Regional Geology.

The Ochoa project lies at the northeastern margin of the Delaware Basin. The Delaware Basin and neighboring Midland Basin to the east are structural sub-basins of the large Permian Basin that dominated the region of southeastern New Mexico, west Texas and northern Mexico from 265 to 230 million years ago. The Permian Basin is an asymmetrical depression formed on top of Precambrian basement rocks. Marine sediments accumulated in the basin throughout the Paleozoic era. The slow collision of the North American and South American crustal plates resulted in tectonic subdivision of the Permian Basin into numerous sub-basins, of which the Delaware and Midland basins are the largest (Ward et al. 1986).

There are limited bedrock exposures in the project area, and surface conditions are dominated by windblown sand dunes, caliche, and poorly developed soil horizons. Extensive and thick evaporite deposits occur throughout the Late Permian (Ochoan) age rocks of the Delaware Basin. These evaporites occur between the Capitan Formation of the underlying Guadalupe Series and the fine clastic sediments of the Triassic Dewey Lake Red Beds. General stratigraphy is shown on the following figure (Johnson et al. 2003) and briefly described below.

Quaternary Alluvium
Alluvial gravel, sand, and silt deposited by the Pecos River and its tributaries underlie much of the Carlsbad, New Mexico area (Barroll et al. 2004). Below the alluvium, deposits of gypsum, red silt, and clay are interbedded in places with thin lenses of gravel. The red silt and clay are not alluvium but rather a residue of Ochoan Series soluble salts and gypsum that were removed by solution (Bjorklund and Motts 1959; Mercer 1983).

Ochoan Series

Chinle Group
The Chinle Group of the Delaware Basin consists of two members: the Santa Rosa Formation and the Dockum Formation. The Santa Rosa Formation unconformably overlies the Dewey Lake Red Beds (Hill 1996) and is conformably overlain by the Dockum Formation in the easternmost Delaware Basin (Hill 1996).

The Santa Rosa Formation consists of medium- to coarse-grained sandstone and conglomerate, with interbedded siltstone and silty claystone (Mercer 1983; Hill 1996). The Santa Rosa Formation reaches a maximum thickness of 492 feet in Ward County, TX. Approximately 50 feet to 65 feet of the lower Santa Rosa Formation is exposed on the northern and northeastern sides of Nash Draw, southeast of Carlsbad, NM. At the Waste Isolation Pilot Plant (WIPP) site, the Santa Rosa Formation exists only on the eastern half of the site, having been eroded away to the west (Mercer 1983). The formation thickness varies from 10 feet to 26 feet at the WIPP site (Hill 1996).

The Dockum Formation is composed of mudstone, siltstone, and fine-grained sandstone. The formation reaches a maximum of 1,312 feet in eastern Lea County, NM and is absent in the western part of southern Lea County, NM (Hill 1996). The thickness was measured at 230 feet in the San Simon Swale, 15 miles east of the WIPP site, and was encountered in a test hole four miles southeast of the WIPP site (Mercer 1983; Hill 1996).

Dewey Lake Red Beds
The Dewey Lake Red Beds are unconformably overlain by the Chinle Group (Hill 1996). The deposits consist of red siltstone, sandstone, shale, and contain no evaporates (Bjorklund and Motts 1959). The Dewey Lake Red Beds Formation ranges in thickness from 345 feet to 541 feet at the WIPP site (Mercer 1983).

Rustler Formation
The Rustler Formation, which lies beneath a conformable contact with the Dewey Lake Red Beds Formation, is the youngest unit in the Ochoan evaporite sequence (Mercer 1983). It consists of dolomite, siltstone, anhydrite, and halite (Hill 1996) and is lithologically similar to the underlying Salado Formation, but contains significantly more dolomite and terrigenous clastics (Hill 1996). The Rustler Formation thickness is highly variable due to the solution of anhydrite by groundwater, which has resulted in residues of gypsum and red silt interbedded with dolomite (Bjorklund and Motts 1959; Hill 1996). In the Malaga Bend, NM area of the Pecos River, south of Carlsbad, NM and in some areas of Nash Draw, extensive dissolution and erosion of the halite and anhydrite beds has occurred. In the Malaga Bend area, this has resulted in development of karst formations (Mercer 1983).

In the vicinity of the WIPP site, the Rustler Formation varies in thickness from 100 feet (southwest of the site) to 450 feet (northeast of the site) (Mercer 1983). The Rustler Formation is more than 390 feet thick in eastern Eddy County, NM and thickens to 650 feet in the southern part of the basin (Hill 1996). Farther west, the Rustler Formation is missing due to erosion by the Pecos River (Hiss 1975). The Tamarisk Member of the Rustler Formation is host to the Ochoa Polyhalite Deposit.

Salado Formation
The Salado Formation is part of the Late Permian Ochoan Series of west Texas and southeastern New Mexico, and consists of generally flat-lying beds composed of halite, muddy halite, anhydrite, polyhalite, dolostone, and mudstone (Lowenstein 1988). Although it can be as much as 2,300 feet thick (Lowenstein 1988), the Salado Formation has disappeared along the western margin of the basin, where the reef has been uplifted and the Pecos River has cut down into the reef complex. Potassium minerals in the Salado Formation are interbedded within the anhydrite and halite stratigraphic units.

A red silt and clay layer occurs at the contact of the Salado Formation and the overlying Rustler Formation (Bjorklund and Motts 1959; Bachman 1983). Composed of clay with interlayered seams of gypsum and sandstone, this layer exists between the Salado Formation and the Rustler Formation in Nash Draw and represents residuum from the dissolution of clayey halite and other evaporites in the upper Salado Formation (Mercer 1983). The thickness of the residuum is variable.

Dissolution of the Salado Formation adjacent to the Capitan Aquifer has led to formation of sinks and collapsed breccias (Hill 1996). In these areas, the Salado Formation has been reduced in thickness resulting in solution and slumping of the overlying Rustler Formation (Hill 1996). The deeper depressions are filled with more than 1,180 feet of Cenozoic sediments. Potassium bearing beds of the Salado likely underlay ICP lease holdings and will be incorporated into the Company’s exploration and corporate growth strategy.

Castile Formation
The Castile Formation represents the oldest evaporite cycle of the Ochoan Series in the Delaware Basin. Bachman (1983) describes the Castile Formation as follows:

Anhydrite is the dominant rock type in the Castile Formation. Halite is present in the formation in the subsurface, but is much less prominent than the halite in the overlying Salado Formation. Limestone interlaminated in anhydrite, thin beds of limestone and minor amounts of dolomite and magnesite are also constituents of the Castile Formation.

Although the anhydrite and gypsum in the Castile Formation are usually thinly laminated, massive beds of these rock types are present in places in the upper part of the formation (Bachman 1983). The Castile Formation interfingers with the Capitan Formation (Bjorklund and Motts 1959), with the slope carbonates thinning and basinal siliciclastics thickening towards the basin (Harris and Saller 1999).

The thickness of the Castile Formation ranges from about 1,500 feet to 1,700 feet, reaching 2,100 feet locally in north-central Loving County, TX. Thicknesses of approximately 1,700 feet have been reported in Winkler County, TX (Garza and Wesselman 1959), and approximately 900 feet in the region overlying the Capitan Reef Complex in Pecos County, TX (Armstrong and McMillion 1961).

Evaporite Lithology
The Carlsbad Potash District (Carlsbad, NM) is located in the northwestern corner of the Delaware Basin in southeastern New Mexico. Upper Permian deposits in the Delaware Basin are characterized by a thick accumulation of evaporite rocks subdivided, from bottom to top, into the Castile, Salado, and Rustler Formations. Collectively, the Castile, Salado, and Rustler evaporite-bearing formations are more than 4,000 feet thick. The oldest evaporite cycle of the Ochoan Series is the Castile Formation, consisting of anhydrite and halite. The overlying Salado Formation is structurally and lithologically complex and, in addition to cyclic anhydrite, halite, and clay, it is also host to the McNutt potash zone. All historic and current potash production has been from the Salado Formation as sylvinite (a mixture of sylvite and halite) and langbeinite.

Conceptual Cross Section of the Delaware Basin

The Rustler Formation is the youngest of the evaporite-bearing formations. It is comprised of five members, of which the Tamarisk is the middle member. It consists of interbedded shale, siltstone, halite, anhydrite, and polyhalite. Based on ICP’s interpretation of nearly 900 geophysical and 30 diamond drill holes, the polyhalite is up to 6.5 feet thick and occurs at depths of 1,200 feet to 2,000 feet below surface.