PHOSPHATE AND FERTILISER PROJECT
The Sukulu carbonatites were first developed in 1964 and mined by Tororo Industrial Chemicals and fertiliser Ltd (TICAF) during 14 years until 1978. There was a production of 18 000 tons/year of single super-phosphate (SSP) in a fertiliser plant at Tororo - from concentrate with P2O5 content of 40-42%. Sulfuric acid for the producing the SSP was imported via Kenya using Mombasa - Kampala railway which passes near the site, at Sukulu. See satellite view of the deposits. The SSP produced was used in the local and regional markets (Uganda, Kenya, Tanzania and Ethiopia). TICAF ceased operations in 1978.
In operating the mine, there were difficulties of transport, importing sulfuric acid from Kenya, and marketing the SSP products on local and regional markets. These difficulties were exacerbated by the political turmoil of the Amin Dada days, which led to closure of the mine, followed by exactions on the property. Considering the difficulties that were already there before, the resumption of mining operations after the end of the Amin Dada period, has not took place.
MISA and Nilefos minerals have taken interest in exploiting this natural resource since 1998, in their interest as entrepreneurs and for the benefit of Uganda's people and its economy. This is evidenced by formal agreements with Government of Uganda to develop the project and by extensive work and expenditures that they have spent and are currently still spending. I shall not develop further on these aspects because all is said in the "Background and History" sections, in all good faith and earnestness by MISA and Nilefos Minerals Ltd.
In respect for the deontology of a Consultant, although retired from the community of Mining and Metallurgical Engineers since 1996, I have to emphasize on the state of project information with special note to the "Financial Model" that is given at the end of the "Project" chapter of this presentation.
Let me comment on the IRR Value of this "Economic and Financial model" which is 7.4%. This IRR value results from, and is dependant on, quantities of production of SSP and TSP, their respective market prices, and on the capital cost and operating cost estimates listed in the tabs, plus a number of input cost items and specific consumptions of minor importance for this analysis eg. costs for imported sulfur, power, water...
The capacities envisaged for sulfuric acid plant, phosphoric acid plant, SSP plant and TSP plant, have to be consistent with the beneficiation data given by IMMT's report ie. 21% weight recovery of concentrate from plant feed with a given grade of P2O5. Moreover the report says that the concentrate is produced in two streams, one (P1) having 72% of the concentrate, the other (P2) 28% of the concentrate. P1 stream performs the highest concentration by recovering P2O5 from the coarser fraction of slimes; P2 stream recovers P2O5 only from the coarser fraction of the ore. P1 stream therefore has higher P2O5% ie. 41%; P2 stream has lower P2O5% ie. 33%.
A major part of the concentrate from P1 stream is used, on the one hand, for producing phosphoric acid by reacting concentrate with sulfuric acid. The remaining part of the concentrate is used to produce TSP, on the other hand, by reacting the remaining concentrate with phosphoric acid.
Concentrate from P2 stream is used for producing SSP by reacting concentrate with sulfuric acid.
With these data, it is necessary that all figures tally. First, TSP tpd is calculated as resulting from the % of concentrate used from line P1; then TSP is calculated as resulting from the use of phosphoric acid on that same amont of concentrate. As the two figures must be the same, adjustment is made by changing the % of concentrate used from line P1 for the phosphoric acid and TSP process line.
All capital cost estimates are given in the form of equipment lists in the different tabs of the "Economic and Financial model". These estimates are given here only in this website presentation. There are no descriptions specific to the project available from Nilefos Minerals Ltd. Such descriptions are mandatory in any earnest feasibility study. Descriptions must indicate process, list plant and equipment and ancillaries; they must give cost estimates and the manner such cost estimates are derived to provide confidence. It is perfectly acceptable that estimates be given on the basis of in-house consultants' expertise when such consultants are authoritative in mining, beneficiation, sulfuric acid, phosphoric acid and fertilisers. See the principle drawing of the project. Without questioning the cost estimates, which I am not in a position to do, it should be noted that the descriptions are missing; moreover, there is no mention of necessary plant and equipment for disposal of the phospho-gypsum, which is an important element of a phosphoric acid plant project.
Many capital cost estimates are given in Indian Rupees, which reflects that these estimates are made in India and probably in Indian economic conditions. The conversion of the values into US$ is based on 42 INR/US$ a rate which I suppose prevailed when the estimates were made. Because of monetary inflation rate in India, one has to be cautious when applying an exchange rate, that it is consistent with the time cost estimates were made.
The same comments as above, apply to the operating cost estimates; there is one element missing; it is the general and administrative annual cost, ie. general overheads. I have taken them as being 5% of the technical costs ie. mining, beneficiation and fertiliser costs.
The East African Market Study (2007) shows that only a percentage of mono-phosphatic fertilisers is used in the local and regional markets. The study reports its knowledge of the Sukulu phosphate project (pages 1, 19, 20) as indicated to its author but this is in no way useful for deriving market and price data. Indicative prices for local producers and consumers can be inferred from tables in pages 24, 25 and 26 of the study just cited. Although the British Sulphur CRU market report is useful in understanding phosphate production and consumption worldwide, this study is not specific in any manner to this project.
Nilefos Minerals claim that agriculturists in Uganda pay 900US$/tonne and 700US$/tonne for imported TSP and SSP respectively. If these very high prices were taken, IRR would shoot up to 32.3%. I take the view that one should take SSP/TSP FOB prices Tunisia, Jordan, India eg. 300/450 US$/tonne FOB, and build up a price with sea transport to Mombasa, port handling, land transport by rail and/or road, with all intermediary costs added. Such a price may not be acceptable to agriculturists or only for limited consumption. Locally produced fertilisers should be lower priced to users if they are to substitute for imported fertilisers significantly.
The price issue is with transport costs from FOB port Mombasa to the site of the client. I consider transport costs out of the project and assume they are paid by the client and advanced by the producer ie. MISA & Nilefos Minerals Ltd. Hence transport costs are neutral but they will be a decisive factor to entice the client to purchase locally rather than importing.
Considering the above, ex_works prices of 450 US$/tonne and 300 US$/tonne are considered for TSP and SSP respectively in the "Economic and Financial model". These figures lead to 7.4% IRR. Only letters of intent by prospective buyers can give the necessary market data ie. quality required in P2O5 content and solubility, quantities envisaged and at what prices ex-site to which the additional costs of transport and delivery have to be added.
The base IRR of 7.4% changes of course if single element or combined element changes are made to parameters of influence. For example if prices were 500, 300 US$/t for TSP and SSP, the IRR would be 9.8%. If sulfur were 50 US$/t instead of 100 US$/t, the IRR would be 9.9%. If production was 60 t/h concentrate, the IRR would be 5.8%. If INR/US$ exchage rate was 52 as of 4/3/2009, the IRR would be 9.2%, but then the capital cost and operating cost estimates that are mainly in INR, would have to be checked for consistency. Any combination of factors, would affect the IRR more significantly. At this stage, this is only an exercise in figures; there are many factors at play interactively, and all affect the outcome. The feasibility study should decide which combination is to be considered and the IRR will result.
Finally, my view is the IRR must not be considered as a criterion of evaluation for a pilot project which has to be covered by risk capital. The scale of the project is too small especially for beneficiation and phosphoric acid. Phosphoric acid plants in the world are typically 500tpd H3PO4 phosacid 54%. So the financial model should be considered without the IRR. However a 7.4% return on capital outlay in constant money value is not bad as if it is above the opportunity cost of credit inflation risk deducted.
This first phase of the project whose main objective is to prove the technical viability of the beneficiation process while financing if possible its implementation, would be followed by a significant expansion of the project to industrial stage. MISA and Nilefos Minerals Ltd envisage 1 million tonnes/year of concentrate which is a 15 fold increase compared to the 67 200tpa of phase I. It is for this phase that a detailed feasibility study or Bankable Feasibility study will be mandatory.
As indicated above, in february 2009, Nilefos Minerals Ltd commissioned SRK Consultants of South Africa, to prepare a comprehensive feasibility study, to fullfill the requirements of international financial institutions; it is hoped that this will be the final step to permit implementation of a world class phosphate mining and processing industry in Uganda.
put on line on 01/03/2009, updated 04/07/2013 by Pierre Ratcliffe Consultant to MISA/Nilefos. Contact through Nilefos: (npk@madhvani-misa.com)