anatol - peer comparison, page-2

Hi Aerkins.
It's here below
Post #: 6516620 on 27/03/2011

The JORC result now is changing evertyhing.
I was expecting such a good result but I didn't want to speculate on inferred resoruces. (I didn't give inferred resaources on my estimation table as you may know)

This is proven to be a top tier world class deposit now.
There is no better resource in world atm.
I may need to amend the this calculation below.

ELM is definitly a takeover target.
I am still a buyer at these prices after this JORC result.
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Our deposit size will be tripled with the new drilling program. If they give 300mt JORC for phase 1, the toal of target resource size should be 1bt for the phase 2. And this might be increased to 1.5bt by the new drilling programmes by the takeover suitor. However I'll only calculate the resources for ELM current targets.

I am calculating those numbers in case of a major miner takes over the resource and mining 3mt per year. It is better to look this prospect from their eyes.

Here are some numbers;
Assumption: Average % of KCl: 29% (Current)
Recovery rate by undergorund mining: 40% (High Ave.)
Annual production rate: 3mt (Current big mines)
Potash price: $550pt (Current)
Cost per tonne: $150 (inc.$40 freigth in Atlantic)
Profit per tonne: $400
EBIT:Earnings before interest and taxes -per year: $1.2billion
Total number of Shares: 151m ordinary + 28m option = 180m

The asset value of in-ground KCl pert tonne: $10, which will be sold to $550 after mined and processed. Very profitable business. (This value was $3.33pt for PotashOne takeover which was very cheap)

Deposit... Recorovable... Life of..... Asset ..... Share
Size ....... KCl............... Mine....... Value ..... Value
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200mt .... 80mt .......... 26Y ........ $800m .... $4.45
300mt .... 120mt.......... 40Y ........ $1.2b ..... $6.65
600mt .... 240mt.......... 80Y ........ $2.4b .... $13.30
1bt ......... 400mt......... 133Y........ $4.0b .... $22.00

(Denpal: 75% recovery rate is only used in some mines like Carlsbad/US where the potash layers are going by 45 degree in slopes and inconsistently. The cut and collapse (fill) method is used for this high recovery rate. I don't know if it this could be done in Congo)

BENCHMARK POTASH ASSET SALE: PotashOne Saskatchewan/CA
The only benchmark price for a potash explorer asset is PotashOne / K+S takeover.

K+S paid $430 for PotashOne.
Shareholder got mugged! One tonne of KCl as recoverable resource was sold at $3.33.
$3.33 was very cheap when the cost of mining considered as $110 and sale price is $550 atm.
PotashOne has total 135mt proven (measured) and probable (indicated) reserves at 28.88% KCl grade.
27mt measured (proven) recoverable reserves at 28.55% KCl grade,
108.5 indicated (probable) recoverable reserves at 28.96%KCl grade
PotashCorp drilled only 6 holes and used 4 old holes for resource estimation.
They are planning a mine for 2.86mt annual production for 47 years.
Mining technique will be solution mining. A solution mine has a Low Capex (but not very low in SK/CA) and High Opex.
And the solution will be extracted from 1600m depth.
Capex: $2.5 billion (This is not very low when compared with our underground mine in Congo)
Opex: $268 per tonne (pt) for first year, $145pt for second year, but comes down to $110pt at the end of 7th year according to the estimations(!)

I explained on my post yesterday that this was very cheap price because of reasons;
1) Potash price was $350pt at that time, but $550 now.
2) Drilling was completed 2 years ago (beginning of 2009) but the potash market was that after that. That caused PotashOne management and shareholders to be worn out.

Industry expert British Sulfur's forecast for 2011 was $425 when it was forecasted in Sept.2010. However the contract for the first 6 months is already $400 and looks like it will go over $500 in the second half because of food price crises happening now.

There are two questions to be answered for valuating ELM's asset.
1) If ELM can target a 1bt gross resource size, what would be the proven and probable reserves?
2) What would be potash price this year and next year ?

The interesting thing here is ELM is drilling 41 holes (Phase-1: 16 holes and Phase-2: 25 holes)
This will bring up a huge and high grade proven/measured and probable/indicated recoverable reserve size.