April 1, 2011 / 1:52 PM / 6 years ago

UPDATE 2-Karnalyte eyes jump in size of its potash resource

* Expects to upgrade 60-70 pct of its inferred resource

* Sees capital expenditures well below industry average (Adds details from interview, background)

TORONTO, April 1 (Reuters) - Potash exploration company Karnalyte Resources KRN.TO expects to report a large jump this fall in the size of its potash resource at Wynyard, Saskatchewan, Chief Executive Robin Phinney says.

“We are expecting that we will get a very, very large increase in resource tonnage later this fall,” Phinney said in an interview with Reuters late on Thursday.

Phinney, who was formerly a long-time process chemist at Potash Corp (POT.TO), said Karnalyte fully expects to transfer about 60 to 70 percent of its 186 million tonne inferred resource of potash, a crop nutrient, into the firmer “indicated” category by this fall.

“I‘m expecting the project feasibility to be completed by the end of the year,” Phinney said, adding that the company now has 56 million tonnes of potash in the indicated resource category.

Initially, the company plans to build a C$410 million ($427 million) facility that can produce 500,000 tonnes of potash annually through a technique know as solution mining. Eventually, it plans to expand annual capacity to 2 million tonnes.

In terms of capital cost, Phinney said the Wynyard project is one of the world’s most viable new potash projects. The project is located slightly east of Potash Corp’s Lanigan mine and is in the vicinity of BHP Billiton’s (BHP.AX) (BLT.L) Jansen project.

Capital costs for conventional potash projects run into billions of dollars. Although the alternative solution-mining technique is cheaper to build, operating costs are typically higher due to bigger energy requirements.

Phinney said, however, he is confident that Karnalyte can keep operating costs in line with those of industry peers.

“Right now our operating cost projections are at about C$150 a tonne,” said Phinney, who sees the potential to bring those costs lower once the company completes its feasibility study on the project.

$1=$0.96 Canadian Reporting by Euan Rocha; editing by Peter Galloway

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