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VIII-3
With respect to actual exploration and development of potash resources, the
concern is the net present value of anticipated cash flows. Simulation data provided cashflow
estimates, which were aggregated and averaged to yield expected net present values,
or E(NPV). From the perspective of a firm engaged in extraction of potash deposits from
this area, a 15 % discount rate leads to the following conclusions from the simulation
runs:
Sylvite:
If no new development costs are incurred, the E(NPV) of mining sylvite in the
combined area to a single firm is about $50 million. If $5 million new
development costs are incurred, the E(NPV) in the combined area is $40 million.
If the new plant is built, the E(NPV) of the sylvite mining venture to a single firm
is estimated to be -$31 million. Sylvite E(NPV) data may be found in Table 2.
If no new development costs are incurred, the E(NPV) to a single firm of mining
sylvite in the WIPP area is $31 million. If $5 million in new development costs
are incurred, the E(NPV) in the WIPP area is $25 million.
If no new development costs are incurred, the E(NPV) to a single firm of mining
sylvite in the additional area is $47 million. If $5 million in new development
costs are incurred, the E(NPV) in the additional area is estimated to be $38
million.
The above numbers for the WIPP site and additional area do not sum to the
numbers presented for the combined area. One major factor contributes to this seeming
anomaly. Annual production (product tons sold) was constrained to 350,000 tons of
langbeinite and 450,000 tons of sylvite. The three study areas - the WIPP site, additional
area and combined area - are therefore considered independently in light of the upper
limits on potash production. Numbers for the WIPP site reflect the assumption that
450,000 tons of sylvite (or, 350,000 tons of langbeinite) will be produced annually from
potash within WIPP boundaries. Numbers for the additional area reflect the same
assumption. Numbers from the combined area also reflect the annual potash production
assumptions, and do not represent the sum of values generated for the WIPP site and
additional area. The combined area is treated as a single entity producing 450,000 tons of
potash and 350,000 tons of langbeinite annually.
Also, as may be seen from the maps accompanying this report, much of the WIPP
site potash is on the additional-area border. For the first several years of operation - the
most critical from a present value valuation standpoint - the amount of mined tonnage
required to produce the same amount of sylvite from each area is nearly the same. In
subsequent years, there is increasing divergence between area simulations as the potash
within the WIPP site is played out (in a simulation sense) while the additional area
continues to produce.
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