European fertilizer company with its own SOP production facility, a German bank, and a large German family office with a chemicals and fertilizer distribution unit.

Two large Chinese agricultural enterprises have recently approached the junior, in addition to other companies from the Asian country it is already talking to, including fertilizer distributor Hubei Agricultural Means of Production Group Co. Ltd., with whom it has signed two non-binding memorandums of understanding.

Most of the above groups are interested in Lake Wells as SOP is a premium potassium fertilizer required for healthy plant growth, plant metabolism, crop yield optimization and produce quality.

Those conversations have also signaled a very strong demand to secure non-Chinese supply of SOP throughout Southeast Asia.

"People are observing we're getting close to an off-take position so want to put their name in the hat," Shackleton said. "Instead of us thinking about ourselves as being a price taker [in off-take negotiations], we're actually running a competitive off-take process."

Australian Potash also plans to reserve about 25% of its output for the Australian domestic market, which currently imports all its potash needs, and the company is in discussions with farmers about a price point.

Shackleton already knows that they will not pay more than A$900 per tonne for SOP, but it will be sold at a premium of about A$250 per tonne to muriate of potash, which currently sells for up to about A$610 per tonne.

SOP lacks the harmful chloride contained in muriate of potash, which is commonly used on carbohydrate type crops such as wheat.

Australian Potash is considering helping farmers cut transport costs by delivering its SOP to a central point from where the farmers can pick it up, though Shackleton said that does not mean the company is considering effectively becoming a fertilizer distributor.

Shackleton said his company would start supplying SOP "from day one" of operations, which is currently slated to be 24 months after final investment decision, but the current front end engineering design must first be completed.