re: Ann: PARADOX BASIN POTASH PROJECT UPDATE ... Hi Doogs and...

re: Ann: PARADOX BASIN POTASH PROJECT UPDATE ... Hi Doogs and others,

Apologies for the late reply. I had a fair bit to say so it took a little while to put it all together. Apologies to those who may find that I am rambling.

The following statement was made in the announcement on the 02/02/2012 – “Until the Federal prospecting permit is granted, only the state lease lands will be included in the company’s resource estimate”. Since the state blocks only comprise a small area (relative to the total project area), this really shows the importance of the fed permits for the company to have a good JORC resource. Hopefully, the fed permits will be obtained soon.

Just my guess, but from the drilling locations that have been chosen to date (and the proposed location of POK State Hole 4), it appears to me that the company has probably decided to focus the drilling on under-explored areas and gaining a better understanding of the geology across the entire Paradox Basin Potash Project, including the graben. I can understand why management would want to pursue the above objectives – as it is certainly very important to know the potash bed thicknesses and grades in areas that lack the results from previous oil/gas drilling, and to gain a better understanding of the Graben.

Keep in mind, of course, that the only locations on a geological map where you can be absolutely certain of the grades/thicknesses of the potash beds at varying depths is at the point of the drill holes themselves. As you move away from the drill hole – the level of uncertainty increases. Maps showing zones of thicknesses/grades are very useful – but as the only certainties are the points which contain the drill holes, the zones should be seen as a guide. Thus, if drill holes are evenly spread out over the whole project, so that the final goal is to have minimal variation in the distances between drill holes, one can gain a better understanding of the potash beds across the ENTIRE PROJECT (i.e. more certainty, or perhaps it would be more accurate to say that you would have more “evenness” of certainty across the entire project). From drilling locations that are being chosen, it appears to me that this is what the company is attempting to do – and it is certainly a good way to have a thorough understanding of the nature of the geology across the entire Paradox Basin Potash Project.

Based on the map in the announcement released to the ASX on the 02/02/2012, it appears, for example, that the south eastern region very much lacks the results from any oil/gas wells. I suppose that this is why the company originally planned on drilling a 4th state hole in this area – so they could gain a better understanding of what is actually there (i.e. have higher CERTAINTY of what exists in that area, which would therefore contribute to having a higher CERTAINTY of what thicknesses / grades of potash beds occur across the entire Paradox Basin Potash Project). (Apologies for writing some words using capital letters – I’m not shouting, but rather am just trying to place emphasis on certain things, and I am unable to underline key words to highlight those words).

My feeling is that as you move further east, the grades decrease, although there is a certain amount of variability of potash bed thicknesses – as POK State Hole 2 does contain a thick Potash Bed 18 Upper. In terms of grades though, look at POK State Hole 2 – and compare it with the drill holes as you move further west, and you can quite clearly see the changes in grades that I am referring to.

Now that we have POK State Hole 3 results, we can compare those results with those from oil/gas drilling further to the west, although in this instance, we haven’t got the same string of drill results that exist more or less directly west of POK State Hole 2 – so the “picture” of what is happening as you move further east is not quite as clear. But we can see from the oil/gas drill results that overall, greater potash bed thicknesses and higher grades appear to be present in the western areas of the map. So again – move further east and my interpretation would be that the thicknesses and grades would decrease. Another interpretation – looking at GIBSON DOME GD-1 results – would be that high grades are present to the far south (although at reduced bed thicknesses). Some might say that these higher grades could extend further east of GIBSON DOME GD-1, and that the state block to the south east of POK State Hole 3 (right on the very southern boundary) could reveal an extension of these high grades. But this kind of contradicts the overall trend that we can see when comparing POK State Holes 2 and 3 with the oil/gas drill results that exist further to the west, all of which points to the overall grades/thicknesses decreasing as you move further to the east. So drilling in this state block would be VERY VERY high risk – and IMHO, would not be worth what is would cost to drill there (not at the moment anyway). Again, referring to the above, keep in mind that we cannot say for sure what exists there – we can only make interpretations based on the information that we have.

IMHO, the following are the locations that the company should be looking to drill, based on the previous oil/gas drilling results. Some of it is repeated from my earlier post, but I have added and expanded on what I wrote earlier. The locations that, IMHO, have a higher probability of returning good results are –

(1) In the state block to the west of POK State Hole 3 (refer to the map in the ASX announcement released on the 02/02/2012). This state block is roughly half way between HUSKY FED 6-15 and GIBSON DOME-GOVT1. Both of these drill holes contained thick beds of Potash Bed 18 at high grades. So based on this, IMHO it would be reasonable to interpret that drilling in this state block, would have a higher chance of intersecting thick beds and high grades whilst awaiting federal drilling permits. Of all the state blocks, IMHO this one is one of the best potential locations to drill.

After taking another look at the maps (I don’t know how I missed this spot), another location that, IMHO, has high potential, is the state block that contains POK State Hole 1 – but it must be drilled in the very far north east corner (which would be slightly west / north-west of HUSKY FED 6-15) – and they need to be very sure that this location is north of the graben (this appears to be the case in the map released to the ASX on 02/02/2012). Drilling here should confirm the results of HUSKY FED 6-15 – which are very good potash bed thicknesses at very high grades – especially Potash Bed 18 Upper and Lower. The advantage of this location over location (2) which I will shortly detail, is that, IMHO, we would have more certainty of intersecting a thick bed of Potash Bed 18 Lower (based on the fact that HATCH POINT 1 contains no significant intersection of Potash Bed 18 Lower – so we know that at some point between HUSKY FED 6-15 and HATCH POINT 1, Potash Bed 18 Lower disappears. We don’t know how rapidly this bed decreases in thickness – but there is the risk that it could reduce in thickness very rapidly east of HUSKY FED 6-15, in which case the suggested drilling location (2) which I will outline shortly may miss Potash Bed 18 Lower entirely). I need to stress though – I am ONLY MAKING AN INTERPRETATION, based on the information that we have from oil/gas drilling and THERE IS NO GUARANTEE that this location, or any location for that matter, would yield great results.
Hopefully, the thick beds / high grades are continuous and extend west / north-west of HUSKY FED 6-15 and between HUSKY FED 6-15 and GIBSON DOME-GOVT1, but again, THERE IS NO GUARANTEE OF THIS.

Alternatively, if the company waits for fed approval before proceeding with further drilling, then IMHO, other locations that could be looked at would be between the state block west of POK State Hole 3 and HUSKY FED 6-15, but closer to HUSKY FED 6-15 (but, of course, be sure that the drilling location is out of the graben). The idea would be that hopefully the drilling would intersect the zone which contains the thick beds and high grades of HUSKY FED 6-15. Alternatively, a drill hole could be placed roughly in the middle of a triangle that would join HORSEHEAD UNIT1, GIBSON DOME-GOVT1 and GIBSON DOME GD-1. Overall, these three oil/gas wells have decent results. Some of the potash beds in these drill holes are thicker, but at the expense of grade (e.g. HORSEHEAD UNIT 1, Potash Bed 18 Lower – 6.1m @ 28% - but this is still a very decent grade) whilst some of the potash beds are thinner (i.e. further south – GIBSON DOME GD-1 – which still contains Potash 18 Upper of [email protected]%, but Potash Bed 18 Lower contains no significant intersection).

To a certain degree (based on the information from previous oil/gas drilling) choosing between the above proposed drilling locations really comes down to personal opinion. But a few things to consider –

The state block west of POK State Hole 3 is good because it is in the middle of a region that contains good results – but it is a little further from those results – which increases the amount of uncertainty if drilling there – but IMHO this area really does need to be targeted at some point.


Potentially, the real winner, IMHO, is the North East corner of the state block that contains POK State Hole 1 (based on the results of nearby HUSKY FED 6-15, and noticing from previous oil/gas drilling that both Potash Beds 18 Upper AND Lower appear to continue west of HUSKY FED 6-15, which I am basing on the results of HORSEHEAD UNIT 1, which shows thick beds of Potash 18 Upper AND Lower, almost directly west of HUSKY FED 6-15). The company is already permitted to drill here, and just imagine if the company drilled at this location and got results that were similar to, and confirmed the results of, HUSKY FED 6-15 – which were as follows –
Potash Bed 13 - 2.74m@23% KCl
Potash Bed 18Upper - 4.9m@37%KCl
Potash Bed 18 Lower – [email protected]% KCl
Again there is NO GUARANTEE THAT THESE RESULTS WOULD BE OBTAINED, but due to the close proximity of this suggested drilling location to HUSKY FED 6-15, there is a HIGHER PROBABILITY that the results would be similar. I have seen price targets for POK of between about $2 and $5 a share. Whilst the fed permits, IMHO, should have a positive effect on the share price, I am not sure that the share price will come anywhere near the above targets without confirmation of the thickest, highest grade potash beds. IMHO, the above suggested drilling location, combined with fed permits, would give the company the best possible chance for a significant rise in its share price. Will it reach the above price targets? – I have no idea. But if this suggested drilling location reveals results similar to HUSKY FED 6-15, and the fed permits are obtained, I think that the current share price will look very cheap.


(2) When the fed permits are obtained (assuming that the company is successful in obtaining the fed permits) IMHO the location between HATCH POINT 1 and HUSKY FED 6-15 has a high probability of returning good results. These are the two oil/gas wells that returned the highest grades in the entire project area (based on the results shown in the map from the presentation released to the ASX on the 02/02/2012), so drilling between these two oil/gas wells, IMHO, has AN INCREASED PROBABILITY of returning results that are similar to those two oil/gas wells. Drilling closer to HUSKY FED 6-15 would be better, as this is more likely to include a Potash Bed 18 Lower (HATCH POINT 1 lacks Potash Bed 18 Lower, but contains a thick bed of very high grade potash in Potash Bed 18 Upper, compared to HUSKY FED 6-15, which contains thick beds of Potash Beds 18 Upper AND Lower at very high grades). As I said earlier, the risk is that we don’t know how rapidly Potash Bed 18 Lower disappears as you move away from HUSKY FED6-15 and towards HATCH POINT 1. And again, I am ONLY MAKING AN INTERPRETATION based on the information that we have from oil/gas drilling and THERE IS NO GUARANTEE that this location, or for that matter, any of the locations that I have suggested, would yield great results.

I am not a geophysicist, and management (with access to the geophysical data) may well have very valid reasons to disagree with the proposed locations that I have written about above. And if they do have good reasons to disagree with what I have written, I very much respect that, and would expect them to base future drilling locations on the more complete information that they would have available to them. I want to also stress that my interpretations in the comments I write on the HC website are based on the geological map that can be found in the announcement released to the ASX on the 2nd of February, 2012, (but also available in earlier announcements, minus the results of POK State Hole 3 of course). This map shows only limited information about what the project “looks like”, which is as follows - the results of previous drilling, the results of the company’s own drilling program, and the estimated location of a graben through the middle. That’s it. That’s all I know about that specific region. But when you look at this information, and combine it with a basic understanding of geology – especially the nature of evaporite deposits, and the nature of the structure of a graben – interpretations can be made (which I again must emphasize are, at all times, ONLY MY OPINIONS, and it is of course entirely possible that my opinions COULD BE VERY INCORRECT. But if I communicate the reasons that I have for why I am saying what I am saying, I hope that people can see where I am coming from, and make up their own mind). If people say that my interpretations are no good because they are based on limited information, and that I am not using the complete amount of information that exists about the project (which management would have access to), then that is certainly a very fair criticism to make of what I have written.

Now, to refer back to some of the drilling locations that I outlined above. Drilling at some of these locations would mean drilling closer to previous oil/gas wells, thus confirming their results. So what this means is that you would have a HIGHER PROBABILTY OF INTERSECTING THICK POTASH BEDS AT HIGH GRADES. You would have a HIGHER PROBABILITY OF GREAT RESULTS IN A SMALLER AREA. But there is a trade off. Given that the company can only drill a limited number of holes, drilling in these locations comes at the expense of CERTAINTY OF POTASH GRADES/THICKNESSES ACROSS THE ENTIRE PROJECT. Thus, you would have some larger areas that have less drill points / greater distances between drill points, so there would be a reduced level of certainty (of the presence of potash beds, and grades/thicknesses) in some parts of the project.

Since the company already has the results of oil/gas wells that show thick beds of potash at high grades near some of the locations that I have written about above, this may be a reason why the company could well be reluctant to drill in these locations – the results from the oil/gas drilling are enough and they may believe that there is no need to drill in that area again.

So to summarise what I think should happen (MY OPINION ONLY) – I think that for the next couple of drill holes, the company needs to work on drilling in locations that have a HIGHER PROBABILITY of THICKER BEDS OF POTASH at HIGHER GRADES in MORE FOCUSED AREAS, at the expense of having HIGHER CERTAINTY across the ENTIRE PROJECT. Yes this means drilling closer to oil/gas wells that have already shown great results. But, IMHO, investors expect the company to have confirmation of these thick high grade regions of potash, using the results from their own drilling.

Again, I want to place a great deal of emphasis on the fact that drilling in the locations that I have proposed is NO GUARANTEE OF GREAT RESULTS, but rather that based on their proximity to, and the of results of, previous oil/gas drilling, an interpretation can be made that these locations have, IMHO, a higher probability of yielding great results. But your opinion MUST BE BASED ON YOUR OWN RESEARCH. If the company decides to drill in any of the locations that I have outlined, I don’t want people getting angry at me if these locations fail to return good results, I am only making interpretations based on the information which is available, and there is never any guarantee of potash bed thicknesses / grades in any location until the company drills in that location and analyses the drill cores. I have done my best to provide my reasoning behind the proposed locations, and I would expect people to not just read what I have said and take my word for it - but rather to do their own research, and ONLY THEN, should you make a decision to support (or not support) the drilling locations that I have outlined above. Either way, whether you think that the drilling locations that I have proposed are good or rubbish, either way it’s OK with me – provided that you have done your OWN RESEARCH and have therefore made your own decision based upon your own research.

Sorry to anyone if anything I say comes across as being arrogant – that is certainly not my intention, but I understand what Doogs is saying – you make a fair point. As a shareholder, my goal is that the company’s Paradox Basin Potash Project is highly successful. The oil/gas drill results already tell us that the thick beds of high grade potash are there – IMHO the absolute priority of the company should be to simply confirm the best of those results.

In regards to your question about management – they share with us the common goal that the Paradox Basin Potash Project has the best possible chance of success, and I am sure that they know what they are doing. They have done a great job at developing the project so far, and have done a great job at increasing the knowledge of the potash beds across the entire potash project (i.e. HIGHER CERTAINTY across the ENTIRE PROJECT). But, IMHO, they just need to look at the project/drilling locations at a slightly different angle. IMHO, they need to shift the focus from HIGHER CERTAINTY across the ENTIRE PROJECT, to having FOCUSED LOCATIONS that have a HIGHER PROBABILITY OF INTERSECTING THE THICKER BEDS OF POTASH AT HIGHER GRADES (even if that means drilling closer to previous oil/gas wells).

If anyone decides to contact the company, PLEASE, please, please, keep all communication polite and respectful. I understand the frustration that others may feel, but again, management have exactly the same objective as investors – and that is that this potash project will be highly successful. I think that most people value constructive criticism, provided that it is done in a polite and respectful manner, which is what I am attempting to do. I don’t know whether the management of POK read the posts on HotCopper – but if they do read my comments I really do hope that they are happy with them and find them to be useful.

In regards to your question about qualifications - I have completed a Bachelor of Science, and one of my majors was Geology. But I have not worked as a practising geologist. However, a Bachelors Degree does give a good basic understanding of the subject/s studied.

In regards to the email I sent, I am still waiting for a response from the company. I understand if they are unable to respond to individual emails, I’d imagine that they would be busy and would have a fair bit going on. But hopefully they read the email and took it into consideration.

PLEASE READ – I have provided the above information in good faith, and whilst I have done my best to ensure it is accurate, I cannot guarantee that it is free of error. What I have written above are ONLY MY OPINIONS and are based on the VERY LIMITED INFORMATION THAT I HAVE ABOUT THE GEOLOGY OF THE REGION. It is therefore ENTIRELY POSSIBLE THAT WHAT I HAVE WRITTEN COULD BE INCORRECT. DO YOUR OWN RESEARCH, and then you can come to your own conclusions. Never invest more than you can afford to lose, keeping in mind that with shares, the ultimate risk is that you could lose all of the money that you have invested.