Potash Lease

[sumdumguy]

is that $100/acre/year?

[oneoff]

If you are asked to SELL the rights; that 100.00 per acre is likely to appear in one and only one cheque.

After all it isn't reasonable to still be receiving $100.00 per acre per year until eternity. There would come a time after the resource is mined and gone...that some bean counter would catch on that payments had to cease.

[oneoff]

And pars.....not everyone has a lawyer in their family.

and I have never doubted that some people are quite capable of looking after themselves.

But in matters like mineral rights and leases; its pretty safe to say that only a very few persons even know what the questions are that should be clarified.

[oneoff]

You know that back in the early 1950's Imperial Oil signed up leases for oil rights in Sask for 3 cents per acre per year.


And if the option was taken up to drill a well and they obtained commercial production of hydrocarbons; then a royalty of one barrel in eight was due to the oil mineral right holder. And that's where the old standard of a 12.5% royalty came from.

Fast forward to 2015 and we have potash companies looking to tie up the relatively few potential reserves that are not under lease by ordinary members of the public.

My question to the readers is have you ever thought how many tonnes of potash per acre might underlie a quater section that probably has the highest purity of potassium anywhere on the face of the earth.

Now the next step is the mind blowing one.

At an analogous "one barrel in eight" you could settle for with any oil company or speculator lease; just what fraction would you settle for with potash.

My guess is that most uncommitted potash rights owners don't even know what the point is.

Any idea what the gross value of the potash is under that quarter section?

Or in other words...how many pennies per ton will you receive when that resource is mined?

And thats my answer to the reply above about a relationship between crude oil and price at the pumps. Maybe with oil its out of whack by a couple of times its value......but I'm guessing that potash companies pay a ridiculously low royalty (or maybe nothing) to the rights holders above the lease payment (or an outright sale)

All I know is the pennies on the dollar deal they have with the provincial government for royalties. Why would they pay even that same fraction to an ordinary potash mineral holder who has zero chance of ever mining their own potash reserves.

[oneoff]

Based on what should now be called the history of the boom period that may just have ended; it appears that an approx 4.7% royalty (maybe plus or minus 4.7%) was the cut given to various lease holders.

Going forward into uncharted water; it might be wise to factor in that extremely high construction and operating costs are involved; the provincial government has just overhauled lease and "block' rules through legislation etc. etc.
Further; what demand will be; who the customer(s) will be; how price levels are set; who pays the bookkeeper; and whose interest is most important to the business.

It appears any payout to mineral owners, speculators or government coffers as well as decisions made regarding naming rights; pet projects and so on are outside the open ended lease deals that an extremely small number of people are looking at as a lottery windfall.

Who knows....even that might change

[oneoff]

One last thought

From the responses to this thread it sounds like the market value that has been set is approx. $40,000 per quarter when full mineral rights are involved.

Its certainly possible to sell only the potash rights and retain the rest.
Buyers and speculators are also capable of accepting a deal with other assets thrown in for free.

So it appears that the going rate is $40,000 for potash rights; money supposedly upfront and no hidden costs.

The alternative is that over an approximate 80 year operating life of a mine you enter into a "pooling" agreement that you might as well be satisfied whatever the amounts are over the next several generations.

Your minerals and everyone else's are in a pot that as its mined... and priced... and sold to who knows whom..and if disasters are avoided at the mine and in potash business in general.......you're looking at the time value of $40,000 per quarter section of potash minerals.

Putting it into perspective is $40,000 really big money. Farm land values have increased that much in much shorter time periods; and like pipelines; there are costs and restrictions and affects that not all come to mind without some thought.

[mrossm3]

Potash Lease

When you consider a section yields about 6.75 million tonnes of product at about $300 US per tonne and subtract about 72% production costs there is still $567M profit in a section. $40,000 per section sounds pretty low ball as it represents significantly less that 4.5%

[mrossm3]

When you consider a section yields about 6.75 million tonnes of product at about $300 US per tonne and subtract about 72% production costs there is still $567M profit in a section. $40,000 per section sounds pretty low ball as it represents significantly less that 4.5%

[mrossm3]

The figures I quote are based on a report by "The Solution Mining Research Institute" titled "An Overview of the Geology of Solution Mining of Potash in Saskatchewan" prepared by
S. P. (Steve) Halabura P.Geo., North Rim Exploration Ltd., Saskatoon, Saskatchewan, Canada
and
Michael P. Hardy P.E., Agapito Associates, Inc., Grand Junction, Colorado, U.S.A.

for the Fall 2007 Conference 8-9 October 2007 in Halifax, Nova Scotia, Canada.

Page 16 of 18
"In calculating the mineral resource tonnages, the following procedures are recommended:
1. The total interval volume (mineral interval) for each area is calculated by multiplying the net area by the thickness of the potential solution mine interval for each of the mining cuts.

2. The volume thus calculated is then multiplied by a sylvinite tonnage actor of 1,980 kilograms per cubic meter to determine “gross sylvinite tonnage.”

3. A deduction of the area is then made to account for the presence of mining nomalies not detected by existing drill holes and seismic lines, this amount ranging from 25% to 35% depending upon the area and whether anomalies can be identified from existing historical data.

4. A deduction of “extraction ratio” is then made to account for the mineral resource that is left in the ground to provide support and reduce surface subsidence, this being in the form of pillars left around exploration drill holes and potash production caverns, in this paper proposed as being an extraction ratio of 40% for solution mining operations (i.e., 40% of the sylvinite is removed and 60% is left in place to support the mine).

5. An additional deduction of 10% is then applied to account for possible plant and cavern losses,including losses to purge and dust. The cavern losses are the potash remaining in the brine in the cavern.

After the above deductions an estimate of potash tonnage per “section” (square mile) may be made.

As an example, the following is a simple calculation of resource per square mile. Using a simple calculation of area (1 ‘section” is 640 acres or 1 square mile = 2.59 square kilometers) times average thickness (in this example an estimated 26 m) for the Patience Lake and Belle Plaine members times sylvinite density (1.98 tons per cubic meter) times the K2O grade (in this example an estimated 19%) less the 25% allowance for unidentified anomalies gives an estimated tonnage contained within the bounds of one section as being some 19 million tonnes of sylvinite. Using a weighted average grade for the two members of 17% K2O, a potential yield of potash expressed in terms of K2O is some 6.75 million tonnes per section (i.e., per 640 acre tract). This is equivalent to some 2.5 million tonnes per square kilometer. This number, which is based on estimated averages, will vary locally and from area to another."

[mrossm3]

One more question...does anyone know if the Stoney Beach lease area has been unitized?