NI 43-101 Preliminary Economic Assessment - Verde Potash

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Verde Potash Plc 18-1 Cerrado Verde Project NI 43-101 Preliminary Economic Assessment 18 Economic Analysis (Item 22) The following economic analysis shows the results of two production rates, 1.1Mtpa and 2.2Mtpa rates for the production of fertilizer pellets and is based only on the mineral resource estimated as of March 1, 2010. The base case used in this economic analysis is the 1.1Mtpa scenario. The results do not include the project resources for Targets 4, 6,7,10 and 11 that were drill defined after completion of the PEA. Readers are cautioned that this analysis is only a preliminary assessment based on conceptual mine plans and process flowsheets and inferred mineral resources, which are considered to be highly speculative geologically. There is no certainty that this PEA will be realized. Since there is no estimate of proven or probable reserves for the Project, this assessment only include cash flow forecasts on an annual basis for the mineral resource estimated as of March 1, 2010. Figures 18-1 contains the estimated annual cashflow, in thousands of USD, and production rate, in ktonnes, for the 1.1Mtpa production rate over the projected 40 year plan. The plan includes a 2 year pre-production period with product recovered starting in year 3 of the project. As stated earlier, payback is estimated to occur in the 3 rd year of production. Figures 18-2 contains the estimated annual cashflow, in thousands of USD, and production rate, in ktonnes, for the 2.2Mtpa production rate over the projected 40 year plan. The plan includes a 2 year pre-production period with product recovered starting in year 3 of the project. As stated earlier, payback is estimated to occur in the 2 nd year of production. The indicative economics for the 1.1Mtpa and 2.2Mtpa production rates are presented in Table 18.1. This clearly demonstrates the encouraging economics for the Cerrado Verde Projects based on the scoping study concepts, cost projections and price assumptions as presented in this PEA. Table 18.1: Indicative Economics Production Rate 1.1Mtpy 2.2Mtpy Average Sales Price US$151.82/t US$133.23/t Total Production (40 year plan) 44,700kt 89,370kt Revenue US$6,786.6M US$11,906.8M Cashflow US$3,065.6M US$5,449.2M NPV (10%) US$445.5M US$844.1M NPV (12%) US$331.6M US$642.0M IRR 32.7% 40.0% Opex US$41.80/t US$36.36 Initial Capex US$155.3M US$218.4M Contingency (15%) US$23.3M US$32.8M Pre-construction US$18.2M US$18.2M Total Capex US$196.8M US$269.4M Payback 2.38yrs 1.87yrs *Note: The above figures include a sustaining capital provision of 2% per annum of direct capital costs commencing in year 4. Revenue for the 1.1Mtpa production rate is based on two product streams. 70% of the production will be sold to market area Mina Gerais at a unit price of US$160.04/t and 30% of the SRK Consulting (U.S.), Inc. September 16, 2011 Cerrado Verde_NI 43-101 PEA_343500.020_007_KG
Verde Potash Plc 18-2 Cerrado Verde Project NI 43-101 Preliminary Economic Assessment production will be sold to market area Mato Grosso at a unit price of US$130.13/t. The average sales unit price for 1.1Mtpa case is US$151.82/t. Revenue for the 2.2Mtpa production rate is based on multiple product streams. The average sales unit price for the 2.2Mtpa production rate is US$133.23/t. The breakdown of products to be sold for both production rates are contained in Table 18.2. Table 18.2: Sales Unit Price/t for 1.1Mtpa and 2.2Mtpa Production Cases 1.1Mtpa 2.2Mtpa Market Area % US$/t % US$/t Minas Gerais 70% 160.04 36% 160.04 Mato Grosso 30% 130.13 28% 130.13 Mato Grosso do Sul 8% 122.2 Goias 16% 112.98 Bahia 10% 93.98 Sao Paulo 2% 90.92 Average Sales Price 100% 151.82 100% 133.23 18.1 Taxes and Royalties In Brazil, the DNPM, Brazil’s Department of Mines and Energy, monitors exploration, mining, and mineral processing. This body also administers mineral exploration licenses and mining concessions. Mineral exploration licenses are issued by DNPM and mining concessions by the Ministry of Mining and Energy. Exploration licenses are granted for a maximum period of three years. As prerequisite, the requestor should provide all requirements and the area of interest does not overlap with an existing license. There is an annual fee of R$2.02 per hectare during the initial period. It is possible to request for an extension, situation that increase this annual tax (TAH) to R$3.06 during this extension period. Those values are in force since March 2010, before that it was respectively R$1.90 and R$2.87. That mineral rights tax should to be paid to the Brazilian government. Exploration licenses can be extended for a second period no longer than three years. DNPM has the discretion of the whether requested renewal. Until the final expiry date of the exploration license, concessions can be applied for following a final exploration report. This one should be submitted to, and approved by the DNPM. The report must conclude and demonstrate that an economic mineral resource has been delineated and measured. According to the protocol of the DNPM, a mining plan and feasibility study must be presented within a year. A license of installation and a license of operations are then issued by the applicable environmental agency as a prerequisite to the granting of the mining concession. A mining concession is granted for a period covering the mine life until the mineral reserves of the deposit are exhausted. A mining concession does not convey title to a mineral deposit but provides the holder with the right to extract, process, and sell minerals extracted from the deposit in accordance with a plan approved by the DNPM and environmental authorities. A mining concession leads a royalty payment to the federal government. It is the Financial Compensation for the Exploitation of Mineral Resources ("CFEM"), which is established at 2% of the net sales of fertilizers. There is also a royalty to the landowner, if the surface rights do not belong to the mining titleholder – that is the case of the Cerrado Verde Project. This royalty amounts to 50% of CFEM. However, it is common practice to negotiate a separate SRK Consulting (U.S.), Inc. September 16, 2011 Cerrado Verde_NI 43-101 PEA_343500.020_007_KG
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NI 43-101 Preliminary Economic Asse
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Verde Potash Plc 12-10 Cerrado Verd
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