Kola Definitive Feasibility Study

29 January 2019

Kore Potash plc

("Kore Potash" or the "Company")

Kola Definitive Feasibility Study

 

Kore Potash plc, the potash development company whose flagship asset is the 97%-owned Sintoukola Potash Project ("Project"), is pleased to announce outcomes of the Kola Potash Project Definitive Feasibility Study ("DFS"). The Kola DFS was undertaken by a consortium of French engineering companies ("FC") during 2017 and 2018. A summary of the results is presented herein.

 

Highlights:

Business case highlights potential of the Kola asset

·     Post-tax, NPV₁₀ (real) of US$1,452M and a real ungeared IRR of 17% on an attributable basis at life-of-mine average Muriate of Potash ("MoP") prices for granular of US$360/t CFR Brazil and standard of US$350/t CFR Brazil

·     Operating cash margin averaging 75%

·     Average annual EBITDA of approx. US$585M

·     24% annual free cash return on invested capital

·     Average annual free cash flow, post-tax, post commissioning of approx. US$500M

·     4.3-year post-tax payback period from first production

 

Industry leading operating costs and cost of sales

·     Mine gate operating cost (pre-transshipment) averaging US$61.71/t, which is in the lowest cost quartile globally based on equivalent CRU market data

·     Kola forecast to be lowest cost potash supplier CFR Brazil based on CRU market data

·     Significant competitive advantage via low mine gate costs and short shipping distance to Brazil and West African markets

·     Average cost of MoP delivered to Brazil of US$102.47/t

 

Long life and high quality asset

·     Nameplate production target of 2.2 Mtpa MoP over a 33 year life, with a scheduled life of 23 years based primarily on Ore Reserves and including 6% Inferred Mineral Resource and a further 10 years based entirely on Inferred Mineral Resources (in each case, reported in accordance with the JORC 2012)

·     There is a low level of geological confidence associated with inferred mineral resources and there is no certainty that further exploration work will result in the determination of indicated mineral resource or that the production target itself will be realised

·     Kola Project Ore Reserves of 152.4 Mt with average KCl grade of 32.5%, reported in accordance with JORC 2012

·     Ore Reserves grade is in top quartile of all operating potash mines and potash development projects globally

 

Capital Program Aligned with Industry Averages

·     Pre-production capital cost of US$2.1B (on EPCM basis) which includes US$110M contingency, US$106M of escalation and US$89M EPCM margin

·     Pre-production capital intensity of US$956/t MoP annual capacity is in second quartile relative to MoP industry peers and suggests that further capital optimisation is possible (see Appendix A, Section 13 for further details)

·     Capital cost includes value adding transshipment and overland conveyor costs of US$120M, that were not considered in the Pre-Feasibility Study

·     46-month construction period, with a commencement date to be determined following advancement of construction contract negotiations and project financing

 

Upside Potential

·     Review of the DFS by Kore and its third party independent consultants have identified opportunities to further improve and optimise the project indicating that the work completed to date by the FC has not fully optimised the Kola Project. (see Appendix A, Section 14 for further details)

·     These potential improvement opportunities are not included in the DFS economic evaluation and include:

o  Opportunities to reduce the technical capital cost by US$117M

o  Further opportunity to reduce the capital costs noting that the DFS capital intensity lies in second quartile relative to MoP industry peers and, in comparison to other projects, Kola has shallow shafts, low insolubles, high KCl grade and is next to the coast and the planned export jetty

o  Potential to improve KCl recovery in the process plant by 0.9% to 92.8%

o  Potential to reduce the construction schedule by 6 months from 46 to 40 months

o  Potential to extend the life or scale of the project provided by the Sylvinite Mineral Resources at the nearby Dougou Extension deposit; 232Mt at 38.1% KCl (Table 4)

·     Due to high operating margin and high free cash return on invested capital the Company's financial advisors (Rothschild & Co) has indicated that the project has a debt carrying potential of up to US$1.4B

·     Further work will be required to optimise the project and there is no certainty that the identified improvement opportunities can be realised

 

Next Steps

·     The French Consortium (FC), who undertook the DFS, are contracted to deliver a proposal for an Engineering, Procurement and Construction (EPC) contract within 3 months of DFS completion. The FC have advised Kore that they expect to provide an EPC proposal to Kore within this quarter.

·     Upon receipt of an EPC proposal, the existing contract between the parties provides up to two months for Kore and the FC to conclude the terms of an EPC contract.

·     Kore has ability within the existing contract with the FC to seek competitive EPC proposals from European companies.

·     The Company continues its engagement with the FC and Kore's consultants and technical experts with a view to further optimising the project.

·     The DFS was delivered to Kore for review by the FC later than contracted, and the review of the DFS by consultants engaged by Kore indicates that the project design and capital cost can be further improved to reduce the capital cost. As a result, Kore has in accordance with the contractual terms, issued notices of deficiency to the FC seeking to address these matters.

·     The company will continue to work with the RoC government to conclude the approval of the amended ESIA, while noting all other conventions, permits and rights to operate are in place.

·     The Mining Convention requires transfer to the RoC Government of 10% of the shares in the local company that holds the Kola mining licence. The process to effect this transfer has not yet been clarified and Kore will progress this with the Government.

·     The Company and its financial advisors will continue discussion with potential financiers to further the financing of the project.

 

Brad Sampson, CEO of Kore, commented: "Kore's review of the DFS confirms the high quality of this potash asset and its importance globally. Kola is designed to deliver potash to markets in Latin America and Africa at a significantly lower cost than other potash producers over a long timeframe. It stands out globally as a project that needs to be brought into operation to meet the growing global demand for MoP.  In the near future, we expect the amended ESIA to be approved as the last step to full permitting of the Project.

"We look forward to receiving an EPC proposal from the French Consortium this quarter which will allow Kore to provide further detail to shareholders on the Company's plans for Kola."

 

Analyst conference call and presentation

Kore will host an analyst conference call and presentation today, 29 January 2019, at 10:30 GMT. Participants can access the call by dialling one of the following numbers below approximately 10 minutes prior to the start of the call.

UK Toll-Free Number: 0800 358 9473

UK Toll Number: +44 3333 000 804

PIN: 77650625

The presentation will be available live during the call at:

https://event.on24.com/wcc/r/1925417-1/2ABD36868088F504EED26A4BF632D6F7

A recording of the conference call will subsequently be available on the Company's website.

The presentation is also available for download from the Company's website www.korepotash.com

 

 

Table 1: Key Project Metrics:

Project physicals	Units			Project financials	Units
Total MoP production	Mt	71		Total revenue	US$M	25,508
MoP granular product grade	% KCl	95.3		Average Annual Revenue	US$M	773
MoP standard product grade	% KCl	96.8		Average annual EBITDA	US$M	583
Average MoP production	Mtpa	2.20		EBITDA Margin	%	75%
Average mining rate	Mtpa	7.12		Average post-construction post tax annual free cash flow	US$M	499
Capital cost				Free cash flow Margin	%	65%
Pre-production capital cost	US$M	2,103		Total project post tax free cash flow (gross)	US$M	14,545
Capital intensity (based on nameplate capacity)	US$/tpa	956		Post tax, real un-geared NPV (10% real)	US$M	1,452
Operating costs				Post tax, real un-geared IRR	%	17.2%
Mine gate cost (pre-tranship)	US$/t	61.7		Payback period from date of first production	years	4.3
CFR Brazil cash cost	US$/t	102.5		Average forecast MoP granular price (CFR Brazil)	US$/t	360

 

Ore Reserves and Mineral Resources

The Kola Potash Ore Reserves (Table 2) are based on the Kola Sylvinite Mineral Resources as reported on 6 July 2017. Further detail on the Ore Reserve Estimate is provided in Appendix B: (Summary of Information required according to ASX listing Rule 5.9.1) and Appendix C (JORC (2012) Table 1 Section 4.) All of the Ore Reserves and Mineral Resources reported here for Kola and Dougou Extension are Sylvinite.

Table 2: Kola Sylvinite Ore Reserves

Classification	Ore Reserves (Mt)	KCl grade (% KCl)	Mg (% Mg)	Insolubles (% Insol.)
Proved	61.8	32.1	0.11	0.15
Probable	90.6	32.8	0.10	0.15
Total Ore Reserves	152.4	32.5	0.10	0.15

 

Table 3: Kola Sylvinite Mineral Resources (inclusive of Ore Reserves)

Classification	Million Tonnes (Mt)	KCl (% KCl)	Mg (% Mg)	Insoluble  (% Insol.)
Total Measured	215.7	35.0	0.08	0.13
Total Indicated	292.0	35.7	0.06	0.14
Total Inferred	340.0	34.0	0.08	0.25
Total Mineral Resources	847.7	34.9	0.08	0.18

 

Table 4: Dougou Extension Sylvinite Mineral Resources

Classification	Million Tonnes (Mt)	KCl %
Total Indicated	111	37.2
Total Inferred	121	38.9
Total Mineral Resources	232	38.1

 

The DFS and the economic evaluation do not consider any of the Mineral Resources at Dougou Extension and they are presented in Table 4 due to their potential to provide an additional source of feed into the Kola processing plant.

 

Reasonable Basis for Forward-Looking Statements (including production target and forecast financial information) and Ore Reserves

This release, inclusive of Appendix A: Summary results of Kola DFS, contains a series of forward-looking statements. The Company has concluded that it has a reasonable basis for providing these forward-looking statements and the forecast financial information included in this release. This includes a reasonable basis to expect that it will be able to fund the development of the Kola Project when required.

The detailed reasons for these conclusions are outlined throughout this release, including in Section 20 of Appendix A. All material assumptions, including the JORC modifying factors, upon which the production target and forecast financial information is based are disclosed in this release (including the summary information in Appendix B and Appendix C). This announcement has been prepared in accordance with the requirements of the JORC 2012 and the ASX and LSE: AIM Listing Rules.

The estimated Ore Reserves (Proved and Probable) and Inferred Mineral Resources underpinning the production target have been prepared by a competent person in accordance with the requirements of JORC 2012 Details of those Ore Reserves and Mineral Resources are set out in this release (including, in relation to the Ore Reserves, the details in Appendix B and C).

The production target of 2.2 Mtpa MoP over a 33 year life is underpinned by 66% of Ore Reserves and 34% of Inferred Mineral Resources. No exploration targets or qualifying foreign estimates underpin the production target. In particular, following exhaustion of the Ore Reserve during the first 23 years of the mine life, which includes the exploitation of 9.7 Mt of Inferred Mineral Resources (6% of the total production during that period), the Kola DFS plan includes the mining of Inferred Mineral Resources for a further 10 years. Each of the modifying factors was considered and applied to this material in preparing the DFS and associated production target.

There is a lower level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration will result in the determination of Indicated Mineral Resources or that the production target will be realised.

 

- ENDS -

 

Contacts:
Brad Sampson	Jos Simson/Edward Lee	Martin Davison/James Asensio
Chief Executive Officer	Tavistock (UK media enquiries)	Canaccord Genuity (Nomad and Broker)
Tel: +27 11 469 9144	Tel: +44 (0) 207 920 3150 Tel: +44 (0) 7736 220 565	Tel: +44 (0) 20 7523 4600
[email protected]	[email protected]	[email protected]

 

Competent Persons Statement

The estimated Ore Reserves and Mineral Resources underpinning the production target have been prepared by a competent person in accordance with the requirements of the JORC code.

The information relating to Exploration Results and Mineral Resources in this report is based on, or extracted from previous reports referred to herein, and available to view on the Company's website www.korepotash.com. The Kola Mineral Resource Estimate was reported on 6 July 2017 in an announcement titled 'Updated Mineral Resource for the High-Grade Kola Deposit'. The Dougou Extension sylvinite Mineral Resource Estimate was reported on 20 August 2018 in an announcement titled 'Maiden Sylvinite Mineral Resource at Dougou Extension'. The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcements and that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcement.

The information in this report that relates to Ore Reserves is based on information compiled or reviewed by, Mo Molavi, P. Eng., who has read and understood the requirements of the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code, 2012 Edition). Mr. Molavi is a Competent Person as defined by the JORC Code 2012 Edition, having a minimum of five years of experience that is relevant to the style of mineralization and type of deposit described in this report, and to the activity for which he is accepting responsibility. Mr. Molavi is member of good standing of Engineers and Geoscientists of British Columbia (Registration Number 37594) which is an ASX-Recognized Professional Organization (RPO). Mr. Molavi is a consultant working as a sub-contractor to Met-Chem division of DRA Americas Inc., a subsidiary of the DRA Group and have been engaged by Met-Chem to review the documentation for Kola Deposit, on which this report ls based, for the period ended 29 October 2018. Mr. Molavi has verified that this report is based on and fairly and accurately reflects in the form and context in which it appears, the information in the supporting documentation relating to preparation of the geotechnical criteria and review of the Ore Reserves.

The information in the attached report that relates to Valuation of Mineral Assets reflects information compiled and conclusions derived by Mr. Cowen, who is a Member of The South African Institute of Mining and Metallurgy.  Mr. Cowen is not a permanent employee of the company. Mr. Cowen has sufficient experience relevant to the Technical Assessment and Valuation of the Mineral Assets under consideration and to the activity which he is undertaking to qualify as a Practitioner as defined in the 2015 edition of the 'Australasian Code for the Public Reporting of Technical Assessments and Valuations of Mineral Assets'. Mr. Cowen consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

 

Forward-Looking Statements

This release contains certain statements that are "forward-looking" with respect to the financial condition, results of operations, projects and business of the Company and certain plans and objectives of the management of the Company. Forward-looking statements include those containing words such as: "anticipate", "believe", "expect," "forecast", "potential", "intends," "estimate," "will", "plan", "could", "may", "project", "target", "likely" and similar expressions identify forward-looking statements. By their very nature forward-looking statements are subject to known and unknown risks and uncertainties and other factors which are subject to change without notice and may involve significant elements of subjective judgement and assumptions as to future events which may or may not be correct, which may cause the Company's actual results, performance or achievements, to differ materially from those expressed or implied in any of our forward-looking statements, which are not guarantees of future performance.

Neither the Company, nor any other person, gives any representation, warranty, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statement will actually occur.  Except as required by law, and only to the extent so required, none of the Company, its subsidiaries or its or their directors, officers, employees, advisors or agents or any other person shall in any way be liable to any person or body for any loss, claim, demand, damages, costs or expenses of whatever nature arising in any way out of, or in connection with, the information contained in this document.

 

In particular, statements in this release regarding the Company's business or proposed business, which are not historical facts, are "forward-looking" statements that involve risks and uncertainties, such as Mineral Resource estimates market prices of potash, capital and operating costs, changes in project parameters as plans continue to be evaluated, continued availability of capital and financing and general economic, market or business conditions, and statements that describe the Company's future plans, objectives or goals, including words to the effect that the Company or management expects a stated condition or result to occur. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements. Shareholders are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. The forward-looking statements are based on information available to the Company as at the date of this release. Except as required by law or regulation (including the ASX Listing Rules), the Company is under no obligation to provide any additional or updated information whether as a result of new information, future events or results or otherwise.

 

Summary information

This announcement has been prepared by Kore Potash plc. This document contains general background information about Kore Potash plc current at the date of this announcement and does not constitute or form part of any offer or invitation to purchase, otherwise acquire, issue, subscribe for, sell or otherwise dispose of any securities, nor any solicitation of any offer to purchase, otherwise acquire, issue, subscribe for, sell, or otherwise dispose of any securities. The announcement is in summary form and does not purport to be all-inclusive or complete. It should be read in conjunction with the Company's other periodic and continuous disclosure announcements which are available to view on the Company's website www.korepotash.com.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.

 

Not financial advice

This document is for information purposes only and is not financial product or investment advice, nor a recommendation to acquire securities in Kore Potash plc. It has been prepared without taking into account the objectives, financial situation or needs of individuals. Before making any investment decision, prospective investors should consider the appropriateness of the information having regard to their own objectives, financial situation and needs and seek legal and taxation advice appropriate to their jurisdiction.

 

Market Abuse Regulation

This announcement is released by the Company and contains inside information for the purposes of the Market Abuse Regulation (EU) 596/2014 ("MAR") and is disclosed in accordance with the Company's obligations under Article 17 of MAR. The person who arranged for the release of this announcement on behalf of the Company was Brad Sampson, CEO.

 

APPENDIX A
Summary results of Kola DFS

1.    Project Introduction:

Kore Potash Plc ("Kore", the "Company" or "KP2") is a mineral exploration and development company that is incorporated in the United Kingdom and listed on the AIM (a sub-market of the London Stock Exchange, as KP2), the Australian Securities Exchange (ASX, as KP2) and the Johannesburg Stock Exchange (JSE, as KP2).

The primary asset of Kore is the Sintoukola Potash Project which includes the flagship Kola Sylvinite deposit (the "Kola Project") in the Republic of Congo (RoC), held by the 97%-owned Sintoukola Potash SA (SPSA). SPSA has 100% ownership of the Kola Mining Lease, on which the Kola Project is located.

The Kola Project is situated in the Kouilou Province of the RoC, within 40 km of the Atlantic Coast and approximately 70 km north of the port city of Pointe Noire.

The Kola DFS considers the mining of the Kola Sylvinite, and the production of circa 2.2 million tons per annum (Mtpa) of Muriate of Potash (MoP) and its export and considers all associated infrastructure. It delivers an economic model based on life of project of 23 years based on Ore Reserves of 152.4Mt and 9.7 Mt of Inferred Mineral Resource, and an additional 10 years (for a 33 year life) when the exploitation of a portion (70Mt) of the Inferred Mineral Resources is included.

Kore commissioned a consortium of French companies ("FC") to conduct a DFS for the Kola Project. The FC comprises: Technip France (TPF), Vinci Construction Grands Projets (VCGP), Egis International (EGIS) and Louis Dreyfus Armateurs (LDA).

Met-Chem DRA Global (MTC) and AMC Consulting (AMC) were appointed by the FC as their specialist sub-consultants.

Kore directly contracted with Met-Chem DRA Global (MTC) for the Mineral Resource Estimate (MRE), and SRK Consulting (UK) Limited (SRK) for undertaking the Environmental and Social Impact Assessment (ESIA).

Kore further directly engaged Jukes Todd, Hatch and Wood to conduct reviews of the final draft DFS presented by the FC.

In accordance with JORC 2012, the Competent Persons (CP) for the Kola Project are:

·     Mr. Kirkham P.Geo of MTC, for the Mineral Resource Estimate (MRE).  Mr Kirkham is a member of good standing of the Association of Professional Engineers and Geoscientists of British Columbia.

·     Mr. Molavi P.Eng of AMC, for the Reserve Review (RR).  Mr Molavi is a member of good standing of the Association of Professional Engineers and Geoscientists of British Columbia.

·     Mr. Larmour P.Eng for the Potash Process Review (PPR).  Mr Larmour is a member of good standing of the Association of Professional Engineers and Geoscientists of Saskatchewan.

·     Mr. Cowen, an Independent Consultant, for the Techno-Economic Modelling (TEM).  Mr Cowen is a member of good standing of the South African Institute of Mining and Metallurgy.

 

Figure 1: Location Map showing Kola Project

(available at www.korepotash.com)

 

Figure 2: Scope of Project Parties

(available at www.korepotash.com)

 

2.    Sylvinite Mineral Resource

The Mineral Resources at the Kola sylvinite deposit are shown in Table 1 below. The total Measured and Indicated Mineral Resources are 508 Mt with an average grade of 35.4% KCl and provides the basis for the Ore Reserve Estimate.  Sections 1 to 3 of the JORC 2012 Table 1 Checklist of Assessment and Reporting Criteria for that Mineral Resource estimate were reported to shareholders on 6 July 2017. The Company confirms there has been no material change to those Mineral Resource since that date. The Company notes that the Mineral Resources estimates referred to in this section are inclusive of Mineral Resources that have been modified to produce Ore Reserves.

The Mineral Resources are hosted by four flat or gently dipping (<20 degrees) layers (referred to as 'seams') as follows from upper-most; Hanging wall Seam (HWS), Upper Seam (US), Lower Seam (LS), Footwall Seam (FWS). The Footwall Seam (FWS) hosts Inferred Mineral Resources only and does not form part of the Mine plan. The HWS, US and LS seams have an average thickness of between 3.3 m and 4.0 m. The HWS is approximately 60 m above the US.  The US and the LS are separated by a layer of rock-salt (massive halite) typically 2.5-4.5 m thick.

The HWS, US and LS are at a depth of between 190 m and 320 m, hosted within the upper 70 m of a 400 m thick rock-salt dominated evaporite formation which is overlain by a layer of anhydrite and clay typically 5 m to 15 m thick. The sylvinite has a very low insoluble and magnesium content (both < than 0.2 %) which provides an advantage for processing. The host-rock of the sylvinite is massive rock-salt and in some areas the sylvinite is underlain by carnallitite (a rock-type comprised predominantly of the potash mineral carnallite (KMgCl3 6H2O) and halite.  Bischofite, a geotechnically unstable rock-type, does not occur in proximity to the seams.

The Inferred Mineral Resources are 340 Mt grading 34% KCl, of which the HWS, US and LS hosts 299 Mt (grading 34.8% KCl). Beyond this, the deposit is open laterally in some directions and may support an expansion of the deposit should additional exploration be undertaken.  Two wide-spaced holes drilled in 2017 support this, the most distant being 5 km southeast of the current Mineral Resource extent. Both intersected HWS grading over 60% KCl (announcement dated 7 December 2017). An Exploration Target for this area (Kola South) was announced on 20 November 2018.

 

Table 1 July 2017 Kola Mineral Resources for Sylvinite

 

July 2017 - Kola Deposit Potash Mineral Resources - SYLVINITE
		Million Tonnes	KCl	Mg	Insoluble
		Mt	%	%	%
Hanging wall Seam	Measured	‒	‒	‒	‒
	Indicated	29.6	58.5	0.05	0.16
	Inferred	18.2	55.1	0.05	0.16
	Total Mineral Resources	47.8	57.2	0.02	0.16
Upper Seam	Measured	153.7	36.7	0.04	0.14
	Indicated	169.9	34.6	0.04	0.14
	Inferred	220.7	34.3	0.04	0.15
	Total Mineral Resources	544.3	35.1	0.04	0.14
Lower Seam	Measured	62.0	30.7	0.19	0.12
	Indicated	92.5	30.5	0.13	0.13
	Inferred	59.9	30.5	0.08	0.11
	Total Mineral Resources	214.4	30.6	0.13	0.12
Footwall Seam	Measured	‒	‒	‒	‒
	Indicated	‒	‒	‒	‒
	Inferred	41.2	28.5	0.33	1.03
	Total Mineral Resources	41.2	28.5	0.33	1.03
Total Mineral Resources		847.7	34.9	0.07	0.13

 

3.    Ore Reserves

The Kola Sylvinite Ore Reserves are 152.4 Mt with average grade of 32.5% KCl. The estimate of Ore Reserves was completed by Met-Chem DRA Global and was prepared in accordance JORC 2012.

Appendix B contains a summary of information required according to ASX Listing Rule 5.9.1 and Appendix C contains section 4 of the JORC 2012 Table 1 Checklist of Assessment and Reporting Criteria.

Details of the Ore Reserve Estimate and is shown in Table 2 below.

 

Table 2: Kola Sylvinite Ore Reserves

 

Seam	Classification	Ore Reserves Tonnage (Mt)	KCl (%KCl)	Mg (%Mg)	Insolubles (%Insol)
Upper Seam Sylvinite	Proved	47.3	33.43	0.08	0.15
	Probable	58.7	31.83	0.06	0.15
	Total	106.0	32.54	0.07	0.15
Lower Seam Sylvinite	Proved	14.5	27.88	0.20	0.13
	Probable	23.4	28.35	0.08	0.14
	Total	37.9	28.17	0.13	0.14
Hanging Wall Seam Sylvinite	Proved
	Probable	8.4	52.09	0.47	0.19
	Total	8.4	52.09	0.47	0.19
TOTAL	Proved	61.8	32.13	0.11	0.15
	Probable	90.6	32.81	0.10	0.15
	Total Ore Reserves	152.4	32.54	0.10	0.15

 

All Sylvinite in the Measured and Indicated Resource category was considered for Ore Reserve conversion because of the sharp grade boundaries of the Sylvinite seams and the fact that the economic Cut- off Grade (CoG) is below the Mineral Resources CoG of 10% KCl.

 

Table 3. Kore's Sylvinite Mineral Resources and Ore Reserves, provided as Gross and Net Attributable (reflecting Kore's future holding of 90% and the RoC government 10%), prepared and reported according to the JORC Code, 2012 edition. Table entries are rounded to the appropriate significant figure.

KOLA SYLVINITE DEPOSIT
	Gross			Net Attributable (90%)
Mineral Resource Category	Million Tonnes	Grade KCl %	Contained KCl million tonnes	Million Tonnes	Grade KCl %	Contained KCl million tonnes
Measured	216	34.9	75	194	34.9	68
Indicated	292	35.7	104	263	35.7	94
Sub-Total Measured + Indicated	508	35.4	180	457	35.4	162
Inferred	340	34.0	116	306	34.0	104
TOTAL	848	34.8	295	763	34.8	266
	Gross			Net Attributable (90%)
Ore Reserve Category	Million Tonnes	Grade KCl %	Contained KCl million tonnes	Million Tonnes	Grade KCl %	Contained KCl million tonnes
Proven	62	32.1	20	56	34.9	19
Probable	91	32.8	30	82	35.7	29
TOTAL	152	32.5	50	137	35.4	49
Ore Reserves are not in addition to Mineral Resources but are derived from them by the application of modifying factors
DOUGOU EXTENSION SYLVINITE DEPOSIT
	Gross			Net Attributable (90%)
Mineral Resource Category	Million Tonnes	Grade KCl %	Contained KCl million tonnes	Million Tonnes	Grade KCl %	Contained KCl million tonnes
Measured	-	-	-	-	-	-
Indicated	111	37.2	41	100	34.9	35
Sub-Total Measured + Indicated	111	37.2	41	100	34.9	35
Inferred	121	38.9	47	109	34.9	38
TOTAL	232	38.1	88	209	34.9	73
Note: Table entries are rounded to the appropriate significant figure

 

4.    Mining

The Kola orebody is planned to be mined using conventional underground mechanised methods, extracting the ore within 'panels', using Continuous Miner (CM) machines of the drum-cutting type. This is the most widely used method of potash mining world-wide and is considered low-risk. The Mine design adopts a relatively typical layout including panels, comprised of rooms and pillars. Pillars are the support rock left in place to provide stable ground support during the operation of the mine.

The mine design is based on a minimum mining height of 2.5 m and a single type of CM is available which is capable of mining seam heights of between 2.5m and 6m. Each panel is accessed by 4 entries. Each entry is 8m wide and 3m to 6m high depending on the seam height. The rooms are mined in a chevron pattern at an angle of 65 degrees from the middle entry, each with a length of approximately 150 m.

Key geotechnical parameters evaluated in the mine design were:

·     To mine both the US and LS, the support interval between the seams must be at least 3 m thick

·     Provide an 8 m wide pillar between two consecutive production rooms (of 8 m each)

·     Provide a 50 m wide pillar between two Production Panels. Similarly, a 50 m wide pillar will be left in place between the side of the Production Panel and the Main Haulage Access Drift

·     Provide a minimum thickness of 10 m to 15 m of the Salt Member between the mine openings and the floor of the overlying Anhydrite Member (referred to as the 'salt back')

·     Provide a stand-off distance of 20 m from any exploration holes

·     Provide a stand-off distance of 30 m from Class 2 geological anomalies and 60 m from Class 3 geological anomalies

·     Provide a pillar of 300 m in radius around the Exhaust and Intake Shafts, and

·     A mining loss of 10% has been applied, which allows for operational losses in material left in footwall, pillars and spillages from belts

Mine access is provided by two vertical Shafts, each 7m in diameter. The shafts will be sunk in the center of the orebody. To provide access to the underground, the Intake Shaft will be equipped with a hoist and cage system for transportation of persons and material. The Exhaust Shaft will be equipped with a Pocket Lift conveyor system to continuously convey the mined-out ore to the surface. Both shafts are approximately 270m deep.

Mining equipment selected for the Kola Project Mine includes a fleet of 6 electrically powered continuous miners (CMs). Ore haulage from the CMs to the feeder breaker apron feeder will be done using electrically- powered Shuttle Cars, with a rated payload of 30 t and a 250 m power supply cable.

Underground conveyor belts will be used for ore transportation in all the areas of the Mine. The belt conveyors are distributed in the main and submain haulages and ultimately in the working panels near the CM working face. The ore will be placed on the belts from feeder breakers that are fed by the Shuttle Cars. Belt conveyors will carry the ore loaded by the feeder breakers to the Ore Bins. The ore is then conveyed from the Ore Bins to the Pocket Lift system located in the Exhaust Shaft.

 

5.    Life of Project schedule

The project Life-of-Mine (LoM) production schedule, including tonnes of Sylvinite, tonnes of waste, tonnes of the Muriate of Potash (MoP) product, and the average KCl grade of the Run-Of-Mine (ROM) material, is summarized in Figure 3  

The Life of Ore Reserves for the Kola Project is 23 years, and full-scale production of 2.2 Mt per annum of MoP occurs for approximately 20 years post commissioning and ramp up. During the exploitation of Ore Reserves, 9.7 Mt of Inferred Mineral Resources are scheduled to be mined and processed. This represents approximately 6.0% of the total amount of ROM material processed in the first 23 years. This portion of the Inferred Mineral Resources is at the periphery of the Mineral Resources envelope and immediately adjacent to the Ore Reserves and logically would be extracted in conjunction with the adjacent Ore Reserves. Figure 4 below shows panel sequencing for extraction of Ore Reserves.

 

Figure 3 - Life-of-Mine Production Summary of the Kola Mine

(available at www.korepotash.com)

In addition, scheduling a further portion of Inferred Mineral Resources after the full depletion of Ore Reserves adds an additional 10 years to the project life. The extraction and processing of these Inferred Mineral Resources has been included in the Life of Project economic evaluation and extends the evaluated project life to 33 years.

Approximately 27% (79.7Mt) of the total Inferred Mineral Resources (298Mt) have been included in the economic evaluation. There is a low level of geological confidence associated with inferred mineral resources and there is no certainty that further exploration work will result in the determination of indicated mineral resources or that the production target itself will be realized. In preparing the production target and economic evaluation, each of the modifying factors was considered and applied and the Company consider there are reasonable grounds for the inclusion of Inferred Mineral Resources in the production target for the Kola Project.

Due to the lower level of confidence associated with Inferred Mineral Resources, a detailed mine design and extraction plan was not prepared for the Inferred Mineral Resources considered in the final 10 years of the economic evaluation. The same underlying operating cost and sustaining capital assumptions for the first 23 years were applied to the final 10 years of the economic evaluation.

No Exploration Target material has been included in the economic evaluation or production target for the Kola Project.

 

Figure 4: Life of Ore Reserves Panel Sequencing

(available at www.korepotash.com)

 

6.    Hydrogeology

During the DFS hydrogeological investigations were carried out to:

1.    Identify sources of fresh water supply for construction and operations.

These tests concluded that process plant area water supply is available at required rate of 76m3/hr utilising 3-4 wells at a depth of 170m. Similarly, the required water supply at the mine site of 18m3/hr can be supplied via 3 wells sunk to 110m depth. Hydrogeological modelling indicates that extraction of these quantities of water over the project life will not adversely impact the aquifers and minor drawdown in the aquifers is expected over the life of the project.

2.    Understand the risk that aquifer system poses to mining operations and how to mitigate this risk.

The risk of water ingress to the mining areas is a common risk in almost all salt and potash mines. These mines are typically overlain by water-bearing sediments. At operating potash mines in Canada and Europe, the hydrogeological risk is considered higher in areas of disturbance of the stratigraphy, referred to as geological or subsidence anomalies. At Kola, a detailed understanding of the aquifers overlying the evaporite rocks, as well as of the aquitards (or barriers to water flow), has been developed over a number of years. The conclusions drawn following hydrogeological testing were:

o  A problematic water ingress is considered a low probability as no linear faults have been identified and all potential subsidence features can be accurately delineated using (proposed 50 m spaced line) 3D seismic surveying, to add to the existing 186 km of seismic survey data over the Deposit.

o  No mining or shaft sinking is planned within areas of subsidence. In addition, horizontal 'cover drilling' and Ground Penetrating Radar (GPR) will be employed as forward-looking actions to improve understanding of ground conditions in advance of mining and further mitigate the risk of intersecting a structure or area of disturbance.

o  The mine design incorporates a 10-15 m minimum 'salt-back' barrier between the mining area and the anhydrite acquitard, effectively reinforcing the anhydrite member aquitard layer.

3.    Understand the impacts of groundwater composition and the aquifers on the shaft sinking operation.

 

The results of this testing confirmed:

·     That ground freezing during shaft sinking will not be impacted by hydraulic flow or high salinity in the deep aquifer. In fact, low permeability, and low TDS (and salinity) in both aquifers is to be expected, supporting the planned freeze-hole spacing and comparatively low energy consumption for the ground freezing operation.

·     The presence of a thick Anhydrite Member (12 m) overlying the salt member which acts as an aquitard and reduces risk of water inflow into the salt member.

 

7.    Metallurgy and Process

Ore from underground is transported to the process plant via an overland conveyor approximately 35 kilometres long.

During the DFS an overland conveyor was selected in preference to trucking of ore as a lower operating cost solution that would have reduced environmental impacts.

A conventional potash flotation plant has been designed for the Kola Project. This is the optimum processing method and this decision is based on test work, projected mining grades and simulations and mass balance of the process. As a result of the low insolubles content, no separate process circuit is required to remove insolubles.

A schematic of the full process to extract ore and produce MoP product is shown in Figure 5

 

Figure 5: Process flow from mine to ship

(available at www.korepotash.com)

 

The design strategy adopted delivers a Process Plant designed to produce 2.2 Mtpa of MoP at a KCl grade of 95%w and that will accommodate the variety of ROM feedstock characteristics expected to be encountered during the Life of the project.

Metallurgical testing was undertaken in 2017 and 2018 to confirm the flotation performance of the Ores and to allow design of the flotation process flowsheet.

Characterisation tests were performed on pure seam samples (USS, LSS and HWS) expected to be mined as part of the mine schedule. Composite samples of multiple seams, prepared to be as representative as possible of the expected range of Run of Mine Ore characteristics foreseen in the mine schedule, were prepared from the seam samples.

The insoluble content of the samples was less than 0.5%w and close to 0.1%w in the composite from the USS and LSS. The characterisation of both the composite samples and the pure seam samples established that the KCl content in the composite was 32.2%w.

The DFS process plant KCl recovery has been established as 91.9% of KCl and this recovery has been used in the economic evaluation. In addition, the review of the process test work has identified an opportunity to further improve KCl recovery by 0.9% through improved fines management. This potential improvement has not been included in the economic evaluation.

The overall recovery of KCl is sensitive to the proportion of fines in the feed. The DFS has adopted a conservative approach and selected a particle size distribution that contains a conservatively high proportion of fine KCl in the flotation feed. This exaggerates the quantity of material directed to the Scavenger Flotation circuit for fines flotation, which has much lower effectiveness than coarse flotation.  During the review of the DFS, Kore's consultants have advised that normal management of fines in the flotation feed will further enhance recovery of KCl.

 

8.    Marine Facilities

A transshipment arrangement has been designed whereby MoP for export is loaded from a dedicated Jetty into self-propelled shuttle Barges (two units), which then travel to the Ocean-Going Vessels (OGVs) anchored 11 nautical miles (20 km) offshore at a dedicated transshipment zone. The MoP is transferred from the Barges to the OGVs using a Floating Crane Transhipper Unit (FCTU).

During the DFS transhipping was selected over direct ship loading from the export jetty. The ocean depth along the coastline is shallow and it was not considered feasible to construct the length of jetty required to facilitate direct shiploading.

To ensure sufficient year-round operational availability of the Jetty, a 210 m long steel combi-wall breakwater structure has been designed to shelter the berthing area for Barge loading operations.

The Jetty has been widened to accommodate both a Seawater Intake (SWI) and a Seawater Outfall (SWO) systems.

The Seawater Outfall (SWO) Diffuser head will be located on the seabed, 490 m from the point where the SWO pipe leaves the Jetty structure. The submerged SWO pipe will be positioned on the seabed and ballasted. The SWO Diffuser head will be confined in a 150 m radius exclusion zone to prevent unauthorized vessels from approaching the SWO Diffuser.

 

9.    Residue and Brine Disposal

The Kola Project's process residue is combined into a single waste stream composed of the NaCl (the brine from product and salt de-brining - bulk of the effluent) and the residue tails stream which originates from the insoluble de-brining circuit within the Process Plant. The effluent is collected in onshore dissolution/dilution tanks and then discharged at sea via the SWO pipe and diffuser.  The effluent discharge dispersion characteristics comply with the applicable environmental criteria.

Ecotoxicological test work of the expected discharge effluent confirms that the discharge at sea of the combined salt and insoluble tails stream does not place undue stress on the marine environment.

No onshore tails storage facility is therefore required for the Kola Project.

 

10.  General Infrastructure

A schematic of the Kola project infrastructure is illustrated in Fig 6 below.

 

Figure 6: Kola Project Configuration

(available at www.korepotash.com)

 

a.    Mine Site - Infrastructure

The Mine Site is located 33 km north and inland of the Project Process Plant Site which is near the village of Koutou and the current KP2 Exploration Camp.

The site can be accessed from Pointe Noire on the existing National Highway "Routes Nationales" RN5 and RN6, via Madingo Kayes.

The Mine Site surface facilities and infrastructure provides access and support facilities for the Underground Mining operations. 

No permanent living accommodation is planned at the Mine Site for the Operational phase of the Project.

b.    Process Plant Site - Infrastructure

The Process Plant Site is located on gentle sloping ground next to the coast, approximately 60 km north west of Pointe Noire.

The Process Plant Site facilities and infrastructure produces Muriate of Potash (MoP) in granular and standard form by processing Run of Mine (ROM) ore, transferred from the Mine Site via the Overland Long Conveyor (OLC), for export via the adjacent Marine Facilities. The main administration, control and support functions (Maintenance, Storage, Logistics, Training, etc.) are also located within the Process Plant Site.

c.     Mining Complex & Off-Site - Infrastructure

The operation of the Kola Project's Mine and Process Plant sites are supported by ancillary sites (Accommodation Camp and Solid Waste Management Centre) and interconnecting infrastructures (Roads, Power, Water and Gas supply, and Communications).

The permanent accommodation camp will be located approximately 1.8 km from the Process Plant and will accommodate up to 850 people.

Electrical power will be sourced from the RoC national grid. A 59 km long 220 kV transmission line will be built from the Mongo Kamba II substation north of Pointe Noire to the Process Plant. The power demand is estimated to be 25 MVA at the Mine Site and 50 MVA at the Process Plant.

The natural gas needed for product drying will be supplied by a 75 km long pipeline from the M'Boundi gas treatment plant.

Memoranda of Understanding for the supply of electrical power and gas are in place with the intended suppliers.  Supply contracts are planned to be formalized prior to the final investment decision for the project. 

Raw water will be supplied from wells located at the Mine Site (3 wells) and at the Accommodation Camp (4 wells).

 

11.  Environmental and Social Impact Assessment (ESIA)

To comply with RoC permitting requirements, an updated ESIA has been undertaken for the Kola Project. During 2012 and ESIA for the project (known then as Sintoukola) was completed. This ESIA was approved by the Ministry of Tourism and Environment (MTE) in August 2013.  During the PFS and the DFS phases a number of changes were made to the project design, triggering the requirement for the updated ESIA.

In addition to complying with the RoC's national laws and regulations, the ESIA process was aligned with Good International Industry Practice (GIIP) guidelines, the IFC's Performance Standards and the Equator Principles.

The ESIA was managed by SRK Consulting (UK) Limited's environmental and social (E&S) team. SRK partnered with "Cabinet Management & Etudes Environnementales S.A.R.L." (CM2E), which acted as the Congolese-registered consultancy.

ESIA-related stakeholder engagement included a "public enquiry" held in April 2017, "public hearings" held in
July 2018 (feedback consultations on the draft ESIA, undertaken with communities, government and non-government organisations (NGOs)) and issue-specific consultations (for example, the underpasses below the conveyor were discussed with affected communities, while conservation NGOs were engaged on the minimization of impacts on marine turtles and mammals).

A Conceptual Rehabilitation and Closure Plan has been prepared by SRK (as part of the ESIA) in accordance with GIIP and incorporating the regulatory requirements in the RoC's Mining Code. The DFS includes a cost estimate to successfully implement the closure actions required by the plan.

The Environmental and Social Management Plan (ESMP), which is currently under development, will identify measures required to minimise and appropriately mitigate impacts. During the project design phase consideration has been given to all ESIA findings and recommendations.

The Kola Project will contribute positively to the diversification of the national economy, which is a key goal of the Government of the RoC, will provide an alternative livelihood to residents in the area and contribute to the sustainable management of the endangered species found in the project area.

 

12.  Potash Marketing

Kore's potash marketing strategy recognises the supply opportunities arising from MoP market growth in Brazil, the project's proximity to Brazil and African markets and the cost competitiveness of the Kola Project.  The DFS demonstrates that the Kola project can deliver MoP into Brazilian and ports on the west coast of Africa at lower cost than all other international suppliers.

The design of the processing plant allows Kore to produce red MOPG (Muriate of Potash - Granular) for the Brazil market and retain flexibility to produce both white MOPG and white MOPS (Muriate of Potash - Standard) to pursue higher potential netbacks in other markets.

The international competitiveness of the Kola Project was benchmarked by CRU against other producers and projects using data from CRU's Potash Cost Model, with results as follows:

·     An ex-works operating cost of US$83.25/t (real 2018) means the Kola Project will operate as the fourth lowest producer at the beginning of the second quartile of CRU's global ex-works (EXW) cost curve.

·     The Kola Project's proximity to the ocean significantly strengthens its competitiveness on an export (FOB) cost basis. The DFS estimates the export (FOB) cost at US$87.63/t (real 2018) which includes transshipment costs.

·     On an export cost (FOB) basis, the Kola Project would rank as the second lowest cost operation when compared to existing producers as well as 'committed' projects.

·     CFR Brazil costs of US$102.47 (real 2018) would rank Kola as the lowest cost supplier to Brazil, with a potentially disruptive capability to compete on price.

 

13.  Capital and Operating Costs

a.    Capital Cost

The pre-production Capital Cost for the Kola Project is estimated at US$2,103m, which includes US$110m of Contingency, US$106m of Escalation and US$89m EPCM margin.

The Capital Cost Estimates, expressed in US dollars, have been developed for each work breakdown area, and are based on July 2018 prices. The Capital Cost Estimates are based on Erected Quantities (which include Design Growth Allowances) determined by complete Material Take-Offs and the application of unit rates.

Written quotations from preferred suppliers have been received for 82.0% of the Main Equipment.

For the DFS, Capital Costs have been grouped into Initial, Deferred and Sustaining Capital Costs.

o  Initial Capital Costs: all costs incurred up to the completion of First Barge Load milestone.

o  Deferred Capital Costs: all capital costs incurred from First Barge Load completion up to the Nominal production rate (Mine Steady State + 3 months of stabilized full production) achievement milestone.

o  Sustaining Capital Costs: all capital costs incurred after this last milestone. They represent the costs of investments to be carried out to maintain nominal production capacity over the years.

o  Capital Costs (Initial and Deferred) are summarized in Table 4.

 

Table 4 - Summary of Reviewed Capital Costs

 

Description	Initial Capex (kUSD)	Deferred Capex (kUSD)	Initial plus Deferred Capex (kUSD)
Mine Area	345,934	65,976	411,910
Process Area	494,597	3,070	497,667
Tailings Disposal	-	-	-
Roads	62,877	-	62,877
Marine Facilities	179,176	-	179,176
General Infrastructures	309,484	-	309,484
Sub-Total Direct Costs	1,392,068	69,046	1,461,114
Construction Supervision	79,292	77	79,369
Pre-Comm. / Comm- /Start-up Supervision	33,434	9	33,443
Home Office Services	164,397	-	164,397
Miscellaneous	10,388	-	10,388
Sub-Total Services & Misc.	287,511	86	287,597
Sub-Total Technical Cost	1,679,579	69,132	1,748,711
Owner's Costs	118,844	-	118,844
Escalation	106,293	2,947	109,240
Contingency	109,554	4,325	113,879
EPCM margin	88,907	-	88,907
Total Capital Costs	2,103,177	76,404	2,179,581

 

The pre-production capital cost of US$2,103 million equates to a pre-production capital intensity of US$956/t MoP annual capacity. This is in the second quartile (as illustrated in Fig. 7) relative to MoP industry peers and suggests further capital optimisation is possible.

 

Figure 7 - MoP Project Capital Cost Curve (CRU report Aug 2018)

(available at www.korepotash.com)

 

Sustaining capital costs cover expenditures required to ensure the operation can sustain the production at nameplate capacity. These costs include overhaul parts and labour, replacement of equipment, maintenance of infrastructures (road, jetty etc), shut down costs, additional continuous miner and additional underground conveyor costs, and the inspection and maintenance of the transshipment vessels.

The Sustaining Capital Costs are summarized in Table 5.

 

Table 5 - Summary of Sustaining Capital

 

Description	US$/t MoP	%
UG Mining	3.99	36%
AG Mining	0.52	5%
Overland Conveyor	0.61	6%
Processing - Crushing	0.62	6%
Processing - Flotation	0.63	6%
Processing - Dewatering	0.34	3%
Processing - Tailings	0.15	1%
Processing - Finishing	1.30	12%
Processing - Storage/Loadout	0.26	2%
Processing - Infrastructure	0.56	5%
General Infrastructure	1.58	14%
Transshipment	0.42	4%
Total Sustaining Capital costs	10.98	100%

 

b.    Operating Cost

The DFS confirms that the Operating Cost of the Kola Project is highly competitive and potentially disruptive to all existing suppliers into Brazil and the west coast of Africa. The mine gate operating cost is estimated at US$61.71/t and the export (FOB) cost is estimated at US$87.63/t. This ranks the Kola Project as the second lowest cost operation when compared to existing producers as well as 'committed' projects. The estimated landed cost to Brazil (CFR) at US$102.47/t would rank the Kola Project as the lowest cost supplier to Brazil.

The Operating Costs are expressed in US dollars on a real 2018 basis and are based on average annual production of 2.20Mtpa of MoP over the life of mine. All costs have been prepared on an owner operated basis and are shown in Table 6.

 

Table 6 - Summary of Operating Costs

 

Cost Category	Real 2018 costs
	(US$/t MoP)
Opex
Mining Cost	21.70
Process Cost	25.77
General Infrastructure costs	4.57
Owners Costs	9.67
Mine Gate Operating Costs	61.71
Sustaining Capex	10.98
Product Realisation Charges and Allowances	1.89
Royalties	8.67
Ex Works Cost	83.25
Logistics to FOB point	4.37
Ocean Shipping	14.84
CFR Cost (Landed in Brazil)	102.47

 

Figure 8: Global Potash Export Cost Curve (FOB) (CRU Cost Curves August 2018) (US$/t MoP (2022))

(available at www.korepotash.com)

 

Figure 9: Brazil Potash Delivered Cost Curve (CFR Brazil) (CRU Cost Curves August 2018) (US$/t MoP (2022))

(available at www.korepotash.com)

 

14.  Project Optimisation

During the review of the DFS by Kore staff and a team of international and industry leading consultants including Hatch, Wood and JukesTodd, various opportunities have been identified to further improve or optimise the Kola Project.

Hatch were engaged to assess the process design and modelling of the plant and requested to identify opportunities to improve the design and optimise the output based on a process model and industry norms. The results of their investigation were addressed in a detailed report on potential design changes based on their reasonable judgement and probable outcomes of the process model. The report detailed the potential to improve recovery by 0.9% and the list of areas that should be further investigated to potentially optimise the process design. This 0.9% recovery improvement has not been included in the base case project and economic evaluation.

JukesTodd were approached to assess the proposed construction schedule and the overall design from a perspective of optimising engineering to achieve the best capital efficiency. Opportunities were identified to reduce the construction schedule by 6 months along with opportunities to reduce capital costs through design changes to a value of between US$80 million and US$331 million on direct capital costs only. A further saving on indirect capital costs of between US$19 million and US$167 million was also identified.  Higher than industry standard services and miscellaneous costs were also observed. The economic evaluation of the project does not incorporate any of these identified improvement opportunities.

Wood were engaged to undertake a comparative assessment of the Kola Project against equivalent potash projects executed and built in Canada.  Their review found that the project site manhours were higher than comparable projects and the engineering and procurement components of "Home Office Services" capital costs which are higher than the expected norms for a project of this nature. This report affirms and strengthens the potential to achieve the savings identified in the Jukes Todd report. The economic evaluation of the project does not incorporate this improvement opportunity.

 

15.  Economic Evaluation

a.    Summary Economics

The economic evaluation delivers a post-tax, NPV10 (real) of US$1,452M and a real ungeared IRR of 17% on an attributable basis, the evaluation is based on a granular MoP price of US$360/t MoP CFR Brazil (real 2018) which represents the current CFR Brazil spot price and a standard MoP price of US$350/t CFR Brazil, which is well under the CRU forecast long term marginal cost of supply to Brazil. (US$447/t MoP).

The key assumptions underpinning the economic evaluation are as follows:

o  23-year initial project life from first production based on depletion of Ore Reserves;

o  Subsequently an additional 10 years project life based on exploitation of a portion of the Inferred Mineral Resources

o  2.20 Mtpa average production of MoP;

o  Granulated MoP represents approximately 86% of total MoP production and sales;

o  All cashflows are on a real 2018 basis

o  NPVs are ungeared and calculated after-tax applying a real discount rate of 10% (based on a review of 7 recent potash projects, 4 of which were in Africa and discussions with the Company's financial advisor a 10% discount rate was selected )

o  NPVs are calculated at a base date of mid-2019 prior to the potential dates for commencement of project construction

o  Average MoP price of US$360/t MoP CFR Brazil (real 2018) for granular product (based on recent potash price movements, current market prices, a review of recent releases by Potash producers and potash development companies and potash market research from CRU);

Fiscal regime assumptions aligned with the recently finalised Mining Convention:

o  Corporate tax of 15% of taxable profit with concessions for the first 10 years of production (0% for the first 5 years and 7.5% for years 6 - 10);

o  Mining royalty of 3% of the Ex-Mine Market Value (defined as the value of the Product (determined by the export market price obtained for the Product when sold) less the cost of all Mining and Processing Operations including depreciation, all costs of Transport (including any demurrage), and all insurance costs);

o  Exemption from withholding taxes during the term of the Mining Convention;

o  Exemption from VAT and import duty during construction; and

o  Government receives a 10% free carried equity interest in the Kola Project company until the initial construction phase is completed.

The forecast project cash flow for 33 years of production is illustrated in Figure 10.

 

Figure 10 - Project Cash Flow Forecast (real 2018)

(available at www.korepotash.com)

 

b.    Sensitivity Analysis

The DFS economic evaluation demonstrates that the project economics are most sensitive to potash price and to project capital costs. Each percentage movement in Price has an approximate US$40M movement in NPV10, and each percentage movement in Project Capital has an approximate US$15 M impact on NPV10.

Sensitivity of the NPV to key input assumptions, on a -20%/+20% range is illustrated in Figure 11.

 

Figure 11 - NPV₁₀ Sensitivity to key inputs

(available at www.korepotash.com)

 

c.     Price Sensitivity

Table 7 below shows the sensitivity of the project NPV to Potash Price.

 

Table 7: Sensitivity to potash price

Granular MoP (US$/t CFR Brazil)	NPV (US$ million)
300	752
320	986
340	1,219
360	1,452
380	1,684
400	1,917
420	2,149

 

d.    Funding Sensitivity

The Company's financial advisors, Rothschild, have undertaken an assessment of the debt carrying capacity of the project. Rothschild's advice is that the project financials support debt financing of between US$1.0 billion and US$1.4 billion. The project's high operating margin and high free cash flow on invested capital have a strong influence on the ability of the project to support a high gearing. The sensitivity of the project NPV and IRR to the level of debt that could be potentially obtained is illustrated in Table 8 below.

 

Table 8: NPV₁₀ and IRR sensitivity to debt financing

Project Debt (US$ million)	NPV (US$ million)	IRR
0	1,452	17.2%
1,000	1,588	20.1%
1,400	1,643	22.1%

 

e.    Potential impact of Improvement Opportunities Identified in Review of the DFS

During Kore's review of the DFS using industry leading consultants a number of improvement opportunities have been identified. The potential impacts of the most significant of these opportunities are presented in Table 9.

 

Table 9: Influence of potential improvements on economic evaluation

 

Potential Improvement	Impact on Economic Evaluation
	IRR	NPV10
	%	US$
1. Improve KCl recovery by 0.9%	+0.17%	+ $39M
2. Reduce construction schedule by 6 months	+0.99%	+$135M
3. Reduce technical capex by US$117M	+0.90%	+$105M

 

16.  Project Ownership and transfer of 10% to the RoC Government 

The Kola Mining License is held by Kola Potash Mining SA, a 100% owned subsidiary of SPSA. In turn, SPSA is owned by the Kore Group (97%) and a RoC entity (Les Etablissements Congolais MGM) (3%).  An existing Share Purchase Agreement enables Kore to purchase the remaining 3% of the shares in SPSA, with Kore shares to form the consideration. 

In accordance with the Mining Convention, the RoC Government will be transferred 10% of the shares in Kola Potash Mining SA.

The Share Purchase Agreement provides for Kore to become the 100% owner of SPSA in advance of transferring the 10% interest in Kola Potash Mining S.A. to the RoC Government.

 

17.  Next Steps

The French Consortium (FC), who undertook the DFS, are contracted to deliver an Engineering, Procurement and Construction (EPC) proposal to Kore within 3 months of the DFS completion . The FC have advised Kore that they expect to provide an EPC proposal to Kore within this quarter.

Upon receipt of an EPC proposal, the existing contract between the parties provides two months for Kore and the FC to potentially reach an agreement on an EPC contract or Kore may exercise a right to seek competitive EPC binding proposals from European companies.

The Company continues its engagement with consultants and technical experts with a view to further optimising the project.

The DFS was delivered to Kore for review by the FC later than contracted, and the review of the DFS by consultants engaged by Kore indicates that the project design and capital cost can be further improved to reduce the capital cost. As a result, Kore has in accordance with the contractual terms, issued notices of deficiency to the FC seeking to address these matters.

The company will continue to work with the RoC Government to conclude the approval of the amended ESIA, while noting all other conventions, permits and rights to operate are in place.

The Mining Convention requires transfer to the RoC Government of 10% of the shares in the local company that holds the Kola mining licence. The process to effect this transfer has not yet been clarified and Kore will progress this with the Government. 

The Company and its financial advisors will continue discussion with potential financiers to further the financing of the project.

 

18.  Risks

Key project and technical risks identified to the project's valuation and viability include, but are not limited to, those outlined in Table 10.

 

Table 10: Summary of Key Risks

Key risks to achieving the outcome forecast for the Kola project

Ability to secure project funding

Global potash price change Material changes to either capital or operational costs

Development of market and sales agreements for MoP Geotechnical and geological design parameters not accurately predicting rock mass conditions and nature of orebody Hydrogeological design parameters do not adequately control water influx

Proportions of Inferred Mineral Resources that convert to Ore Reserve

Conversion of MoUs for energy supply (electricity and gas) into commercial contracts.

RoC political risk RoC government dispute sections of the Mining Convention

Changing community or local government expectations Exchange rates

 

19.  Permit progress

The Kola project has the majority of permits and agreements in place to facilitate commencement of construction and operations. Only the approval of the amended ESIA is currently outstanding.

·     The Mining Convention was gazetted into law on 7 December 2018

·     The Maritime Authorisation approved by the Minister of Transport, Civil Aviation and Merchant Marine of the Republic of Congo was issued to the Company on 6 September 2018. The Authorisation covers the Kola, Dougou and Dougou Extension projects, is valid for twenty-five (25) years and renewable for the life of projects.

·     The amended Environmental and Social Impact Assessment was submitted to the regulator for approval in Quarter 4 2018 and the Company currently awaits feedback from the regulator.

 

20.  Project Funding

The Directors of Kore have formed the view that there is a reasonable basis to believe that requisite future debt and equity funding for development of the Kola Project will be available when required. Kore shareholders should be aware of the risk that future funding for development of the Kola Project is likely to dilute their ownership of the Company or Kore's economic interest in the Kola Project.

There are a number of grounds on which this reasonable basis is held:

·     Kore has two large strategic shareholders on its register: (i) SQM (18%): a Chilean company with a market capitalisation in excess of US$11B that is an integrated producer and distributor of specialty plant nutrients, including having an established business in the global potash market; and (ii) SGRF (19%): the sovereign wealth fund of Oman, which holds a range of natural resource investments, including on the African continent.  These two groups invested a total of US$40 million into Kore in late 2016.  They collectively bring a considerable and highly relevant combination of substantial financial capacity, specific potash experience, Latin American, Middle Eastern and African influence, and financing expertise.

·     The Kola Project DFS has been completed by a team of world-class project engineers and project managers, led by Vinci Construction Group, Technip France S.A., Egis Group and Louis Dreyfus Armateurs (the French Consortium).  The DFS is comprehensive and inclusive of pre-engineering works.  This level of definition in the study work is expected to provide a significant level of comfort for potential debt and equity project financiers of Kola.

·     The French Consortium has contracted to provide Kore with an open-book, fixed price, binding EPC contract within three months of completion of the Kola DFS.  This level of commitment from the French Consortium has the potential to significantly de-risk the construction phase for Kola.  As such it is expected to provide a further level of comfort for potential debt and equity project financiers of Kola.

·     The technical and financial parameters detailed in the Kola Project DFS are highly robust and economically attractive.  Ongoing optimisation of the DFS parameters is expected to further improve the forecast DFS financial returns.  Collectively, these elements are expected to enable the Kola Project to carry a significant level of gearing, thereby considerably reducing any required equity funding component to fund development.  Rothschild has assessed the project and the economic evaluation to assess the level of debt funding that they believe the project will support and a range of between US$1.0 and 1.4 billion has been identified as a realistic target.

·     Kore is in advanced project finance discussions with a range of different global financiers, including many with considerable experience in funding bulk commodity projects and projects located on the African continent.  Release of the Kola DFS also now provides a platform for Kore to advance these discussions with potential debt providers and equity investors.

·     SQM and SGRF hold a right of first refusal to product offtake from Kola proportionate to their shareholding interest (with each having a floor of 20% of production).  The residual 60% remains uncontracted and therefore a considerable attraction to other potential strategic financiers of the Kola Project.  In this respect, Kore has held, and continues to hold, discussions with respect to possible offtake and project funding/ownership via additional strategic partners.

·     As the future 90% owner of the Kola Potash Project, Kore's options for raising the required equity funding will include selling down part of its interest in the Kola Potash Project to a third party to form a joint venture. Introduction of a joint venture partner may also provide further comfort for potential debt project financiers and could reduce Kore's share of the equity funding requirements for the project. Kore shareholders should be aware that any sale of a joint venture interest in the project to a third party would most likely dilute Kore's economic ownership of the project.

·     The Kore Board and management team is highly experienced in the broader resources industry.  They have played leading roles previously in the exploration and development of several large and diverse mining projects in Africa.  In this regard, key Kore personnel have a demonstrated track record of success in identifying, acquiring, defining, funding, developing and operating quality mineral assets of significant scale.

·     Funding for Kola Project pre-production and initial working capital is not expected to be required until post conclusion of an EPC agreement and detailed engineering design.  These items may be completed within 2019 unless Kore exercises its right to seek a competitive EPC proposal in which case this timeline may extend by up to 12 months.  Kore has reasonable grounds to believe that obtaining requisite funding within this timeline is achievable.

 

APPENDIX B
Summary of Information required under ASX

Appendix B: Summary of Information required under ASX Listing Rule 5.9.1(in relation to Ore Reserves), Listing Rule 5.16.1 (production target) and Listing Rule 15.7.1 (forecast financial information).

 

Kola Project Ore Reserves and related production target and forecast financial information

Pursuant to Listing Rules 5.9.1, 5.16.1 and 15.7.1, and in addition to the information contained in the body of this release and in Appendix C below, the Company provides the following summary information. The assessment of the modifying factors to prepare the Ore Reserves Statement occurred as the DFS was being finalised, with the production target and forecast financial information based on the information contained in the finalised DFS described in this report. Differences between the material assumptions for the Ore Reserve Statement and the production target and financial forecast (referred to below) are attributable to: (i) improvements in the material assumptions in the course of finalising the DFS; and (ii) the inclusion of Inferred Mineral Resources in the production target and forecast financial information (which supports LoM of 33 years at nominal 2.2Mtpa MoP production).

 

Summary of Material Assumptions - Ore Reserves

The material assumptions relating to the Ore Reserve Statement, for the Kola Project are summarised below:

·     Production life (p37, Appendix C, p46 and p51)- LoM of the Ore Reserves 27 years at nominal 2 Mtpa MoP production, average 1.9 Mtpa MoP production, this was determined during the execution of the DFS and from an aligned production schedule for both mining and processing.

·     Product Type (p37, Appendix C, p46, p47 and p50) - process design was based on two MoP product types- Granular (86% of production) and Standard (14% of production). The marketed MoP will comprise at least 95% KCl, with a maximum of 0.2% Mg and 0.3% Insolubles.

·     Product pricing (p35, Appendix C, p51) - MoP prices were based on forecasts from CRU and Integer consulting. The Base Case sales price is forecast to increase at a compound annual real growth rate of 2.3% per annum from USD260/tonne in 2023 to USD380/tonne in 2040 when equilibrium pricing is forecast by CRU to be reached. The average CIF sales price over the LoM is forecast at USD341 per tonne of MoP.

·     Operating cost (p35, p38 and Appendix C, p49, p50 and p51) - on-mine LoM average operating cost USD63/MoP t, real was calculated from first principles in the DFS

·     Shipping costs (Appendix C, p51) - LoM Shipping costs (trans-shipment and sea freight) of USD19/MoP t was based on information and estimates from both LDA and CRU.

·     Project durations - A project capital period 48 months was estimated in the DFS and the deferred capital period defined 25 months, with sustaining capital estimated in the DFS as 299 months

·     Project Capital (Appendix C, p51) - A total nominal Project Capital of USD2.1 billion (including EPCM costs and mark-up) was estimated in the DFS

·     Fiscal parameters (p40, Appendix C, p51 and p52) - The signed mining convention determined the relevant fiscal parameters as summarised below;

o  Company tax rate (15%),

o  Tax holidays (5 years at 0% + 5 years at 7.5%)

o  Royalties (3%) (Mining Convention)

o  Government free carry (10%) (Mining Convention)

o  Other minor duties and taxes (Mining Convention)

·     Working capital (Appendix C, p52) -Working capital based on 30 days Debtors and Creditors, 60 days Stores advised by Kore.

 

Summary of Material Assumptions - production target and forecast financial information

The material assumptions relating to the production target and forecast financial information for the Kola Project which vary from the assumptions relating to the Ore Reserve Statement described above are summarised below:

o  Production life (p14 and p15) - LoM of 33 years at nominal 2.2 Mtpa MoP production, this was determined following the receipt of the DFS and the inclusion of Inferred Mineral Resource in the production target.

o  Product pricing (p26) - Average MoP price of US$360/t MoP CFR Brazil (real 2018) for granular product (based on recent potash price movements, current market prices, a review of recent releases by Potash producers and potash development companies and potash market research from CRU).

o  Operating cost (p24) - mine gate operating cost is estimated at US$61.71/t and the export (FOB) cost is estimated at US$87.63/t.

 

Criteria for Mineral Resource and Ore Reserve Classification

The Ore Reserve estimate is based on the Indicated and Measured Mineral Resource estimate for sylvinite carried out by Met-Chem DRA and reported in accordance with the JORC Code (2012 edition), announced by the Company on 6 July 2017.

Drill-hole and seismic data are relied upon in the geological modelling and grade estimation. Across the deposit the reliability of the geological and grade data is high. Grade continuity is less reliant on data spacing as within each domain grade variation is small reflecting the continuity of the depositional environment and 'all or nothing' style of Sylvinite formation.

It is the data spacing that is the principal consideration as it determines the confidence in the interpretation of the seam continuity and therefore confidence and classification; the further away from seismic and drill-hole data the lower the confidence in the Mineral Resource classification. In the assigning confidence category, all relevant factors were considered, and the final assignment reflects the Competent Persons view of the deposit.

 

Table 1: Summary of Criteria used for the Classification of the Kola Mineral Resource

 

	Drill-hole required	Seismic data required	Classification extent
Measured	Average of 1 km spacing	Within area of close spaced 2010/2011 seismic data (100 - 200 m spacing)	Not beyond the seismic requirement
Indicated	1-1.5 km spacing	1 to 2.5 km spaced 2010/2011 seismic data and 1 to 2 km spaced oil industry seismic data	Maximum of 1.5 km beyond the seismic data requirement if sufficient drill-hole support
Inferred	Few holes, none more than 2 km from another	1-3 km spaced oil industry seismic data	Seismic data required and maximum of 3.5 km from drill-holes

 

The Measured and Indicated Mineral Resources for sylvinite are hosted by 3 layers (or 'seams') which are as follows from uppermost; the Hanging Wall Seam (HWS), the Upper Seam (US) and the Lower Seam (LS), each separated by rock-salt (a rock-type typically comprised of >95% halite).

Magnesium and insoluble content are considered deleterious but are present in only very small amounts in the ore (average of 0.07% and 0.14%respectively).

The Mineral Resource Estimate was delivered to the Ore Reserve consultants in the form of a standard block model, blocks having dimensions 250 x 250 x 1 m, each block having a KCl grade, a density, and magnesium and insoluble content.

The Mineral Resources are inclusive of the Ore Reserves i.e. the Ore Reserves are the mineable part of the Mineral Resources after the application of technical, economic and other modifying factors.

Areas of potential structural disturbance, referred to as geological anomalies were excluded from the Measured and Indicated Mineral Resource. They were identified from seismic data as is standard in potash mining districts elsewhere.

A 10% cut-off grade (CoG) was used in the Mineral Resource Estimate.

 

Mining Method and assumptions

Mining factors and assumptions have been derived from the historical information available for mature potash mines, and the current best mining practices. The Kola orebody will be mined using conventional underground (UG) mining method consisting of room and pillar in a 'chevron' (or herring-bone) pattern, with Continuous Miners (CM's) mining machines of the drum-cutting type.

Most of the mining will be one level only where only the US will be extracted. In some areas, both the US and the LS will be mined, in which case the LS will only be mined after the US. In other areas only the HWS will be mined.

In determining the Ore Reserves, a minimum mining height of 2.5 m was selected based on capability of the selected CM which is also capable of mining up to 6 m. Areas of the Mineral Resource with a seam height of less than 2.5 m were excluded from the Ore Reserves.

The mine design is typical of potash mines, having 4 entries for access drives. Each drive will typically be 8 m wide and 3 m to 6 m high depending on the seam height. The typical configuration for the chevron pattern is an angle of 65 degrees from the middle entry, and length of 150 m approximately.

The Mine design relies on geotechnical modelling, carried out in FLAC 3D software. The modelling was based on geotechnical test-work carried out on representative core samples from the sylvinite seams and host rocks (rock-salt and lesser carnallitite). The geotechnical modelling established that the mine is stable over the LoM for the DFS mine design which includes the following geotechnical parameters:

·     Where both the US and LS seams are to be mined, the support interval between the US and LS must be at least 3 m thick,

·     An 8 m wide pillar between two consecutive production rooms (of 8 m each).

·     A 50 m wide pillar between two production panels. Similarly, a 50 m wide pillar will be left in place between the side of the production panel and the main haulage access drift.

·     The interval of rock-salt between the mine openings and the floor of the overlying anhydrite member is referred to as the 'salt back'. This is typically over 30 m but is less in some areas. The DFS design allows that it may be a minimum of 15 m unless the Anhydrite Member is well developed where it may be 10 m. This is based on the results of the geotechnical model.

·     A stand-off distance of 20 m radius from the exploration holes.

·     A stand-off distance of 30 m radius from class 2 geological anomalies and 60 m radius from class 3 geological anomalies.

·     A pillar of 300 m in radius around the exhaust and intake shafts.

Based on the selected mining equipment (CMs), it is anticipated that a good cutting selectivity would be achieved, and that a maximum of 0.2 m of dilution material above and/or below the potash seam is likely. Carnallitite is present in the floor of the seam in some areas. The roof is always of rock-salt. On average, the dilution material is equivalent to approximately 10% of the tonnage of the Ore Reserves. Dilution material was assigned a grade of 3% KCl if rock-salt and 0% KCl if Carnallitite.

Based on the configuration of the proposed mining layout, and based on the anticipated fleet of mining equipment, it is assumed that the mining recovery in the different extraction chambers will be 90% on average (i.e. mining losses will be 10%). This considers the mining action which will lead to some losses such as material being excavated and left in the production chamber, or mineralized material left in the floor or roof, etc.

The Global extraction ratio is 30% (25% in the LS, 33% in the US and 28% in the HWS). This is after the removal of all pillars (pillars around the geological anomalies, the barrier pillars, the shaft pillar, the pillars between chevrons and main access drifts), the stand-off distance around boreholes, mining losses and the exclusion of sylvinite <2.5 m thick.

Two vertical shafts, each with 7 m internal diameter, will be sunk at a central location in the Ore Reserves, to provide access to the underground. The intake shaft will be equipped with a hoist and cage system for transportation of persons and material, while the exhaust shaft will be equipped with a vertical conveyor system to convey the mined-out ore to the surface. Both shafts are approximately 270 m deep.

Ore haulage from the CMs to the feeder breaker apron feeder will be done using electrically- powered Shuttle Cars.

Underground conveyor belts will be used for ore transportation in all the areas of the mine. The belts are distributed in the mains and submains and ultimately in the working panels near the CM working face. The ore will be placed on the belts from the feeder breakers that were fed by the shuttle cars. The belt conveyors will carry the ore loaded by the feeder breakers to the ore bins. Then the ore is conveyed from the ore bins to the Pocket Lift system located in the exhaust shaft.

The life-of mine (LoM) for the Kola Potash Project Mine is 27 years, of which full-scale 2.0 Mt per annum of MoP production is for 25 years.

For the LoM production plan and economic analysis an additional 9.7 Mt of sylvinite classified as Inferred Mineral Resource was included. This material contributes 6.0% of the total amount of ROM material and 7% of the total contained KCl and is planned to be materially extracted from year 12 onwards. Without the inclusion of this material the LoM is 24 years, with a reduction of NPV10 of approximately USD100 million and reduction in IRR of 0.5%.

 

Processing Method and Assumptions

The final product will be MoP K60, comprising at least 95% KCl. The DFS design allows for the production of this MoP in two forms, standard and granular. Granular material will be coloured red.

A conventional flotation process will be utilized for potash concentration.  This method is well established, and the most widely used method in the potash industry.

The metallurgical test work campaigns were based on representative core samples of the three seams, collected from the exploration drill hole cores. They comprised US (114.5 kg), LS (102.0 kg) and HWS (10.3 kg). All test work was carried out at the Saskatchewan Research Council (SRC) laboratory in Saskatoon, Canada

The process flow sheets were optimised to meet the initial DFS target of 2.0Mtpa of Muriate of Potash (MoP), at 95.3% KCl purity, with a minimum KCl recovery of 89.5% of the KCl content in the ROM fed to the Process Plant.

Two metallurgical test work campaigns were conducted during the DFS in 2017 and 2018. The main philosophy of the first DFS test work campaign was to prepare representative test feedstocks for each seam, confirm KCl liberation, characterize the feedstock, perform flotation tests, optimize the operating conditions, optimize reagent consumption for optimum KCl recovery and grade performance, perform a sensitivity test on flotation.

The objective of the second test work campaign was to optimize the flotation process and improve the plant recovery from the initial flow sheet.  The results of this second test work campaign, when processed in SYSCAD™ model, demonstrated that the new flotation process performed above the project performance minimum target.

The alternative flotation flow sheet was finally selected based on the second test works and SYSCAD™ modelling. With a raw ore feed grade of 31.3% KCl, the material balance confirmed that the project objectives can be met with a production of 2Mtpa with an expected product recovery of 89.9%, and a final product grade of 95.3% KCl.

To reflect the final DFS marketing assumption, the process plant will be designed to achieve a granular/standard ratio average over one year equal to 86%/14%.

Magnesium and insoluble material are considered deleterious. The extremely low content of these materials in the ore mean that their removal is relatively straightforward. Insoluble material is removed by attrition scrubbing and magnesium removed by brine purge.

The metallurgical test work campaigns provided a sound foundation for the development of the process design engineering and subsequent project performance, overall engineering studies and the cost estimate.

 

Cut-off Grades

A Cut-off grade (CoG) of 9.9% KCl has been calculated for the Ore Reserve Estimation based on forecast revenue and estimated operating costs. The cut-off calculation included all operating costs associated with the extraction, processing and marketing of ore material. The cut-offs are based on a Muriate of Potash (MoP) price of US$250 per tonne of MoP. Inputs to the calculation of cut-off grades included:

·     Mining costs

·     Metallurgical recoveries

·     Processing costs

·     Shipping costs

·     General and administrative costs

All sylvinite of the Measured and Indicated Resource is above 9.9% KCl (the Ore Reserve calculated CoG), therefore all the Measured and Indicated Sylvinite Resources have been considered for the Ore Reserve Estimate by application of the other modifying factors.

The uniformly very low content of deleterious elements (magnesium and insoluble material) meant that these did not require consideration in the CoG determination.

Estimation Methodology

·     Capital Cost:

Capital Cost Estimate has been developed for each scope area, expressed in United States dollars (USD) and based on July 2018 prices.

Currency Exchange Rates are sourced from Oanda (www.oanda.com) spot rates (September 2017).

Capital Cost Estimate is a full AACEI Class II Estimate (+/-10%), based on Erected quantities (which include Design Growth Allowances) determined from complete Material Take-Offs and application of unit rates. For Main Equipment, 82% of the cost is based on quotations from Vendors.

Escalation of 6.4% (up to project completion) has been considered, and a total Contingency of 6.0% has been added, resulting from the complete Risk Analysis performed.

Three capital periods have been defined: Initial (Construction and up to first barge loading, Month +47); Deferred (up to ramp-up completion, Month +65); Sustaining (after Month +65)

·     Operating Cost:

Operating costs were estimated from first principles using quoted rates, estimated consumption, forecast labour complements and remuneration estimates.

Operating Cost covering the Life of Mine (25 years) has been estimated in USD based on 2nd quarter 2018 costs. They include costs for Electric power, Fuel, Gas, Labour, Maintenance parts, Operating Consumables, General and Administration costs and Contract for Employee Facilities.

The Operating Cost Estimate excludes Transshipment and Sea Transport.

Transshipment costs based on Louis Dreyfus Armateurs contract budget quotation for their barges and boats, including 5-years drydocking costs.

Ocean Freight Transportation estimate produced by CRU Consulting.

Mine Closure cost estimated in accordance with the Conceptual Rehabilitation and Closure Plan developed by SRK Consulting.

Mine Closure duration of 60 months (5 years), considering 24 months (2 years) for the effective dismantling, demolition and rehabilitation works and 36 months (3 years) for the Post-Closure Monitoring and Maintenance period.

Quantities of equipment, materials and works directly assessed from the Material Take-off prepared within the framework of the DFS for the Kola Potash Project.

Unit rates for dismantling, demolition and rehabilitation works directly based on the Construction Unit rates applied for the CAPEX estimate of the Kola Potash Project and adjusted by using ratios to assess the lower consuming time and means for dismantling, removing and demolition works.

State mineral royalties of 3% of Gross Revenue were applied

Measured Mineral Resources were used for the estimation of the Proved Ore Reserves. Indicated Mineral Resources were used for the estimation of Probable Ore Reserves.

The conversion of Measured and Indicated Mineral Resource to Proved and Probable Ore Reserve reflects the Competent Person's view of the deposit.

40.6% of the Ore Reserves are classified in the Proved category and 59.4% of the Ore Reserves are classified in the Probable category

 

Material Modifying Factors

·     Status of Environmental Approvals

The Kola ESIA, initially approved on 10 October 2013, was amended to reflect the design changes made to the Kola Project as part of the Definitive Feasibility Study ("DFS") and has been amended to include the service corridors for a gas pipeline and overhead power line. The application and terms of reference for amending the ESIA were approved on 12 April 2018 by the Minister of Tourism and Environment. The amended ESIA approval covers the proposed mining and processing of the Kola sylvinite Deposit. The ESIA for the Kola Mining License is expected to be approved by the Minister of Tourism and Environment of the Republic of Congo shortly through the issuance of a certificate of environmental compliance (the "Compliance Certificate"). The Compliance Certificate is renewed annually until construction of a mine on the license is completed. The Company shall carry out their construction operations in compliance with the environmental and social management plan as part of the approved ESIA and will be subject to Regulator's environmental management compliance audits.

 

Status of Mining Tenements and Approvals

Kore Potash Limited (which is 100% owned by Kore Potash Plc.) and formerly known as Elemental Minerals Limited (ELM), has a 97%-holding in Sintoukola Potash SA (SPSA), a company registered in the ROC. The remaining 3% in SPSA is held by "Les Establissements Congolais MGM" (Republic of Congo). SPSA in turn has a 100% interest in its two ROC subsidiaries, Kola Potash Mining SA and Dougou Potash Mining SA. The Kola Deposit is within the Kola Mining Lease which is 100% held by Kola Potash Mining SA

·     In May 2008, a non-exclusive Prospecting Authorisation was granted to Sintoukola Potash covering an area of 1,436.5 km2. On 13 August 2009, this was changed to a "Permis de Recherches" (Exploration Permit) named 'Permis Sintoukola' under decree No. 2009-237 giving the Company exclusive rights to explore;

·     On 27 November 2012, the first renewal of the permit was made, by decree No. 2012-1193 and reduced in size to 1,408 km2;

·     On the 9 August 2013, a Mining Lease for Kola issued under decree No. 2013-312, totalling 204.52 km2 falling entirely within the Exploration Permit.

 

Other Governmental Factors

A mining convention entered into between the RoC government and the Companies on 8 June 2017 and gazetted into law on 7 December 2018 concludes the framework envisaged in the 25-year renewable Kola Mining License granted in August 2013. The Mining Convention provides certainty and enforceability of the key fiscal arrangements for the development and operation of Kola Mining Licenses, which amongst other items include import duty and VAT exemptions and agreed tax rates during mine operations. The Mining Convention provides strengthened legal protection of the Company's investments in the Republic of Congo through the settlement of disputes by international arbitration.

 

Infrastructure Requirements for Selected Mining, Processing and Product Transportation to Market

The project infrastructure is comprised of the mine-site (shaft and offices), the process plant on the coast (at Tchiboula), the 34 km infrastructure corridor between these (including the overland conveyor, service road and power line), the gas line from M'boundi gas field, overhead line from the MKII substation, the accommodation and administrative camp and the transshipment facilities.

Exclusive land acquisition rights have been granted to the Project company for plant development through ministerial order gazetted on 30 August 2018 (the "Déclaration d'Utilité Publique" or "DUP") valid for three years and renewable once for a two-year period.

The summarised infrastructure requirements are summarised below;

·     Road access to the Kola Potash Project sites will be via the existing Route Nationale 5 (RN5) that is paved. An 11.6 km long, 8 m wide, paved road will be laid from the existing RN5 to the Process Plant Site. Road access to the Mine Site will be via a 6.5 m wide private Service Road which will run alongside the Overland Conveyor.

·     Electrical Power will be sourced from the ROC national grid. A 59 km long 220 kV transmission line will be built from the Mongo Kamba II substation north of Pointe Noire to the Process Plant Site. A second 34 km long 220 kV transmission line will be built from the Process Plant Site to the Mine Site.

·     The Natural Gas needed for product drying will be supplied by a 75 km long pipeline from the M'Boundi gas treatment plant.

·     Raw Water will be supplied from wells located at the Mine Site (3 wells) and at the Accommodation Camp close to the Process Plant Site (4 wells).

·     Ongoing operational labour will be a combination of permanent employees, permanent contract services, and part-time contract services for intermittent needs.  The total requirement for permanent employees is expected to be 731.  Local labour resources will be used for the majority of labour requirements, while some selected positions are planned as expat roles.

·     The Accommodation Camp has been sized for a capacity of 850 beds and will be located on high ground to the northeast of the Process Plant.

·     The Kola Potash Project intends to export 2.2 Mt MoP to world markets each year. A transshipment solution has been developed, whereby the material for export is loaded at a dedicated Jetty onto self-propelled shuttle barges (two units), which will then travel to Ocean Going Vessels (OGVs) anchored 11 nautical miles (20 km) offshore in a dedicated transshipment area. The cargo will be transferred from the Barges to the OGVs using a Floating Crane Transhipper Unit (FCTU).