Project Summary
ICP's strategy is to be one of the world's lowest cost producers of the premium potash, Sulphate of Potash, also known as SOP. Approximately four million tonnes of SOP are sold annually throughout the world excluding China. While regular potash, also known as Sylvite or Muriate of Potash (MOP) is a chloride mineral, and many crops find chloride toxic, SOP has no chloride. A second major advantage of SOP over MOP is that SOP has low salinity, compared to MOP which is very saline, and therefore problematic as a fertilizer in many soils of the world. In many crops,chloride in MOP creates a suboptimal potassium fertilizer in terms of growth quality and robustness. Crops which are particularly sensitive to chloride include most fruits and vegetables, tobacco and potatoes in various soils, and many horticultural plants. Soils in many parts of the world, including India, China, North Africa, and the United States are salty, and crops do not do as well in these soils with MOP as with SOP. Because of these advantages, SOP always sells at a substantial premium to the price of MOP. The premium is usually at least 50%. ICP intends to produce SOP using the mineral polyhalite as a feedstock for SOP. Polyhalite contains the following fertilizer elements: potassium, sulphate, magnesium, and calcium. By using the potassium and sulphate in polyhalite, ICP intends to become one of the world's lowest cost producers of SOP. It is our goal to produce the premium potash, SOP, which can be sold at a premium price, and to produce it at an extremely low cost compared to most other producers of SOP.
In 2008, ICP was awarded sixteen federal potassium prospecting permit applications by the Bureau of Land Management (the "Bureau") in respect of the Ochoa Project in southeast New Mexico. An exploration plan describing the drilling methods, drilling stipulations, and related reclamation plans for the sixteen exploration holes, one in respect of each permit, was submitted to the Bureau during the spring of 2008. The Bureau has inspected the proposed drill sites, carried out inspections with respect to water and wildlife issues, and a cultural resource survey was performed at each drill site where no cultural artifacts were found that may impede exploration. The approved permit applications are in respect of an area of 36,589 acres. All reclamation plans, environmental plans, and archaeological work have been approved by the Bureau of Land Management. Bonds in respect of the drill program have been accepted and all cost recovery charges have been paid in accordance with federal regulations. The initial term of the permits is two years and term may be extended to four years in total if in the opinion of the Bureau of Land Management exploration has occurred in an expeditious manner. The next annual rent is due on December 1, 2010.
The federal sub-surface prospecting permits are subject to a royalty of US$1.00 per ton of polyhalite mined for the first 1,000,000 tons and US$0.50 per ton thereafter. A 2.5% royalty of net sales is expected to be imposed by the federal government. The Company signed a royalty agreement in 2009 for an additional 3% net profits royalty (the “Profit Royalty”) for a term of 25 years commencing from the initiation of production. The Company may acquire, at its option, up to one-half of the Profit Royalties at a price of $3,000,000 per 0.5%.
In 2010, the Company was granted an additional 5 federal sub-surface potassium prospecting permits covering an area of 11,555 acres in Lea County, New Mexico. These permits are part of the Ochoa Property and are subject to the same royalties as the first 36,589 acres described above.
In 2010, the Company also obtained 17 state land mining leases with the New Mexico State Land Office covering 25,890 acres in Lea County, New Mexico. A minimum royalty rate of 2.50% of the gross value of production without any deductions is expected to be imposed by the state of New Mexico. The 3% profits royalty described above will also apply to these leases. The Company has posted a US$25,000 Megabond for Performance and Surface or Improvement Damage of Potash Leases.
The Company has applied for two sets of federal sub-surface potassium prospecting permits covering 9,124 acres and 29,520 acres for a total of 38,644 acres in New Mexico. These permit applications have not yet been approved. The Company believes this land may be prospective for polyhalite and other potash minerals and, when obtained, will form part of the Ochoa Project.
ICP seeks to mine Polyhalite from its Ochoa Property in South East New Mexico and to process it into Sulphate of Potash (“SOP”). The Ochoa property is 100 percent controlled by ICP. The 21 Bureau of Land Management (“BLM”) federal sub-surface potassium permits for the Ochoa Project are in respect of an area of 48,144 acres. All reclamation plans, environmental plans, and archeological work have been approved by the BLM. Bonds in respect of the drill program have been accepted and all cost recovery charges have been paid in accordance with federal regulations. The initial term of the permits is two years and may be extended to four years in total if in the opinion of the Bureau of Land Management exploration has proceed in an expeditious manner. The prospecting permits include the approval of a detailed 16 hole drill program.
Location and Description of Environment
The Ochoa Polyhalite federal prospecting permits cover subsurface mineral rights in Lea County about 60 miles east southeast of Carlsbad, New Mexico, and 23 miles west of the Texas-New Mexico state line. The property is located in five townships in Lea County, New Mexico. The Lea County airport is located near Hobbs, New Mexico. Carlsbad has air service from Albuquerque. Electric Power is supplied by Public Service Company of New Mexico. Water is supplied from local wells. The property is traversed by County Road 21 and NM Highway 128, as well as two track roads and jeep roads. A rail line runs 24 kilometres to the east of the area of interest through Jal south to El Paso, Texas.
The property of interest lays outside and approximately 14.5 kilometres from the eastern boundary of the area designated by the federal government as the Known Potash Leasing Area (KPLA). This area covers the area of potash mineral reserves and resources in the upper Permian Salado Formation east of Carlsbad. The mines in the Carlsbad district are the only potash mines in the state and produce potassium chloride from the mineral sylvite and potassium-magnesium-sulphate product from langbeinite. The potassium salts are used primarily by the fertilizer industry as sources of potassium and magnesium. New Mexico accounts for the majority of the United States potash production.
The federal government’s Waste Isolation Pilot Plant (WIPP) site is located about 4 kilometres east-northeast of the northwest corner of the Project area. WIPP is the world's second underground repository licensed to safely and permanently dispose of spent nuclear fuel. This fuel is stored in a thick salt formation that has been stable for more than 250 million years. WIPP began operations on March 26, 1999. Operations are expected to continue until 2070.
Figure 1 General view of the SW US & general property location
History
This part of the Delaware Basin is a mature oil and gas province. There has been major production from eastern New Mexico and west Texas fields discovered in the 1940s. The majority of United States potash production takes place from three conventional underground mines operated by the Mosaic Company and Intrepid Potash, Inc., near Carlsbad in Eddy County which is to the west of, and adjacent to, Lea County. A potash milling facility operated by Intrepid is located in Lea County.
Most of the wells from which we have geophysical logs were drilled in the 1980s. All previous work on and in the proximity of the property of interest has been drilling for oil and gas. The analysis of the information from the geophysical well logs indicates the presence of Polyhalite in this area. The interpretation of geophysical data from oil and gas well logs, specifically to identify the presence of potentially mineable thickness of Polyhalite in the Rustler formation, has been undertaken by the Company.
Geology
The Carlsbad potash district is located in the northwest corner of the Delaware Basin in southeast New Mexico. Upper Permian deposits in the Delaware Basin are characterized by a thick accumulation of evaporite rocks subdivided, from bottom to top, into the Castile, Salado and Rustler formations. All historic and current potash production has been from the Salado formation as sylvinite (a mixture of sylvite and halite) and langbeinite. The Rustler formation is youngest of the evaporite-bearing formations. It is comprised of five members, of which the Tamarisk is the middle member. It consists of interbedded shale-siltstone, halite, anhydrite, and Polyhalite. Based on numerous geophysics logs the Polyhalite layer appears to average 8 feet in thickness at a depth of 1500 feet.
Figure 2 The regional basin settings of W. Texas & SE New Mexico
Figure 3 Geological map of New Mexico
The property of interest is located within the Permian Basin of the Great Plains physiographic province. Evaporites in New Mexico and Texas occur in the Permian sedimentary basin which is roughly oval in shape and elongated in a northeast-southwest direction.
The Delaware and Midland sub-basins of the upper Permian Basin are separated by the Central Basin Platform and contain extensive evaporite deposits of the Ochoa Series which lie between the Capitan Reef limestone of the underlying Guadalupe Series and the fine clastic sediments of the Dewey Lake red beds. The first evaporite cycle of the Ochoa Series, the Castile Formation, consists of anhydrite and halite in the Delaware Basin. The overlying Salado Formation is structurally and lithologically complex and, in addition to the cyclic anhydrite, halite, and clay sedimentation, it is also host to the McNutt potash zone. Potassium-bearing salts accumulated in the northeast Delaware Basin. With later subsidence, the remainder of the Salado Formation sediments was deposited, followed by anhydrite and dolomite of the Rustler Formation and the Dewey Lake Formation red beds. Together, the Castile, Salado and Rustler Formations are some 1300 metres thick. The interest of the Company is in the occurrence of Polyhalite in the Rustler Formation which overlies the Salado Formation.
Mineralization
Gypsum and anhydrite are the stable phases after seawater has evaporated to 3.5 times its original salinity. After the solution has been concentrated by evaporation to a tenth of its original bulk, halite starts to crystallize along with minor amounts of gypsum. In the Tamarisk member of the Rustler formation, Polyhalite is a very early diagenetic replacement of a porous gypsum bed by brine that may have been from five to 1,000 meters deep. The inference of Polyhalite is from the geophysical logs of oil and gas wells in the Tamarisk member of the Rustler Formation at a depth of approximately 460 metres. Polyhalite shows a high gamma response, high velocity on sonic logs and relative high density.
The sequence of precipitation of evaporite minerals from seawater generally starts with the least soluble calcium and magnesium carbonates, such as limestones and dolomites, followed by calcium sulphates (gypsum and anhydrite), halite, the magnesium sulphates, potassium chloride (sylvite) and the magnesium chlorides. Polyhalite may be formed, in addition to precipitation, as a secondary mineral after anhydrite through reaction with potassium and magnesium rich solutions. Polyhalite is a hydrated potassium calcium magnesium sulphate salt. Unlike other potassium salts such as sylvite, langbeinite, or carnallite, Polyhalite dissolves slowly in water leaving a residue of calcium sulphate which then breaks down further into calcium and sulphate.
Polyhalite is white, colourless or gray, but may also be brick red or pink if iron oxides are present. It has a hardness of 3.5 on the Moh’s scale and a specific gravity of approximately 2.8. It occurs in deposits in conjunction with halite, anhydrite, kainite, carnallite and sylvite and has been recognized in Carlsbad, New Mexico; Western Texas; and also at Hallstatt, Austria; Galicia, Poland; and Stassfurt, Germany.
Polyhalite mineralization in the Permian Basin is described by Jones, 1972: “The Polyhalite deposits are by far the largest, most numerous, and widespread of all the Permian basin potash deposits. They occur chiefly as massive and disseminated deposits in anhydrite and salt beds, but vein deposits and lens deposits in salt, anhydrite, and claystone beds are not entirely common. As a rule, the massive deposits and all veins and lenses consist of predominantly Polyhalite, and they are distinctly compact bodies that have sharp clear-cut outlines. The disseminated deposits are typically rude, shapeless bodies consisting of a host rock, chiefly halite, and sparse particles and fine veinlets of Polyhalite. They are many times more numerous than the massive deposits, but the amount of Polyhalite present is extremely small in comparison with that present in most massive deposits.”
Figure 6 Cross section of several geophysical logs showing the polyhalite target zone
Figure 7 Geophysical log showing the polyhalite target zone
Exploration
In order to advance the Ochoa Potash project, ICP has proposed a drilling program to prove the presence and minability of Polyhalite. The prospecting permit applications and drilling exploration plans submitted to the Bureau of Land Management (“BLM”) in 2008 included detailed drill programs including the surveying of drill pads and roads, reclamation programs, detailed environmental analysis, archaeological study, and drilling methods. Certain significant details of the Company’s property acquisition plan are considered confidential.
The Company plans to explore for Polyhalite mineralization within the Tamarisk member of the Rustler Formation, primarily by core drilling. Physical examination of drill core will allow accurate measurement of the thickness of the Polyhalite unit. Correlation between drill holes, and comparison with the geophysical log data will permit assessment of the continuity of Polyhalite mineralization. The isopach map of the Polyhalite unit, as derived from geophysical well log data, indicates that it is of a thickness of up to eight feet that may be mineable by conventional underground mining methods.
Geophysical data from well logs is routinely used to identify evaporite minerals. Specific logs provide the following data:
- Gamma ray logs measure the natural radioactivity of minerals. The isotope of potassium K40 has a gamma ray energy of 1.46 MeV.
- Caliper logs measure the diameter of the drill holes.
- Sonic logs provide a continuous measure of the transit time of sound waves through the rock penetrated by a drill hole.
- Neutron logs measure the hydrogen ion concentration in the rock and provide an indication of water content, both as an inherent part of the crystal structure and as free water.
Halite is identified by a uniformly low gamma ray response similar to anhydrite, an oversized hole on caliper logs, and moderate to low neutron response, as well as moderate density and sonic log response with high resistivity. Anhydrite beds are recognized by low response on gamma ray logs, normal bore-hole diameters of caliper logs, high neutron counts, and high sonic log velocities thereby indicating high density. Polyhalite can be identified by high gamma ray responses, normal bore-hole diameters on caliper logs, high velocity on sonic logs and relatively high density logs. Polyhalite responses on caliper and neutron logs distinguish Polyhalite from sylvite. Sylvite is identified by high gamma ray response, enlarged bore-hole diameters on caliper logs, relatively low density and low neutron response.
As of August 19, 2009, Chemrox Technologies and Gustavson Associates, LLC prepared a National Instrument 43-101 compliant technical report and preliminary economic analysis (the “Ochoa Report”) for ICP with respect to the Ochoa Property. The Ochoa Report was filed on SEDAR on September 28, 2009. The report indicated that mineralogical and chemical analyses suggest that an average polyhalite grade in the Rustler Formation of 85% polyhalite is not an unreasonable expectation for the ICP permits based upon core data. The total inferred resource for the polyhalite bed within the Tamarisk member of the Rustler Formation, greater than 6 feet thick and within the boundaries of the ICP permitted land holdings is approximately 399 million short tons, using a tonnage factor of 11.43 ft3/ton. Theoretically, annual full production mining capacity from the underground room and pillar mine could be 4.6 million tons per year. The mine could operate 350 days per year for a full daily production tonnage of 13,143 tons. The process plant design selected utilizes ammonia to precipitate magnesium hydroxide and in a second step, potassium sulphate. Based on the assumptions and results of the Ochoa Report, Gustavson considers that the Ochoa polyhalite project has potential to be an economically viable operation, annually producing over 900,000 tons of potassium sulphate and 500,000 tons of polyhalite product for the world market at full capacity. Based on start-up capital expenditures of US$887M, cash costs of approximately US$220 per ton of potassium sulphate and US$75 per ton of polyhalite, and a 10% discount rate, the 30-year life project gives a pre-tax internal rate of return of 43% and net present value of US$2.9 billion. If the Phase I results are encouraging, Gustavson and Chemrox further recommend Phase II drilling and subsequent metallurgical and other test work and engineering.
The Phase I drill program was designed to: (i) validate interpretations of historical oil and gas geophysical logs; (ii) expand the classification of resources reported in the 43-101 Technical Report; (iii) extend the polyhalite target bed to the north-west where it appears to ramp-up closer to the surface than further to the east; (iv) ascertain chemical and thickness variability; (v) study rock mechanics; (vi) initiate baseline hydrological investigations; and (vii) determine optimal locations for Phase II in-fill drilling and prefeasibility studies. As part of Phase I, 6 drill holes were completed in 2009. ICP intends to drill the other 2 holes from Phase I plus complete Phase II in 2010.
The results for the Phase I Ochoa drill program were positive. As expected from geophysics logs, excellent quality polyhalite, averaging 5.6 feet in thickness and 80% in grade, was found between thin anhydrite layers, all located within the salt bed of the Rustler formation of the Permian Delaware basin in New Mexico.
Summary of Phase I Core Analysis (grade based on X-ray diffraction):
Hole From (ft) To (ft) Thickness (ft) % Polyhalite
IPC1 1394.7 1400.7 6 85
IPC2 1523.85 1529.1 5.25 81
IPC3 1554.2 1559.2 5 79
IPC4 964.53 969.88 5.35 70
IPC5 992.14 998.42 6.28 86
IPC6 1483.52 1489.2 5.68 76
Phase I program average: 5.59 80
All scientific and technical disclosure has been prepared under the supervision of ICP Chief Geologist, Marc Melker CPG, and has been verified by him.
Based on these positive Phase I results, the Phase II drilling program will commence in June 2010. Phase II will provide further resource delineation and provide information required to determine the optimal mine location. The Phase II program will also provide a bulk sample of polyhalite ore for further process optimization testing. Process testing procedures are being established as part of an independent study currently under way to review the engineering and cost aspects of processing polyhalite into SOP.
