Widespread wins Chatham Rise permit

Widespread Energy and its associate Widespread Portfolios have been granted a prospecting permit on the Chatham Rise, allowing them to test whether the area contains an estimated 100 million tonnes of rock phosphate, which could be worth $28 billion.

The estimates come from 30-year-old data derived from exploration work carried out by the government and companies such as Fletcher Challenge in the 1970s and 1980s. Widespread director Chris Castle says current market prices for phosphate, used by the fertiliser industry, could make extraction feasible, replacing imports from Morocco that amount to about 1 million tones a year.

Shares of Widespread Energy, which owns 90% of the joint venture, fell 17% to 10 cents yesterday.

Six investors have agreed to stump up $200,000 to help fund preliminary work on the permit, having already subscribed for similar sum at 12 cents apiece.

The venture is highly speculative and Castle acknowledges on his website that investors require plenty of “intestinal fortitude” to go along for the ride.
Based on the company’s assumptions of costs and an extraction rate of 500,000 tonnes a year, the project could generate pretax earnings of US$55 million a year, Widespread Portfolios said in a statement yesterday.

Alternatively, the joint venture could on-sell the resource on-situ, which could be worth US$10 million, or $2.12 per Widespread Portfolios share, it said.

Widespread aims to review data for the 4,726 square kilometre permit area over 12 months then work up a “full bankable feasibility study” and gather seabed samples in year two.

“The broad expressions of interest in this project from investors, the fertiliser sector and other mineral exploration companies indicate that funding of this later phase will be achievable,” the company said.

The rock phosphate is in the form of phosphorite, in pebble-like form sitting in the top third of a metre of ocean floor. The estimated size of the resource was suggested in a 1987 report by David Cullen called ‘The Submarine Phophate Resource on Central Chatham Rise.’

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Widespread companies may need financial clout for Chatham Rise

McDouall Stuart stockbrokers consider that the linked companies Widespread Portfolios Ltd (NZX: WID) and Widespread Energy Ltd (NZAX: WEN) will not be able to “go it alone” in developing the Chatham Rise marine phosphate deposits.
The broker’s Market Weekly said the two companies have only one employee, in executive director Chris Castle.
It was likely the two companies would sell down their interest to a party with the capability and capital needed to progress the venture.
It was estimated the project would need $300 million.
WID and WEN had indicated there would need to be a two years work programme that will include a full bankable feasibility study and the gathering of seabed samples to define a mineable resource.
McDouall Stuart said exploration in the Chatham Rise area, near Chatham Island and 600 kilometres east of Christchurch, in the 1970s and 1980s indicated a significant potential seafloor resource of rock phosphate.
“Those studies have assessed proved reserves of 30 million tonnes but with a total resource estimate of 100 Mt,” the broker said.
Rock phosphate is a core input to fertiliser manufacture. Currently, NZ imports more than 1 Mt of phosphate annually from Morocco, mostly by heavyweights Ravensdown and Balance AgriNutrients.
At current prices of about $US200/tonne, the commodity value of imported phosphate adds to around $300 M per annum. Cost of freight from Morocco adds a further $170 M to that bill.

Ross Louthean — 5 March 2010