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australian potash - St Barbara JV on gold assets allows focus on Lake Wells potash project

Oct 2018


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Summary - St Barbara JV on gold assets allows focus on Lake Wells potash project

Australian Potash (ASX.APC) announced it has entered into an earn-in and joint venture agreement (Agreement) with St Barbara Limited (ASX: SBM) with respect to APC’s gold interests at its Lake Wells project. Highlights of the announcement include the following. 

  • SBM will pay APC a $1.25 million cash consideration for entering into the Agreement, plus a minimum exploration expenditure of $1.75 million in the first year.
  • After the first year, SBM can elect to earn a 70% interest in the tenements by spending a further $3.5 million on exploration and reimbursing APC up to $0.5 million in prior exploration costs (aggregate expenditure $7 million).
  • APC will be free-carried at 30% until completion of a bankable feasibility study (BFS).
  • APC will retain all rights to potash on the tenements.
  • APC remains focused on the development of its Lake Wells sulphate of potash (SOP) project, with a definitive feasibility study (DFS) still on track for early 2019.

Analyst comment:APC has long highlighted its intention to divest itself of its gold interests, and we believe this is an ideal outcome. 

SBM is one of Australia’s largest gold miners and, importantly, is well funded to explore the vast package, which will require significant funds, as well as time and expertise, to realise a meaningful discovery. APC is now free-carried until completion of a BFS (and, bearing in mind that there is no gold discovery yet, this may take some time) while maintaining a 30% interest. It allows APC to focus its funds and management entirely on its Lake Wells SOP project.

As well as SBM’s commitment to spend significant funds directly on the ground, APC will be paid an upfront $1.25 million in cash. This allows APC to be fully funded through to completion of its DFS for the Lake Wells SOP project, which remains on track for completion by 1Q19.    

The information in this email should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions.

Valuation: we maintain our valuation for Australian Potash at $0.37/share (share price $0.07), and will further assess our valuation on completion of the DFS.