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Passport Potash Inc. – Cultivating Global Growth

Passport Potash Inc.

Overview

Passport Potash Inc. (TSXV:PPI,OTCQX:PPRTF) is an exploration and development company with a large and strategic position in Arizona’s Holbrook Basin.

Both historic data and more recent drill results from Passport Potash in the area have suggested that the potash deposits within the Holbrook Basin are relatively shallow by industry standards – a major advantage for Passport in terms of low-cost development and production. Furthermore, the Basin features excellent power, rail and road infrastructure, an important economic benefit that sets Holbrook apart from other U.S. and global potash projects.

Investment Highlights

  • Significant land holdings with proven resources and a large exploration upside
  • Shallow potash deposit by industry standards, amenable to low cost development and production
  • Excellent rail, road and power infrastructure as well as water rights and accessAccess to international shipping ports in California to reach global markets
  • Located in mining friendly Arizona, one of the top U.S. mining jurisdictions

Key Properties

Potash in Holbrook Basin

An Arizona Geological Survey (“AZGS”) report shows the potash zone in the Holbrook Basin. An isopach map in the AZGS report shows the potash thicknesses.

Thickness Distribution of the Potash Deposit within the Holbrook Basin, Arizona (according to RAUZI, 2008, /14/) – click to zoom

Passport’s Holbrook Basin Project Properties

The potash zone in the Holbrook Basin (see isopach map, above) covers approximately 600 square miles. Passport currently has interests in more than 121,000 acres of land in the Basin, being some 144 square miles.

Specifically, Passport has interests in: the Twin Buttes Ranch and the Fitzgerald Ranch (private freehold lands); the Southwest Exploration property (State and Federal lease lands); the Sweetwater/American Potash property (State lease lands); the Mesa Uranium property (State lease lands); and the Ringbolt property (State lease lands). Passport also has a Joint Exploration Agreement with the Hopi tribe (private lands).

click to zoom

Passport’s Property Interests in the Holbrook Basin

Twin Buttes Ranch (28,526 acres/11,544 hectares)

On August 28, 2009 Passport and Twin Buttes Ranch, LLC entered into a four-year lease with an option to purchase the Twin Buttes Ranch (the “Lease & Option Agreement”).  The Ranch comprises some 28,526 acres (11,544 hectares) of private deeded land with 76.7% or approximately 21,894 acres (8,860 hectares) overlying the potash horizons within the Holbrook Basin.

Under the terms of the Lease & Option Agreement, Passport may acquire a 100% undivided interest in the deeded land and sub-surface mineral rights except those pertaining to oil and gas, petrified wood and geothermal resources.  There are no royalties associated with the sub-surface mineral rights.

In August 2013, Passport amended the agreement to extend the option to acquire Twin Buttes to January of 2016. Under the terms of the amendment:

  • The option to purchase was extended to January 2016 with a $250,000 payment from Passport upon signing of the amendment
  • $250,000 to be paid by August 28, 2014
  • $250,000 to be paid by May 1, 2015

Fitzgerald Ranch (41,000 acres/16,592)

On August 17, 2011 Passport entered into a binding letter of intent with co-trustees of the Fitzgerald Living Trust to acquire real estate covering 41,000 contiguous acres of royalty-free private land (the “Fitzgerald Ranch”) located adjacent to the Twin Buttes Ranch.  On May 14, 2012, the Company announced that it had entered into a purchase agreement to acquire a 100% undivided interest in the deeded land and sub-surface mineral and water rights of the Fitzgerald Ranch.  There are no royalties associated with the sub-surface mineral rights.

The Agreement grants Passport the right to perform exploration activities on the property.  An 8 additional drill holes added to the Company’s 2012 drill program were drilled on the Ranch.

Southwest Exploration Property ( 8,413.3 acres/3,404.76 hectares)

On February 13, 2012 Passport and Southwest Exploration Property entered into an Option Agreement whereby Passport acquired an undivided 100% interest in 13 Arizona State Land Department exploration permits (“ASLD Exploration Permits”) comprising 8,413.3 acres (3,404.76 ha) of mineral exploration property held by Southwest Exploration Property.  An  additional 32 ASLD Exploration Permits were made part of the property pursuant to a provision in the Option Agreement permitting the acquisition. The 45 acquired ASLD Exploration Permits are held by PPI Holding Corporation, Passport’s wholly owned Arizona subsidiary.

Sweetwater/American Potash Property (3,200 acres/ 1,295 hectares)

On March 27, 2012, Passport exercised an option under to acquire 5 ASLD Exploration Permits from Sweetwater and to repurchase a 2% NSR royalty in respect of those permits.  The exploration permits cover more than 3,200 acres and are held by PPI Holding Corporation, our wholly owned subsidiary.

Mesa Uranium Property  (1,950 acres/ 789 hectares)

On February 13, 2012, Passport completed the exercise of its option to acquire a 75% interest in theMesapermits.  On March 9, 2012, we announced that we had exercised our option to acquire the remaining 25% interest in the Mesa properties under the Mesa Option Agreement and to acquire the 2% NSR on those properties thereby acquiring a royalty-free, 100% interest in the Mesa properties.  The permits are held by PPI Holding Corporation, our wholly owned subsidiary.

Ringbolt Property (15,994.32 acres/ 6,472.67 hectares)

On March 28, 2011 Passport entered into an option agreement with Ringbolt Ventures Ltd., Potash Green, LLC, Wendy Walker Tibbetts and Joseph J. Hansen whereby the Company was given the right to acquire a 100% interest in Ringbolt’s potash property in the Holbrook Basin.  The Ringbolt property is comprised of 15,994.32 acres of ASLD exploration permits.

On October 30, 2011 Passport entered into an amended option agreement to acquire a 100% undivided legal and beneficial interest in and to the Ringbolt Property free and clear of all encumbrances in exploration leases.

Joint Exploration Agreement with the Hopi

Passport has entered into two agreements with the Hopi Tribe. The first agreement gave the Passport the right to cross Hopi private lands so as to access the Company’s lands.  The second agreement, a Joint Exploration Agreement, grants Passport ingress and egress to and from the lands of the Company and the Hopi to investigate the presence, quantity and quality of potash, as well as to gather and determine other information pertinent to mineral drilling and coring, provided that the Company supply the Hopi with all developed data  concerning the Hopi lands and minerals found. Passport also agreed to drill and core no less than 8 holes on the Hopi lands, where directed by ERCOSPLAN, and that the resulting report would be jointly owned.

Passport and the Hopi have further agreed to work toward a Mine Development Agreement.  This agreement will be founded on work to be completed in the near term, including the joint exploration program and subsequent resource report, a preliminary feasibility study and a bankable feasibility study determining the value and scope of a joint minable potash resource.

Joint Exploration Agreement with HNZ Potash

Passport and HNZ Potash LLC (“HNZ”) entered into a Joint Exploration Agreement, effective July 27, 2012, whereby Passport assigned a 50% interest in ASLD permits to HNZ which, in turn, agreed to pay 50% of the costs previously incurred by Passport with respect to holding, renting, exploring and renewing the permits. If justified, joint exploration and evaluation will lead to both parties mutually seeking mining leases with the State of Arizona. Full vehicular access to each others lands is granted and the adjoining properties of the Hopi and their affiliates are identified as being a mutual area of interest.

Infrastructure

An important aspect that sets Passport apart from other potash projects around the world is the excellent infrastructure in existence and use in Northeast Arizona.

Surface Highway – Truck Transport

The US Interstate (I-40) is a major west – east interstate highway which intersects 8 north – south interstate highways.  US Routes 77 and 180 run from I-40 into Passport’s potash project area. Full service truck transport and support systems throughout the southwest US, by way of route I-40, are readily available to the project for both construction material and finished product transport.

Railroad – Unit train product shipments

The Burlington Northern Santa Fe (BNSF) mainline, a main dual rail track for heavy-duty service, is located to the north of Passport’s potash project Area.  The BNSF is part of the southwest transportation system and runs throughFort Worth,Texas(BNSF headquarters) to the west throughNew Mexico,Arizonaand intoCaliforniaand then east throughNew Mexicointo the heartland ofUScrop production regions. TheUSports ofSan Diego,Stockton,Long Beach,Houstonand the Mexican ports of Guymas and Topolabampo are easily accessible and suitable for international shipping.

The Apache Railroad also provides a significant opportunity for unit train storage and switching to an active connection with the BNSF line in Holbrook, Arizona. As a a short line railroad situated due west of Passport’s proposed location for a product processing plant site, the Apache Railroad offers an alternative as an indirect access

to the BNSF track. Passport represents the largest potential shipping volume for the long-term operating sustainability of the Apache Railroad whose system offers ample space for the short-term storage of 100-car units trains awaiting access onto the BNSF rail system.

Energy

A coal-fired power station (the Cholla Plant) and electricity distribution network, as well as a natural gas supply system are in close proximity to Passport’s potash project site and are available to provide the energy required for operations should electricity and waste steam be needed.

Water for Process and Mining Operations

Water rights are attached to Passport’s private properties and are expected to be utilized for process and mining operations.  Water for drilling and exploration activities is available from range tank wells as well as from the Little Colorado River.

Evaporative Product processing potential

Passport’s private lands offer the alternative to build large evaporative ponds to take advantage of  significant evaporative potential.  The economics of evaporative capacity will be analyzed in great detail in a Prefeasibility Study.

Port Facilities

Passport is located in relative close proximity to ports in California, Texas and the Gulf of Mexico for servicing foreign emerging markets. Facilities under evaluation have open potential to construct high-speed ship loading capacity suitable for varied size bulk cargo carriers and minimized demurrage.

Potash Mineralization on Passport’s Properties

Potash mineralization in the form of sylvinite underlies substantial parts of Passport’s properties in the Holbrook Basin. The deposit has been shown to exist in a large number (>100) of historical drill holes and in all recent Passport drill holes. Based on assay and geophysical borehole data, the potash horizon consists of up to 3 seams (beds) each with varying thickness, grades and continuity. The beds are at a shallow depth (800 – 1400 ft).

NI 43-101 Updated Resource Report

An NI 43-101 compliant mineral resource report by ERCOSPLAN, dated February 19, 2013 but effective February 5, 2013, reports the separate and combined results for approximately 37% of the Passport properties investigated and only 3 drill holes cored and assayed for the Hopi properties.

Table 1

Measured
Mineral
Resources

Indicated
Mineral
Resources

PASSPORT Property
Millions of Tonnes of Mineralized Material

28.81

285.30

Average KCl Grade (%)

14.43

14.81

HOPI TRIBE’S Property
Millions of Tonnes of Mineralized Material

5.96

77.87

Average KCl Grade (%)

14.17

14.19

TOTAL Both Properties
Millions of Tonnes of Mineralized Material

34.77

363.17

Average KCl Grade (%)

14.38

14.68

 

Table 2

Inferred
Mineral
Resources

PASSPORT Property
Millions of Tonnes of Mineralized Material

638.30

Average KCl Grade (%)

12.85

HOPI TRIBE’S Property
Millions of Tonnes of Mineralized Material

152.44

Average KCl Grade (%)

13.57

TOTAL Both Properties
Millions of Tonnes of Mineralized Material

790.73

Average KCl Grade (%)

12.99

 

Measured mineral resources occur within a radius of 300m of an investigated drill hole, indicated mineral resources within 1,000m of an investigated drill hole minus any measured mineral resources in this area. Inferred mineral resources occur within 2,000m of an investigated drill hole minus any measured and indicated mineral resources in this area.

Preliminary Economic Assessment

A Preliminary Economic Assessment (“PEA”) for the combined properties of Passport and the Hopi has been received from ERCOSPLAN. The key findings include the following:

KEY FINANCIAL HIGHLIGHTS
Pre-tax NPV@12% $3.25 billion USD
Pre-tax IRR (30% income tax rate) 31.59%
After-tax NPV@12% $2.19 billion USD
After-tax IRR (30% income tax rate) 27.08%
Estimated Total Capital Expenditures $1.949 billion USD
Estimated Total Operating Expenditures (includes sustaining OPEX) $114/tonne KCl USD
Payback Period (from start of production) 8 years
ASSUMPTIONS
Discount Rate for Project Related Risks 12%
Potash Price for 2013 (standard MOP) $430/tonne USD
Accuracy +/-35%
KEY RESOURCE HIGHLIGHTS*
Measured Mineral Resources (including Passport and Hopi properties) 34.77 MT
Average Measured KCl Grade 14.38%
Indicated Mineral Resources (including Passport and Hopi properties) 363.17 MT
Average Indicated KCl Grade 14.68%
KEY MINING PRODUCTION HIGHLIGHTS
Annual Production (60% minimum K2O) 2.5 MT MOP
Life of Mine 26 years
Mining Method Conventional UndergroundRoom & Pillar
Processing method Hot Leach
Plant Recovery Rate (KCl) 89.8%
Estimated Employees (Mining, Production, Management) 1,770

*Mineral resources that are not mineral reserves do not have demonstrated economic viability.

According to ERCOSPLAN: “The results show that the project is most vulnerable to changing product prices, but would even at a price drop of 30% still be economically viable. The figures furthermore indicate that PASSPORT will be able to service its debts at all times during the scenarios run, even with higher associated risks.”

SUMMARY

With its experienced management team, Passport Potash is working to develop its shallow potash deposits in the Holbrook Basin of Arizona, one of the top mining districts in the world. A preliminary economic assessment has been completed by ERCOSPLAN with regards to the project, and Passport is currently working towards completing pre-feasibility and feasibility.

Passport has secured roughly 121,000 acres of land holdings in the Holbrook Basin, with substantial upside potential for the expansion of existing resources. In addition to being located near excellent rail, road and power infrastructure with access to international ports, Passport’s potash deposits in the area have been shown to relatively shallow, giving the project the possibility for low cost development and production.

Management

Joshua Bleak – President, CEO, and Director
Mr. Bleak is a fourth‐generation miner from an Arizona mining family that has developed gold, silver, copper and uranium properties throughout the southwestern United States. He was previously President of American Energy Fields, Inc., a U.S. publicly‐traded uranium company. Currently he serves as a director for a number of Canadian junior mining exploration companies and is President of North American Environmental Corp., a consulting company specializing in mining project management, permitting, lobbying and land tenure.

Michael X. Schlumpberger – COO
Mr. Schlumpberger is a mining engineer with 27 years of experience in the mining industry, with over 21 years with Potash Corporation of Saskatchewan (“PotashCorp”). During his career he has acquired significant experience in almost all phases of mining operations.

Before starting his career with PotashCorp, Mr. Schlumpberger began his career as a mining engineer with the U. S. Bureau of Mines in Minneapolis. He then worked as a production supervisor for Unimin Corporation where he supervised the production of a 500,000 ton per year silica sand mining and processing operation.

During his career with PotashCorp, Mr. Schlumpberger worked in many positions, including: maintenance mining engineer, production engineer for prestripping; production engineer for mine services (blend and reclamation); mining engineer for mine and reclamation planning for mining operations; mine services coordinator for mine planning and services; assistant to manager of mining operations; mill superintendent; maintenance and materials manager; operations manager, and mine general superintendent.

David J. Salisbury – Chairman of the Board of Directors and Director
Mr. Salisbury has had an extensive career in the mining industry spanning four decades. Seventeen of those years were working for Rio Tinto. While with Rio Tinto, he served as CEO and President of Resolution Copper Mining as well as President and CEO of Kennecott Minerals Company. Mr. Salisbury was the leader for the Rio Tinto global improvement program, Improving Performance Together.

Prior to joining Rio Tinto, Mr. Salisbury served as the President of Cordero Mining Company/Sun Coal Company and was responsible for the operation of the Cordero Mine.  He also Served as President and COO of the Al Hamilton Operation Company/Bradford Coal Company.

John Eckersley – Executive Vice-President and Director
Mr. Eckersley has been with Passport Potash for two years. He is an attorney focusing on the areas of corporate and securities law. He served as corporate counsel for HNFC, a boutique consulting firm specializing in corporate strategies, corporate mergers, acquisitions, capital and credit placement accommodations, and in various regulatory compliance filings and registrations. He received his Bachelor of Science, cum laude, and his Juris Doctorate from the University of Utah.

Ali Rahimtula – Director 

Mr. Rahimtula is the president and founder of Transnational Enterprises, Ltd., DBA Transfert America. Transnational is a member of the Rahimtula Group, an organization that was a pioneer in the fertilizer business in India and which has been an Indian domestic industry leader since the 1960s.