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Study shows Chatham Rise has commercial phosphate potential
30 July 2010 - A preliminary feasibility study undertaken by Rockpoint Corporate Finance indicates that commercial development of the undersea Chatham Rise phosphate deposits is a realistic possibility.
Sources: Widespread Energy and Lindsay Clark
The study was carried out for the Widespread Energy/Widespread Portfolios joint venture, which holds a recently granted four-year continental shelf licence (50270) over a 4726 sq km area west of the Chatham Islands.
Exploration of the Chatham Rise by New Zealand scientists between the 1960’s and 1980’s, found extensive phosphate deposits in the form of phosphorite nodules on the seafloor at depths of 400 m or less. The nodules, found in layers up to 0.7 m thick, were formed in Late Miocene times.
However, further scientific studies are required to satisfactorily establish the extent and distribution of the resource. Engineering and environmental studies are also required to develop and refine the recovery system, and market studies are needed to assess supply to both domestic and export markets.
The Widespread joint venture and Wellington-based Rockpoint, have considered the appraisal work programme required to address outstanding issues leading up to an investment decision.
Rockpoint has advised the joint venture that based on its central assumptions and the risk parameters leading up to an investment decision, the current valuation of the project is $20.9 million. This valuation is effectively the present value of the prospecting licence that the Widespread joint venture now holds.
The project valuation comprises two parts; the appraisal programme to the point of investment decision, and the value of the development project.
This appraisal programme could take up to four years, and could cost over $30 million. The four year appraisal period is due to the uncertainties being addressed, and offers a realistic probability of a final investment decision to proceed of some 20%, the study said.
The financial model developed started at the point of final investment decision and is based on initial estimates of all input parameters.
Among the key elements of the financial model are current phosphate and shipping costs assuming $223/tonne, and the reserves volume of 30 million tonnes based on existing estimates giving a 40-year project life.
The model also assumes capital costs of $65 million for specialist dredging equipment plus land-based port receival, separation and storage. Operating costs of $117 million annually are also assumed.
These assumptions imply annual tax paid earnings of approximately $30 million throughout the 40 year project life.
The project, from final investment decision, is considered to be viable across a wide range of likely scenarios.
