pro-met - scoping study this week ?, page-16

What is the Transit Potash project worth?

What should the market cap of the company be at this stage?

What target price should we have on our shares?

The scoping study due any time soon (first week of Dec was the target date for completion) will give us a lot of the information we need to answer these questions, and the share price movement after the permit announcement last week indicates that a few in the market are attuned to the potential here. (Robin Bromby's story in the Australian yesterday will help)

Looking around for a similar company with a similar project can often give us clues to help in a valuation, and the post by PeaceAKKI suggests a closer look at Potash One (KCL on the TSX in Canada).

From their website¡K
¡§Potash One Inc., is a Canadian based company, which is focused on developing its Legacy Project, a feasibility stage solution mining potash project in Saskatchewan. The Legacy Potash Project is located approximately 80 kilometers northwest of Regina and is immediately adjacent to Mosaic's Belle Plaine potash solution mine, the largest potash solution mine in the world. The project consists of 97,240 acres of Crown mineral lands held by Subsurface Mineral Permit KP 289.

Potash One announced a significant increase to the Legacy Project's Resource Estimate in May 2009 with an updated National Instrument 43-101 Report expanding and upgrading the estimated resource to:

Measured; 29m tonnes 25.8%
Indicated 222m tonnes 26.3%
Inferred 853m tonnes 23.8%

The Potash Resource is the estimated metric tonnes of refined potash product, taking into account the recovery by solution mining and processing losses (i.e. extraction factor, cavern recovery factor, geological anomaly factor, and processing losses). A cutoff grade of 15.8% KCl and a radius of influence from cored drill holes of 0.8, 1.6 and 8 km were used for the Measured, Indicated and Inferred areas respectively.


Subsequent to favourable results announced on the Legacy Project's Pre-Feasibility Study (PFS), Potash One initiated a full Feasibility study in October 2009. The Feasibility Study will provide a comprehensive overview of all aspects of the project, including land and mineral rights, processing, transportation and logistics, port space options, a detailed market analysis, refined capital and operating cost estimates, and financial performance metrics.

Highlights of the Legacy Project's Pre-Feasibility Study in June 2009 included the following projections:
Initial Mine Life 40 years
Annual Potash Production 2.5 million tonnes/year of KCL
Estimated Capital Cost $1.877 billion USD
After-tax payback period 3.3 years
Estimated after-tax and royalty Internal Rate of Return 30.1%
Estimated Net Present Value (NPV) after tax (10% discount rate) $4.47 billion USD

Paul F. Matysek, President and CEO of Potash One stated, "On the anniversary of our Toronto Stock Exchange Listing, the completion of the Pre-Feasibility Study represents a significant milestone in the development of the Legacy Solution-Mining Project¡K.. By utilizing proven solution mining technology, we believe that Potash One will develop a scalable, low risk mining operation which could see its first production as early as Q4 2013."

Solution Mining is the use of hot water to dissolve a desired mineral from a geological ore zone into solution through directional or vertical boreholes or abandoned underground mine workings. The solution is then pumped back to the surface where the solution potash is crystallized and purified into the finished product, ready to be transported and sold to market.

Solution mining technology has the direct benefits of scalable production capacity, lower capital costs, quicker timeline to production, and with significantly less mining risk as compared to conventional potash operations.

Stock Info & Share Structure

Stock Symbol TSX : KCL
Shares Outstanding 77,132,424
Fully Diluted 102,234,486
Avg. Daily Volume 410,421
Price Range Low $0.70 - High $4.80
Market Capitalization $226 Million
Cash on Hand $42.6 Million

Potash Prices
(Chart I can't copy - shows recent price hike to around C$600/tonne). This has softened, but as per Bromy's article, demand on the up again.

Why Invest In Potash One
1. Potash Fundamentals Remain Robust
Favorable economic variables include:
„X Growing world population
„X Rising incomes in the developing world, consequently increasing demand for protein rich diets
„X Decreasing availability of arable lands
„X Lack of commercial substitutes -- Potash is irreplaceable
„X Industry characterised by supply/demand imbalances
2. Potash Resource in World's Most Prolific Potash Basin
Occupying 515,000 acres of the Saskatchewan Potash Basin - known for its abundance of high grade potash reserves and world class production
3. Solution Mining Advantage
The Legacy Project's solution mining capability offers a significant competitive advantage against conventional mining peers, including:
„X Quicker timeline to production
„X Scalable operation
„X Lower CAPEX requirements
„X Lower technical risk
„X More Environmentally friendly
4. Management Consists of Mine Builders, Mine Operators and Proven Financiers
In addition to the strong fundamentals and very attractive property characteristics, Potash One has assembled a world class technical team who were directly responsible for bringing a solution mine into production.
5. Fully Financed for an Aggressive Development Schedule
„X $40M in the treasury to complete bankable feasibility study
„X The Legacy Project is positioned to be the first Greenfield potash mine put into production in Canada in over 40 years. ¡§

So, Potash One has a very similar project, a little more advanced than Transit¡¦s.
Transit has a larger potential resource, Potash One is perhaps 6-12 months further down the track (unless Transit promptly announce a BFS). Potash One has more in the bank -C$40m compared to A$6m after exercise of options at end of this month.

Richard Monti has assembled an impressive team ¡V as we would expect from his background. And the people behind the plans are key in these projects.

Potash One currently has a market cap of C$226m. (has been up to double this figure)

Transit (at 49cents) has a Mcap of around A$15m, or about A$20m fully diluted.

So, assuming the scoping study is as positive as most of us here suspect, it should propel the share price further ¡V by a factor of up to 5 or 10 times?

As Transit does not have high profile, don¡¦t expect all this movement in a couple of weeks, but as long as the scoping study is good, and the board moves quickly on further action (they have the money), the value is there, and it will happen.

Don¡¦t sell too low.