🕐22.02.12 - 23:27 Uhr

A FINE BRINE: MESA EXPLORATIONS BOUNTY PROJECT TAPS INTO UTAHS POTASH BRINE



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A Fine Brine: Mesa Explorations Bounty Project Taps Into Utahs Potash Brine

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Targeting Surface Potash Brine Operations in Utah, Mesa Exploration seeks frugal, sensible and environmentally friendly potash production method in Utah Salt Flats

When global food demand rises, so does the requirement for increased potash supplies. But, to increase production of potash to correspond with demand fluctuations typically requires intense capital costs, most of the time in the billions. This price tag can restrict the entry of potential players looking to nestle their way into the same window as majors such as Potash Corp. (TSX: POT) (NYSE: POT) and Mosaic Corp. (NYSE: MOS). Heavy costs associated with underground operations include: shafts, ventilation, rescue teams, waste dumps and dealing with tailings.

But there is an option that doesnt involve the deep costs of underground mining, through Surface Potash Brine Operations. Known as a form of "Lazy Mans Mining," this process is actually more frugal, sensible and environmentally friendly than it is lazy. For Utah-based Mesa Exploration (TSX-V: MSA) (US: MSAJF), the plan is to use this Lazy Mans Mining for its Bounty Potash project, utilizing the power of the sun and multiple evaporation ponds to produce economic grades of potash at a fraction of the price.

BOUNTY PROJECT � UTAH SALT FLATS

Consisting of 104 square miles of potash leases and prospecting permit applications, the Bounty Project resides within a lifeless salt flat in the Great Salt Lake Desert of western Utah. The mineral deposit being targeted is a potash-rich brine aquifer thats hosted near the surface within sand-silt-clay beds well known for their potash potential along with relatively few engineering, metallurgical, permitting or processing hurdles. The project is pretty straightforward from a technical perspective, and economically wise from an energy-use perspective.

Rather than sink large sums of capital into powering operations, the project utilizes the sun to do all of the concentration for production, thus offering significant savings and improving grades of the brine from about 1% to over 20%. The system is simple, by digging a system of trenches that are 20 feet deep and 6 feet wide over a network of about 100 miles of trenches. The trenches provide the ability to tap into the aquifer thus filling the trenches with brine that then gets pumped into evaporation ponds. After the brine is in the ponds the sun evaporates the brine until its a solid.

BETTER THAN GOLD

The United States is currently importing approximately 80% of its potash. While there are four types of potash on the market, Muriate of Potash (MOP) and Sulfate of Potassium (SOP) are the two most popular, with SOP receiving a premium price. MOP is trading around $500/ton, while SOP is going for $600-$650/ton.

A key to the economics of the Bounty Project is the healthy margin, as all-in costs for production are closer to $180/ton. For Mesas President and CEO Foster Wilson, he originally never thought hed be a potash guy, but upon doing some serious calculations over the course of the projects life span, the realization hit that potash can indeed be more valuable than gold.

Essentially, the surface potash brine method offers quite a few benefits, if its an applicable project. Low capital expenditure and operating costs are a start, but add in a simple milling process, even simpler permitting and a long mine life and youre getting production without the many headaches of the larger operations to the North in Canada.

But its also in what surface operations dont have that is to be considered when comparing to the underground version of potash production. Surface operations dont need a fleet of haul trucks, loaders or blasting and lubrication equipment. Skip out on shafts, open pits, underground workings, waste dumps or tailings. Theres also no need for a costly large staff or ventilation systems to keep them healthy. The environment also gets a break from cyanide, explosives, and hard rock blasting.

SALT FLATS PRODUCTION THEN AND NOW

Early work was done on the project almost 50 years ago in 1967 by Quintana Petroleum. Quintana drilled 42 auger holes, defining 5.1 million tons of potash brine grading 6.8 grams/liter. This resource estimation was limited to only the top 10 feet of the brine aquifer, due to limitations on equipment at the time. Those estimates stood for decades, but are not 43-101 compliant. Mesa currently controls 80% of the area containing the resource, but are in negotiations with two parties to unify the property for the remaining 20%.

Since the market wasnt there for potash in 1967 the way it is today, the area seemed to have fallen through the cracks. What Wilson and his team hope is that theyve found a lost and forgotten gem in the Utah desert. If nearby operations from Intrepid Potash (NYSE: IPI) are any indication of the potential, then Mesa has indeed found gem potential in Bounty.

Located 15 miles away, the same brine extracted at the Intrepid Wendover Facility has been producing potash for over 75 years. Since 2004, Intrepids supplies have satisfied, on average, 1.5% of world potash consumption and 8.5% of U.S. consumption annually. And while potash is indeed the primary economic driver for operations in the Salt Flats, a healthy by-product of Magnesium Chloride also shows up in the chemistry. Intrepid has been known to make between $15-$20 million annually from MagChloride alone. The by-product can be accumulated in one of the final evaporation ponds, doesnt need to be milled, and sells for around $70/ton.

What Intrepid has done is proven a model that works in the region. For Mesa to have success, much of what Intrepid has proven through its corporate blueprint needs to be emulated and tweaked where necessary.

THE BOTTOM LINE

Though it hasnt been mentioned yet, a large upside for Mesa is that its tightly held. With only 14 million shares outstanding and an additional 2 million when fully diluted, this company is packed tightly with 50% of its shareholders falling under the institutional or insider category. Since were talking about a lower cost to start up production, fears of share dilution at this stage are unwarranted.

Instead, theres a pretty reasonable timeline ahead, having recently provided a 43-101 report to kickoff 2012, and later to run a preliminary economic analysis. Down the line 2013 has the potential for a definitive feasibility study to make way for permitting. Its not unreasonable to expect 2014 to be the year they reach production, having been able to build a mill and the rest of the needed infrastructure.

Brine is an easy sample to collect in the field and analyze in the lab. The drilling program thats expected should be cheap, fast and in-depth. Essentially using a post-hole digger, the drilling will consist of 20-30 foot deep holes, of which they are scheduled to drill 40 over 100 miles. The process is quick, with reasonable expectations of a drill rate of a whole every four hours or so, and a total of 2 months to complete the entire program. From a cost perspective, the 40-hole drill program, plus 4 wells to test for a possible deeper brine aquifer, will cost approximately $118,000 in total.

The nearest neighbours are Intrepid who grossed $65 million last year in production from the same type of deposit, producing 100,000 tons of potash and 200,000 tons of magnesium chloride. Getting the product to market shouldnt be a large leap, as the intended mill is set to be built nearly 10 road miles from a main artery railroad and a main interstate highway going east-west. The product can be loaded onto a train or truck, depending on the end destination point.

We are talking relatively inexpensive, close-to-surface ore (starting at 2-6 foot depth) in an area devoid of life forms and topographically simple to navigate and easy dig. As the project advances, shareholder value should follow suit. For those who like the potash sector, but want the upside potential down the road from a smaller cap player, Mesa may fit the bill as an interesting example of going for the brine instead of the mine.

G. Joel Chury
The Bottom Line Report

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