Hanam Canada Corporation

Market

With increasing population the demand for food will increase but the area of cultivated land is not increasing significantly.  Therefore fertilizers use for crop production is increasing. Crops with adequate phosphorus show steady vigorous growth and early maturity. Earlier maturing crops are less susceptible to summer drought, disease infection, frost and harvest damage. In the past 10 years world demand for phosphate fertilizer has increased 34% from 32 to about 43 million tones P₂O₅ equivalent  per year. About 0.5 million t/y about 1.2% of the world demand, is used in Western Canada. Global use is forecast to increase 3% per year for the next 10 years. China and India have become the major importers. 

In the past two years demand has surged and the price for ammonium phosphate fertilizers for grain and other food crops has increased from $200 to over $600/t in North America. Higher farm prices have made it economic to increase phosphate application. Over the next 10 years the world has to produce 40% more grain than is being produced today on the same land. Therefore growth in the use of fertilizers is expected throughout the world and China, India and Brazil have already become major importers.

Phosphate rock is the major source of phosphorus an essential element for plant and animal nutrition. Phosphate rock, is not very soluble and provides little available phosphorus to plants.  To produce fertilizer, phosphate rock is treated with sulfuric acid.  About 85% of phosphate rock production is used for farm fertilizer, 10% for animal feed supplement, and 5% for detergents, food, drinks, dental products, and variety of chemicals. When plant materials and waste products decay, phosphate is released and returned to the environment for reuse. Phosphate is often the limiting agent in the growth of plants and algae.

The plant is designed to make superphosphate which is similar to and is often called bone meal.  Superphosphate is the second most common fertilizer worldwide. The chemical formula for superphosphate is Ca(H₂PO4)₂H₂O (46%) plus CaSO₄ (54%) designated 0-24-0 and  the formula for concentrated superphosphate also called triple superphosphate is Ca(H₂PO₄)₂•H₂O  designated  0-46-0. Twenty years ago superphosphates was the most common fertilizer applied by farmers but it has been superseded by fertilizers that contain both nitrogen and phosphorus.

In North America, superphosphates are most commonly used in animal feed supplements. About 10% of overall phosphate demand in the US in the past two years was as a feed supplement. For example, in 2009, Mosaic produced and sold about 200,000 t/y feed phosphates in the US and another 340,000 of feed phosphates was exported. Monocalcium phosphate and dicalcium phosphate are used in beef, poultry and pork production. Southern Alberta has numerous feed lots where phosphate supplements are used. Defluorinated phosphate (DFP) is used in poultry farms.

Superphosphates are more concentrated phosphate fertilizers thereby minimizing distribution and handling costs. They have the advantage of containing only phosphate without any co-product ammonia. Ammonia and urea markets are much more competitive and farmers have the choice of many suppliers.  Superphosphate users can apply the precise amounts they need. Worldwide about 7% of the phosphate fertilizer used is treble superphosphate.

Superphosphate is weak acidity quick acting water soluble fertilizer. It has a high efficiency, strong adaptability, and can improve alkaline supply phosphorus and calcium to plants. It accelerates plant sprouting, rooting, growth and ripening. It can be used as a base manure, ex-root tap application, starter fertilizer, foliage spray, and raw material of compound fertilizer. It can be used with other nutrition or used singly.

The other three types of phosphate fertilizers commonly used all contain ammonia as well as phosphate.

Ammonium phosphate fertilizers are dry, soluble products with phosphorus that is readily available to plants. Both mono and diammonium phosphate are acid forming fertilizers.  The initial soil reaction to diammonium phosphate can produce free ammonia which can injure seedlings if too much fertilizer is placed near the seed. Ammonium polyphosphate is a common liquid ingredient of starter fertilizers and micronutrient mixtures.

The sales of phosphate fertilizer in BC, Alberta, Saskatchewan and Manitoba are summarized in Exhibit 1. The market is almost entirely mono ammonium phosphate. Sales of DAP and superphosphate for crop application are negligible. Superphosphate use is mainly for animal feed.  Total phosphate sold is 486,000 t/y P₂O₅ equivalent.

Exhibit 1. Phosphate Fertilizer Market in Canada  1000 t/y  2009 

The phosphate fertilizer market in the Pincher creek area is summarized in Exhibit 2. The area has over 500 farms and about half use commercial fertilizers amounting to about 1.3% of the total phosphate fertilizer in Alberta and 0.3% of the total in Western Canada. About 1,400 t/y of phosphate fertilizers are used in the Pincher Creek area.  The output of the plant would be used within a 200 kilometer radius of the plant.

Exhibit 2. Crops and Land Management in Pincher Creek Area 

The highest phosphate fertilizer application rate is for barley, about 60 kg/hectare. Phosphate fertilizers are applied at a rate of 30 kg/hectare for grain crops such as wheat. Canola, other seeds, and peas require about 40 kg/hectare phosphate addition rates.  It is also used in situations where no nitrogen is required. For example it is used in fallow applications after clover or alfalfa dominant pasture. Much higher rates up to 4,500 kg/ha are recommended for banding in the furrow for vegetable production. It is also used in horticultural blends.

For the total 270,000 hectare Pincher Creek farm area an application rate of 37 kg/ha is equivalent to the 10,000 t/y output of the plant.  Superphosphates also contain calcium, sulfur, iron, and other micronutrients advantageous for sulfur and nutrient deficient soils and some types of crops. Excessive triple superphosphate application has been seen to tie up iron, zinc and manganese in soils resulting in some yellowing. 

In applying phosphate fertilizer, care must be taken to avoid runoff into creeks and lakes. Phosphate does not leach from the soil but it can move with erosion.  Phosphate runoff due to erosion combined with nitrogen fertilizer can contribute to heavy growth of algae and result in de-oxygenation of ponds and lakes. Improved planting methods, fertilizer management, and soil conservation techniques reduce phosphate runoff.

Another market prospect is as a feed supplement for cattle feedlots and hog farms. About 15,000 t/y phosphate feed supplement could be beneficially used mainly for cattle. The nearby Lethbridge area has a population of about 640,000 cattle and 130,000 hogs. There are 22 cattle feedlots  and 16 hog farms each with more than 5,000 animals. Phosphorus improves growth and bone formation. Cattle need about 0.4% phosphorus in their diet and hogs about 0.6%.

A phosphorus deficiency is indicated by animals chewing on rocks and bones, stiffness, fragile bones, appetite depression, lethargy, reduced growth rate, decreased feed efficiency, reduced diet digestibility, and impaired reproduction. Beet pulp is low in phosphorus 0.1%. Legume and grass hay, and corn grain also contain too little phosphorus, about 0.3%. Wheat has about 0.5% phosphorus. Brewers’ and distillers’ grain have 0.7% phosphorus and are often used as a phosphorus supplement. Wheat middlings have the highest phosphorus level 0.9%. Diets that are grain-based often supply phosphorus in excess of the needs of cattle.

Typically only about 70% of optimum phosphorus requirements are provided in normal diets. In experiments where phosphorus in the controlled diet provided no more than 70% of the required phosphorus, about 44 kilograms of extra gain was associated with the provision of one additional kilogram of phosphorus.  There is an optimum calcium to phosphorus ratio for feed supplements. Too much phosphorus reduces calcium availability. Too little phosphorus relative to the calcium in the feed reduces phosphorus absorption. The optimum calcium to phosphorus ratio for beef is 2:1 and for hogs 1:1.

Competition

In the immediate area of the plant, the main competitors for phosphate fertilizers applied to land are the 38 major feedlots and hog farms in the Lethbridge area. These lots produce about 2.0 million tones of manure containing about 0.2% phosphorus. There are about 220,000 hectares of crop, tame and seeded pasture. This results in an availability of 16 kg phosphorus per hectare from feedlots and farms for fertilizer. However the cost of handling, trucking and spreading this manure is relatively high. Other parts of Alberta have much less manure available and it may be necessary to transport some of the plant output farther than the immediate Lethbridge area.

Historically manure has been perceived as an unpredictable source of fertilizer for crop production. Many grain growers will not accept manure as a fertilizer because of difficulties in balancing nutrients to achieve acceptable crop yields. Loss of nitrogen in the feedlot by ammonia volatilization results in an organic fertilizer with a low N:P ratio which is not well utilized by fast-growing crop plants at least in the first year of application. To equal a typical phosphate application of 60 kg/ha, about 135 tonnes per hectare would need to be applied.

In Western Canada and the North western US, Agrium Inc. has a monopoly on chemical phosphate fertilizer supplies. Agrium is one of the top three fertilizer producers in the world.  Sales have grown from 0.3 to near $3 billion/y since the company was created. The only phosphate fertilizer produced in Canada is mono ammonium phosphate (MAP) at Agrium Inc.’s Edmonton plant.  This plant has the capacity to make 680,000 t/y MAP, equivalent to 345,000 t/y P₂O₅ equivalent, about 71% of the total P₂O₅ consumption in Western Canada.  Phosphate rock for is supplied from their 1.1 million t/y of phosphate rock mine in Kapuskasing, ON. Agrium also produces 482,000 t/y P₂O₅ phosphate fertilizer at Conda, Idaho supplied by their 1.5 million t/y phosphate rock mine at Rasmussen Ridge, Idaho.  Agrium owns Western Farm Services, one of the largest fertilizer retailers and farm services provider in the northwestern US. Agrium has the second largest independent fertilizer retail network in the US and sells farmers a complete package including seeds, chemicals and services.

Compared with Canada, the US phosphate market is much more competitive especially in the south and central US. US producers supply most of the phosphate fertilizers in the world. More than 50% of the phosphoric acid produced in the US is exported either as finished fertilizers or commercial acid. China, the US, Morocco, and Russia produce 72% of the world’s phosphate rock.

Another Canadian company, Mosaic, is the largest phosphate fertilizer producer in the world producing 10 million t/y at five plants in Florida and two in Louisiana.  Sixteen companies including IMC Agrico, Cargill, CF Industries, Mississippi Chemical, and Agrifos produce the largest amounts mainly from Florida and North Carolina. North American marketing for several companies is handled by PCS Sales. A US marketing association, PhosChem, sells phosphate fertilizers from most producers offshore. Innophos, ICL, and Chinese producers compete for feed phosphate sales in North America.

Project location

The fertilizer plant is proposed to be located in Pincher Creek as shown in Exhibit 3. This is a major distribution centre for farm chemicals. Therefore several distribution companies are potentially available to add the superphosphate to their product lines. By locating in Pincher Creek, we will have the advantage of being more closely attuned to customers’ needs. A suitable existing plant site has been identified that is on highway 3 and the CP Rail mainline. It would be relatively quick to get started with production. The phosphate deposit is on highway 3 and 10 kilometers from the Alberta border and 70 kilometers from Pincher Creek.  

Exhibit 3. Location of phosphate project

Some photos of the license area are provided in Exhibit 4. The outcrops are on the east, west, and north of the highway 3 bridge across Alexander Creek.  Highway 3 and the CP Rail mainline run through the property. There is are several quarries on the Alberta side of the border. To the west there are several active coal mines.  There is also a closed thermal coal mine nearby in Coleman, Alberta.  The property was identified by the University of Guelph as being ideally located and suited for meeting growing demand for phosphate fertilizers in western Canada and the US. It is the closest deposit to the Alberta border and leading potential customers.

The processing plant would be located in Pincher Creek, a distribution point for farm chemicals in South Eastern Alberta. The town has a population of about 3,700 people. It is 211 km south of Calgary, 103 km west of Lethbridge, and 73 km north of the Montana border. The plant would be located north of town in the existing industrial park on CP rail and highway 3. Some photos of existing buildings and chemical operations are shown in Exhibit 5. Since the all materials need to be moved east to the distribution and sales centre there is little advantage to locating the plant close to mine. Although there are vacant industrial buildings available near the mine, the operating cost was found to be higher than in Pincher Creek.

Exhibit 4. Alexander Creek & Highway 3

Exhibit 5. Pincher Creek North Industrial Area

Quality Competitiveness

Superphosphate properties are summarized in Exhibit 6. It stores, handles and flows well through all types of equipment. It does not take up moisture in storage or in the field. It can be spread very evenly. It flows significantly better than other fertilizers. For example it flows 20% faster than DAP so care must be taken in calibrating fertilizer applicators before sowing. Superphosphate can be blended with MAP or DAP but should not be mixed with urea as the fertilizers will react together and become wet.

Exhibit 6.         Product specification 

An analysis of the phosphate rock outcrop is provided in Exhibit 7. The deposits are thought to originate from prehistoric bird guano. The phosphate occurs as dark brown pellets of apatite CaOH(PO₄)₃  and organic matter in a finer grained matrix. Comprising 50 to 85% of the phosphorite, the pellets are well sorted, subrounded, structureless and 0.1 to 0.3 millimeters in diameter. The basal phosphorite is overlain by phosphatic shales of variable thickness and a yellow, calcareous marker bed a few centimeters thick.

The phosphate content of samples collected along the outcrop on highway 3 is about 30%. The calcium oxide to phosphate ratio and the R₂O₃ (=Al₂O₃+Fe₂O₃+MgO) ratios meet commercial processing plant specifications. 

The quality of the deposit exceeds that of the raw rock of the present supplier to Agrium from the Kaspuskasing, Ontario mine and equals that of the Rasmussen Ridge, Idaho mine. At Kapuskasing raw phosphate ore occurs as unconsolidated or partially cemented material of sand size crystals, crystal fragments and rounded grains. Kapuskasing rock varies in color from white through tan, sandy brown to gray and dark gray to black. To meet specs for the fertilizer plant the rock is upgraded by processing. The average concentrated rock at Kapuskasing, ON and at Agrium’s Rasmusssen Ridge, Idaho, mine is 38% P₂O₅.

Exhibit 7.         Unprocessed sample analysis for Alexander deposit

Source:   Virginia Marcille-Kerslake, University of Guelph, Ontario

Resources

Hanam’s 352 hectare mineral tenure from the Province of British Columbia is shown in Exhibit 8. The tenure area is about 2 kilometers wide by four kilometers long. It extends about 2 kilometers on either side of Alexander Creek. The tenures include BC Energy & Mines’ numbers 699563, 733362 and 737623. They include all of the phosphate outcrops along Highway 3. There are several outcrops within 2 km of the bridge. Some appear to have had some previous test mining.

Exhibit 8.         Phosphate Tenures 

The exposed phosphorite bed in a highway 3 road cut is 1.2 meters thick. It is close to the surface, overlain by approximately six meters of shale and minor limestone. The estimated reserves of the Alexander Creek license area, also called the Crow deposit,   reported by others is “greater than 2 million tones”.  There is sufficient resource to meet the needs of the planned market and process plant. On the basis of a one kilometer long by 200 kilometer long mineable strip the estimated resource on the property would be at least 400,000 tonnes. Further exploration including drilling is required to estimate the resource.

The cross section of one of the phosphorite bed exposed in a road cut on Highway 3 near Alexander Creek is shown in Exhibit 9. The overall phosphate containing section is 12 to 15 meters thick and the bed to be mined is about 1.2 meters thick. It is overlain by about 5 meters of shale.

Exhibit 9. Stratigraphic Section of exposure at roadcut 

Source: S. Butrenchuk, P.Geol., BC Energy & Mines, Bulletin 98

Production System

The 10,000 t/y scale of plant is selected based on the most likely market within a 200 kilometer radius of the plant. The proposed plant is similar but much smaller than one previously operated at Trail, BC.  Although past superphosphate plants in Trail and Kimberly, BC, were about 8 times bigger the average size of plants in India and China is about 1,000 t/y. Some of the most modern plants recently constructed in China have a capacity of 10,000 t/y. It is convenient to purchase a package manufacturing line at this scale. The equipment fits in an existing one level building with space left over for product storage. The acid and rock shipments are about one truck of each per weekday, a reasonable shipment frequency. Truck traffic at this rate would not upset neighbors or create environmental concerns.

The process for making concentrated superphosphate is shown in Exhibit 10. Finely ground phosphate rock is reacted with 93% sulfuric acid in several stirred reactors in series. A 40% solids slurry is maintained during a mixing period of 1.5 hours. A small side stream of slurry is continuously removed and distributed onto dried, recycled fines, where it coats granule surfaces and builds up its size. A rotating drum granular is used. A rolling bed of dried material is maintained in the unit while the slurry is introduced through a set of distributor pipes set lengthways in the drum under the bed.

Slurry wetted granules are then discharged into a rotary drier, where excess water is evaporated and the chemical reaction is accelerated to completion by the drier heat. Dried granules are then sized on vibrating screens. Oversized particles are crushed and recirculated to the screen, and undersize particles are recycled to the granulator. Product sized granules are cooled in a counter current rotary drum, then sent to a storage pile for curing. After a curing period of 4 days, granules can be shipped.

Exhibit 10.        Concentrated Super phosphate manufacturing process 

Dust generated at rock unloading, rock feeding, material handling, crushing, screening and curing would be collected in ductwork and directed to a bag filter. These bag filters have an efficiency of over 99 percent. Captured dust would be recycled. A wet scrubbing system is also required to capture minor amounts of fluorine contained in the rock. Silicon tetrafluoride and hydrogen fluoride are released by the acidulation reaction and evolve from the reactors, granulator and dryer.  

Investment Requirements

A total investment of $6.5 million is required.  The investment estimate assumes that rock will be mined, crushed and screened by a local contractor. There are several active mining operations and quarries in the immediate vicinity of the deposit. There are also existing rock crushing and screening plants. Therefore no capital investment is required for the rock mining part of the operation.

The fertilizer plant investment estimate assumes that an existing building and fertilizer handling site can be obtained in Pincher Creek at reasonable terms. There are vacant buildings and operations in a suitable locations. Also assumed is that the loader would be purchased used or leased. The investment required for equipment and installation for 10,000 t/y plant is $4.8 million. Our preference is to use North American sourced equipment but complete package plants for this product are available from Chinese suppliers. Working capital of $1.7 million, a full year of production, is required. Fertilizer demand is seasonal and a high level of inventory will be maintained.

Income Estimate

The plant would generate an income of $1.3 million per year before interest and taxes as shown in Exhibit 11. This is a conservative price for super phosphate fertilizer of $300 per tonne. Agrium’s wholesale price of phosphate fertilizer has tripled from a low $200 per tonne in 2001 to 2005 to about $600/t in 2009. The $300 per tonne price estimate is reasonable and could be low. The return on investment at the $300/t selling price is 20%.   

Feed grade superphosphate imported from China in containers is priced at about $340/t FOB port in China and $465/t delivered to feed lots in southern Alberta. Container lots of crop grade triple superphosphate from China packed in 50 kg bags is about the same price delivered.

The income estimate is based on contract phosphate rock price at the mine of $60/t. Phosphate rock prices at other mine in Canada and the US have increased dramatically from an average of $US 24/t in the 90s, $30/t from 2001 to 2007, to $51/t in 2007 $113/t in 2008 and $120/t in 2009.  

The other raw material sulfuric acid, is produced at Trail, BC, and the price is based on a budget quote from Teck. The company produces 280,000 t/y of sulfuric acid at Trail and most of this is converted to ammonium sulfate. However, at a price of $45/t it would be more economic to sell the acid rather than make ammonium sulfate. Teck has sufficient acid available for the plant and for potential tripling of production. An alternative supplier of sulfuric acid is Marsulex in Prince George.

About 14% of the operating cost is for trucking. If sales expand, it may be possible to reduce trucking costs by receiving acid from Trail by rail car. However trucking is likely to remain competitive for the 436 kilometer distance.

At a more optimistic but not unreasonable price of $400/t, the income increases to $2.3 million per year. The equipment is sized for single shift operation five days per week. There is sufficient capacity available to triple production by adding a second and third shift and by working week ends. If sales develop more quickly than estimated the income could reach $3.8 million per year without significant additional investment. 

The break-even price is about $200 per tonne. This break-even price is above historic low prices for phosphate fertilizer.

The most significant risk in this project is whether super phosphate fertilizer will be accepted by farmers in the Pincher Creek area. Farmers are used to using DAP from Agrium. It is possible that Agrium may drop their price to keep out a new supplier but they could run the risk of upsetting customers in other areas who may demand the same lower price. Another risk is that the quality of the rock mined may be lower than planned therefore resulting in a lower grade and price of product.  Some test mining and processing would reduce this risk.

Exhibit 11. Income Estimate