DETAILED FEASIBILITY STUDY

   28.02.2013

 SUNKAR RESOURCES PLC

("Sunkar" or the "Company") 

DETAILED FEASIBILITY STUDY

Sunkar (AIM: SKR) is pleased to announce that the Detailed Feasibility Study (the "Study") on its Chilisai Phosphate Project (the "Project"), compiled by SNC-Lavalin International, Inc. ("SNC-Lavalin"), has been completed. This is expected to form the foundation for a prospective project financing arrangement in due course. SNC-Lavalin believes that the Study is within a level of accuracy of +/-15% in respect of capital expenditure and operating costs.

HIGHLIGHTS

Project economics

Capital costs

Serik Utegen, Chief Executive of Sunkar, commented:

"The Study outlines robust economics for this major Project with attractive IRRs, drawing on Chilisai's natural advantages of low cost mining, proximity to sulphur and well established regional infrastructure, as well as attainable markets both locally in Kazakhstan and internationally to Western China and through Black Sea ports.

The Study has identified no major technical hurdles with the Chilisai Project and we currently anticipate announcing the award of the basic engineering contract in the second half of this year, leading to Stage I production by the last quarter of 2016."

The Executive Summary from SNC-Lavalin's Study will shortly be made available to download from the Company's website at www.sunkarresources.com.

As in all aspects of mining evaluation, there are uncertainties inherent in the interpretation of geological and technical data and economic factors. All conclusions and recommendations by SNC-Lavalin and the other consultants cited in the Study represent only their informed professional judgements.
 

For further information, please contact:

Sunkar Resources plc

Teck Soon Kong, Chairman

Serikjan Utegen, CEO

 

      Tel: +44 20 7397 3730

 

 

 

Strand Hanson Limited

Simon Raggett

Stuart Faulkner 

David Altberg

 

      Tel: +44 20 7409 3494

 

 

Bankside Consultants

Simon Rothschild

 

      Tel: +44 20 7367 8888

 

or visit: www.sunkarresources.com
 

DETAILED FEASIBILITY STUDY OVERVIEW

The Project envisages the development of a phosphate rock mine, with a total capacity of 10 million tonnes of ore per annum, and the building of an integrated fertilizer manufacturing chemical complex at the wholly owned Chilisai deposit in the Aktobe region of Kazakhstan, with a target capacity of approximately 870,000 tonnes per annum of P2O5, which corresponds to approximately 1.6 million tonnes, in aggregate, of mono-ammonium phosphate ("MAP") and di-ammonium phosphate ("DAP") products per annum. MAP and DAP are final high grade fertilizers which can be sold into the world's fertilizer markets.
 

The ore lies in a flat, horizontal, 1m (average) thin ore body, underlying 3m (average) overburden with a footprint exceeding 800 sq. km. Early mining commenced by Sunkar in 2008 has shown that the deposit can be developed through a simple surface mining process.
 

The Study envisages a two stage Project. The first stage of the Project ("Stage I")will consist of a 5 million tonnes per annum phosphate mine which after beneficiation will produce 2.55 million tonnes of rock at 17% P2O5; following processing in sulphuric and phosphoric acid plants, this will result in the production at maximum capacities of824,000 tonnes of DAP or 777,000 tonnes of MAP, or a combination, per annum from the fertilizer plant.  The second stage of the Project ("Stage II") envisages the doubling of plant capacities with fertiliser production to be split according to off-take arrangements or market demand.  Both stages require the construction of 1.4 million tonnes per annum capacity sulphuric acid plants.
 

All market data (raw materials costs and sales prices for the fertilizer products) used for the Project's evaluation was derived from an extract of a report produced by CRU Strategies', a well-known fertilizer market observer, under a direct assignment from Sunkar. For the purposes of the Study, price forecasts and calculated revenues have been adapted to the local market conditions and have been adjusted for transportation costs and quality discounts. The most important conclusion from CRU Strategies' report is that analysis of the future balance of the phosphate fertilizer market indicates that even at a hypothetical longer term capacity of 900,000 tonnes per year ("TPY") of P2O5, all production from the Project can be accommodated in the market.
 

Analysis of the global market indicates several primary targets geographically near the Project that have sizeable demand for high-analysis phosphate fertilizer products, namely Northwest China, the Caspian Sea region and Turkey. Using conservative assumptions on attainable market shares in these regions suggests that approximately two-thirds of the planned output can be placed into these markets.
 

Moreover, based on the cost analysis, it is believed that the Project will be competitive in selling larger volumes out of the Black Sea into the global market. As such, even if conservative assumptions are used for the target markets, the Black Sea export route will provide a sufficient outlet for the remaining production.
 

The prices used in the financial analysis are FOB Black Sea and are expressed in current year US$ per tonne. The current sales strategy used in the analysis consists of selling half of the MAP production to the local markets in Kazakhstan and Central Asia and exporting the other half from the Black Sea port. The DAP production would be shipped in its entirety to international markets.
 

Based on the current assumptions, a simple discounted cash flow modelling of the Project yields the following results:

 

Before Tax

After Tax

 

IRR

NPV 10% (US$m)

IRR

NPV 10% (US$m)

100% Equity

17.2

1,373.3

14.1

715.2

 

RESEARCH WORKS

In 2009, Sunkar contracted three phosphoric acid process engineering firms, Prayon Technologies SA ("Prayon") (Belgium), Jacobs Engineering Group, Inc. (USA) and KEMWorks Technology, Inc. (USA) to perform independent pilot plant tests on conversion of 17% P2O5rock into phosphoric acid and subsequent fertilizer production from that phosphoric acid. All three contractors confirmed that this conversion was technically feasible at pilot plant scale. Some quantities of fertilizers were produced during testing, which had limited quality, lower than standard water solubility. This was attributed to the high Minor Element Ratio ("MER") - the parameter defined as the division of the sum of Fe2O3, Al2O3 and MgO oxides content by the P2O5 content.
 

In 2009-2011, Sunkar contracted Prayon, KEMWorks and USA based K-Technologies, Inc. ("K-Technologies"), to perform tests of MER reduction technologies. The results of laboratory tests have confirmed that MER reduction is technically feasible. Finally, in 2010-2011, K-Technologies and Prayon undertook pilot plant test programmes and feasibility studies for reducing the MER in samples of Sunkar filtered phosphoric acid.
 

In the course of pilot plant tests, Prayon processed a representative sample collected at locations throughout the measured and indicated resource area at the Chilisai deposit. Some samples had extreme MER values of up to 0.3, but Prayon was able to adjust the parameters of the phosphoric acid extraction reaction such that the process could be sustained. The phosphoric acid produced during these tests had MER of 0.22 and both K-Technologies and Prayon used it for tests of MER reduction technologies. K-Technologies used their proprietary MER Reduction Process, which makes use of a unique continuous ion exchange ("CIX") approach. The tests concluded that the MER can be considerably reduced and brought into ranges below the current target levels of 0.08. Prayon's tests involved the pre-neutralization of the weak acid with ammonia. These tests confirmed that chemical precipitation by pre-neutralizing the acid with NH3 reduces the impurities content and produces DAP with tailor-made (90%) P2O5 water solubility.
 

Using either of these approaches, the treated acids have consistently produced full specification fertilizers. SNC-Lavalin has concluded that, whilst full specification product sales would improve the Project's cash flow, the extra operating and capital costs associated with MER reduction mean that the benefit of committing to this extra cost is likely to be marginal. Against this background, SNC-Lavalin has recommended that the Company only implement this extra capital expenditure in the event that a prospective off-take arrangement requires a specific level of water solubility of DAP. 
 

BULK SUPPLIES

In order to successfully produce phosphoric acid, which is a raw material for DAP/MAP production, the Project has to have access to sulphuric acid or sulphur. The Chilisai Project is unique compared to many other phosphate fertilizer producers in its proximity to low-cost sulphur from the North Caspian oil and gas operations producing 2.5 million tonnes of sulphur per annum. Currently these oil and gas operators are forced to transport most of their sulphur output to the Mediterranean Sea and to South-East China across the Kazakh-Chinese border by rail. They could instead readily deliver sulphur to the Chilisai plant.
 

Ammonia, which is required to convert phosphoric acid into DAP and/or MAP, is planned to be purchased from Russian and Uzbek ammonia plants. The region has an excess of ammonia production capacity.
 

Both stages of the Project will use natural gas for electricity and heat generation. The electricity produced by excess steam recovered from the heat from the production process of the sulphuric acid plant should cover about sixty per cent. of the production site requirements. The balance will be covered by producing electricity with a gas turbine (22 MW for each plant). Heating for all buildings will be produced by gas fuelled hot air generators.
 

PROJECT SCHEDULE

Stage I Schedule

Basic Engineering:            6 months+2 months for validation by a local institute.

Permitting:                      12 months but discussions with the requisite authorities and legal entities will be initiated before completion of basic engineering.

EPCM Contract:               34 months (from the beginning of detailed engineering to mechanical completion).

Commissioning:               6 months.

Plant operation:               24 years.

Stage II Schedule

EPCM Contract:               30 months (from the beginning of detailed engineering to mechanical completion).

Commissioning:               6 months.

Plant operation:               20 years.

 

Notes to Editors:

Sunkar Resources plc

Sunkar, through its wholly owned subsidiary Temir Service LLP, operates a phosphate rock mine in Aktobe Oblast, North West Kazakhstan. Temir Service LLP holds a Subsoil Use Contract to part of the Chilisai Phosphate Rock Deposit. The contract area is estimated to contain 800Mt of phosphate ore.
 

Sunkar's strategy is to build a world class integrated ammoniated phosphate fertilizer plant with low operating costs. Sunkar's low cost base derives from its near surface phosphate rock deposit and access to sulphur from the nearby North Caspian oil and gas fields.
 

SNC-Lavalin Group Inc.
 

SNC-Lavalin (TSX: SNC) is one of the world's leading engineering and construction groups and a major player in the ownership of infrastructure and in the provision of operations and maintenance services. Formed in 1911, it has offices across Canada and in over 40 other countries around the world, and is currently working on projects in some 100 countries. Further information on SNC-Lavalin is available from the company's website at: www.snclavalin.com.
 

Mineral Resources

In 2009 Wardell Armstrong International Limited ("WAI"), a prominent UK based mining consultancy, prepared a resource report on part of Chilisai. Their work included: site visit, drill hole verification, trenching, building and analyses of the deposit's digital model, including creation of wireframe and block models. The work was based on digitized database data covering 40% of the Property.  The results of this estimation are summarized in the following table.

Table 1: WAI's Mineral Resource Estimate for Chilisai (January 2010)

Classification

Volume (,000m3)

Tonnage (kt)

Grade (%P2O5)

P2O5(kt)

0% Cut-off Grade

Measured

29,303

60,857

11.02

6,706

Indicated

114,473

232,270

10.49

24,360

Measured + Indicated

143,776

293,127

10.60

31,066

Inferred

89,927

183,015

10.57

19,343

TOTAL

233,703

476,141

10.59

50,409

5% Cut-off Grade

Measured

29,303

60,857

11.02

6,706

Indicated

114,447

232,218

10.49

24,359

Measured + Indicated

143,750

293,074

10.60

31,064

Inferred

89,557

182,321

10.60

19,329

TOTAL

233,307

475,395

10.60

50,393

10% Cut-off Grade

Measured

22,309

46,453

11.36

5,277

Indicated

89,687

182,643

11.01

20,103

Measured + Indicated

111,996

229,096

11.08

25,380

Inferred

62,200

127,470

10.25

14,342

TOTAL

174,196

356,566

10.14

39,722

 

In late March 2011, Sunkar announced a maiden JORC reserve estimate for the Project as reported by WAI in respect of 40% of the licence area as follows:

Table 2: Ore Reserve Estimate for Chilisai prepared by WAI (March 2011)
 

Classification

Tonnage (kt)

Grade (%P2O5)

P2O5(kt)

5% Cut-off Grade, Overburden Thickness ≤ 6m, Recovery 99.5%, Dilution 11%

Proved

52,175

10.47

5,463

Probable

213,386

10.42

22,235

TOTAL

265,561

10.43

27,698

 

WAI's ore reserve estimate serves to corroborate the estimate of 266.4Mt at an average diluted grade of 10.44% P2O5 prepared by SNC-Lavalin for the Mining Plan under which it has marked part of the Measured and Indicated Resource as mineable by the proposed mining technology.

The Company is now in the process of obtaining independent resource estimation for the whole of its mining licence area and expects such a report to be completed in H1 2013


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