New Zealand Exchange Limited
P.O. Box 2959
25 February 2010
WIDESPREAD PORTFOLIOS GRANTED ROCK PHOSPHATE PROSPECTING PERMIT AT CHATHAM RISE
Widespread Portfolios (10%), and its associated company Widespread Energy Limited (90%) established in 2008 a joint venture, (“the Joint Venture or JV”) that has today been granted an offshore prospecting permit by the Crown Resources Division of the Ministry of Economic Development covering an area of 4,726 km2 on the central Chatham Rise. The permit area, which is in New Zealand territorial waters, is located 600 km east of Christchurch and is believed to include significant shallow seabed deposits of rock phosphate and other potentially valuable minerals.
The initial term of the permit is two years with further priority rights to either extend the prospecting permit or apply for a mining licence.
Rock phosphate is the primary constituent of most fertilisers that are manufactured and distributed in New Zealand. Rock phosphate can also be applied directly to pasture. Field trials undertaken by the Ministry of Agriculture in the 1980s demonstrated that in some conditions such direct application of rock phosphate can result in a more effective fertiliser with less environmental damage from run-off.
At present virtually all of the rock phosphate used by the New Zealand fertiliser industry (approximately 1 million tonnes a year) is imported from Morocco, with rapidly increasing transport costs adding to the local landed costs of this product.
Exploration conducted in the 1970s and 1980s by the New Zealand Government, Fletcher Challenge Corporation and other companies indicated the potential for economic concentrations of rock phosphate on the Chatham Rise. Although significant sample quantities were gathered during these exploration programmes, no production has occurred from this region. The sample quantities gathered during this period of exploration showed that the Chatham Rise rock phosphate occurs in nodules that also contain a number of other potentially valuable substances, including rare earth minerals and fluorine.
Recent increases in the market value of rock phosphate and advances in offshore extraction technology mean that the profitable exploitation of this marine deposit may now be feasible. The deposit lies on the surface of the seabed at relatively shallow depths and, based on technology now available and used routinely in the offshore construction and oil sectors, it is considered likely that the rock phosphate will be economically feasible to extract.
Literature on the Chatham Rise Rock Phosphate
As a result of the extensive exploration programme described above, there have been numerous reports published concerning the presence and the characteristics of the Chatham Rise rock phosphate deposit. These reports are publicly available and can be obtained through the Crown Minerals website at www.crownminerals.govt.nz.
A report by David J. Cullen published in 1987 and entitled The Submarine Phosphate Resource on Central Chatham Rise summarises the various data collected during the earlier exploration programmes and suggests that:
· Intensive surveys of limited areas of the crest of Chatham Rise have proved reserves of some 30 million tonnes of phosphorite; and
· The total resource is provisionally estimated at 100 million tonnes.
Although this data was obtained approximately 30 years ago, the grant of the prospecting permit will allow the JV to test and confirm these conclusions.
If it can be confirmed that there is a rock phosphate resource of 100 million tonnes in our prospect area, the present in-situ value of the rock phosphate alone would be, based on recent market prices, approximately NZ$28 billion.
Possible Project Economics
In order to further understand the potential value of this mineral asset, scoping studies have been undertaken by the Joint Venture, based on the following assumptions:
1. A probable reserve of 30 million tonnes of rock phosphate exists in a small section of the permit area. This assumption is based on the historical data referred to above.
2. This reserve can be extracted at a rate of 500,000 tonnes a year to replace 50% of the rock phosphate that is presently imported into New Zealand.
3. Extraction and local transport costs are estimated to be $US 85 tonne compared with imported rock phosphate assumed to have a long run cost ex Morocco of $US 200 per tonne plus $US 120/t shipping cost, i.e. $US 320 c.i.f. in New Zealand.
4. Capital costs are estimated to be $US 300 million.
Based on these raw assumptions and other relevant factors the project could generate annual pre-tax profits of $US 55 million ($NZ 79.8 million) compared with importing rock phosphate from Morocco.
Another possible way of assessing the potential value of the deposit is to use the above provisional estimate of 100 million tonnes of rock phosphate in our permit area and value it on an “in-situ” basis. If the Joint Venture were able to on-sell the resource for $US 1/tonne (approximately one third of one percent of the present cost of imported rock phosphate) that would value the resource at US$100 million. At present exchange rates this scenario implies a project value per Widespread Portfolios share of NZ$2.12 (NZ$1.60 after conversion of the warrants).
Shareholders are urged not to accept these possible scenarios at face value as they are based on numerous untested assumptions and at this stage of the project, remain uncertain and speculative. They simply illustrate the potential upside for this project and why the JV is pursuing this project and considers the grant of the prospecting permit to be a material development for the Company.
It is suggested that shareholders take these possible scenarios into account if they are considering dealing in their shares or receive an approach to sell their shares.
Management of the Marine Environment
The Widespread Joint Venture is acutely aware of its responsibilities to conduct both the mineral prospecting programme and (hopefully) extraction of the rock phosphate, in a manner that causes minimal disruption to the marine environment.
To this end, we have already been engaged in discussions with the relevant NZ Government Crown Research Institute, the National Institute of Water & Atmospheric Research (NIWA). We will be working closely with NIWA to optimise our activities so that a) minimal disruption occurs to the marine environment and b) we do not impact adversely on animal or plant habitats.
Specifically, NIWA (who have already mapped the Chatham Rise seabed and its flora and fauna in close detail) will assist us in gaining a comprehensive understanding of the manner in which we will need to operate to minimise environmental impact from potential extraction activities.
In addition to this, it is a term of our prospecting licence that all prospecting or extraction activity will be undertaken strictly in accordance with the environmental guidelines published by the International Marine Minerals Society “Code for Environmental Management of Marine Mining”.
The work programme for the first 12 months under the permit will include, inter alia, further reviews of the previous rock phosphate exploration data for the permit area, digitisation and re-analysis of data collected at that time, extensive environmental impact studies and a pre-feasibility study focussing on the project economics.
These activities will be financed from existing resources. However it’s likely that the year two work programme, which will include a full bankable feasibility study and the gathering of seabed samples in order to define the minable resource, will be significantly enlarged and fast tracked. The broad expressions of interest in this project from investors, the fertiliser sector and other mineral exploration companies indicate that funding of this later phase will be achievable.
- The Widespread JV holds 100% of the 4,726 square kilometre permit area which has been estimated to contain 100 million tonnes of rock phosphate.
- Preliminary scoping studies indicate that the rock phosphate can be extracted (using existing technology) for much less than the cost of buying and importing it from Morocco.
- Successful extraction could result in a much reduced carbon footprint from the New Zealand fertiliser industry. All imported rock phosphate is presently shipped from the other side of the world.
- The sourcing of this resource locally would , significantly improve New Zealand’s balance of payments by reducing imports.
- Chatham Rise rock phosphate may be more environmentally friendly as a fertiliser where it is applied directly to pasture with previous Government studies indicating less subsequent run-off.
- The Widespread JV has the resources and potential fund raising ability to finance the work programme to the completion of resource definition and a bankable feasibility study.
- The prospecting programme and any subsequent extraction of the resource would be conducted in accordance with the environmental guidelines published by the International Marine Minerals Society “Code for Environmental Management of Marine Mining”
- This project is potentially the most significant investment that the Widespread group has made in its 20-year history. The attractive potential project economics are obvious and evident to a wide audience and preliminary approaches already made to the Widespread JV indicate that this Chatham Rise prospecting permit has the potential to very substantially revalue the shares of both Widespread Energy and Widespread Portfolios.
- Shareholders should be cognisant of these circumstances when considering dealing in their shares.
For and on behalf of the Board,
Chris D Castle
Onekaka, 25 February 2010