Chatham seabed phosphate worth $6.7 billion

NZPA | Tuesday May 25, 2010 - 08:52pm

A preliminary feasibility study of mining the phosphate nodules scattered over the seabed on the Chatham Rise east of New Zealand suggests reserves of 30 million tonnes would be worth about $6.7 billion, or $156m a year at an annual recovery rate of 700,000 tonnes.

That would be enough to provide about half the phosphate the nation's two big fertiliser companies import -- mostly from Morocco -- to sell to farmers, according to the Widespread joint venture which wants to mine the phosphate from the seabed.

"Commercial development of the resource is a realistic possibility," the companies involved said today.

But further scientific studies of the extent and distribution of the resource, engineering and environmental studies to develop and refine a recovery system, and market studies were required, they said.

Two mining entrepreneurs, Widespread Energy and Widespread Portfolios, jointly applied in August 2007 for prospecting rights over a 3048km area, 600km east of Christchurch, which includes seabed deposits of rock phosphate, and now has mining rights over 4726km.

The deposits, also known as phosphorite, are at depths of about 400m.

In the 1980s, Fletcher Challenge investigated mining some of the 100 million tonnes of phosphorite deposits spread along 400km of seabed on the Chatham Rise -- variously valued at between $10 billion and $50 billion -- as a potential substitute for imported rock-phosphate used in fertiliser.

The area covered by the Widespread consortium's licence application was later reported to have been surrounded by a subsequent application for 71,750sq km by Auckland company Chatham Phosphate.

Widespread Portfolios, which said it has been approached by major fertiliser companies, holds 10 percent of the joint venture, and the rest is held by Widespread Energy, but as Widespread Portfolios also holds 20 percent of its joint venture partner, it effectively has an 18 percent interest in the project.

The phosphate nodules are found in layers up to 700mm thick. Their phosphorus content is 9.4 percent, higher than manufactured super-phosphate, but lower than most of the million tonnes of phosphate rock imported annually.

Rockpoint Corporate Finance has valued the project at $20.9 million, but an appraisal programme including the require scientific, engineering, environmental and market studies could take four years and cost over $30 million, it said.

There is a realistic probability about 20 percent of the project going ahead, Rockport said.

An initial financial model prices the phosphate at $223/tonne, with reserves of 30m tonnes and annual recovery rates of 700,000 tonnes giving the project a 40 year life.

It would require capital costs of $65m for specialist dredging and annual operating costs of $117 million, which the company said implied annual tax paid earnings of approximately $30 million throughout the 40 years.

If the Rockpoint independent valuation of the project was adopted as the carrying value, Widespread Energy's net assets would increase by $18.75m to $19.9m, and Widespread Portfolio's net assets would rise by $5.84m to $10.68m.

Widespread Portfolios Ltd today reported a $336,000 loss for the year to March 31, compared to a $6.66 million loss in the same period last year.

Disregarding unrealised losses and non-cash provisions, the company reported a pre-tax loss of $269,000 compared to a loss of $776,000 last year. No dividend was declared.

"Apart from our associate company, Widespread Energy, which had quite an active year that saw its market capitalisation double, most of our portfolio was in a walking-wounded state," the company said in a statement to NZX. Asian Minerals, Glass Earth, King Solomon Mines and Golden Phoenix had all reined in their activity.