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Potash Mining Grows In Arizona On Food Demand Surge
01 Jul 2011 07:35 EDT DJ FOCUS
(This article was originally published Thursday.)
By Ian Berry Of DOW JONES NEWSWIRES
Relentless growth in global food demand is drawing small mining companies to a national park in Arizona's Holbrook region that contains a key fertilizer ingredient: potash.
This nutrient, widely used in soil fertilizers, has gone in recent years from little known to a global commodity in strong demand, as China and India hunger for more crops. While the U.S. is the world's largest crop producer, it historically has mined little potash, instead relying on the Canadian mines of such large fertilizer producers as Potash Corp. of Saskatchewan (POT), Mosaic Co. (MOS) and Agrium Inc. (AGR).
Companies such as Passport Potash Inc. (PPI) are exploring a basin within the boundaries of Arizona's Petrified Forest National Park that geologists say could hold as much as 2.5 billion tons of potash.
Analysts estimate the Arizona basin could produce 1 million to 2 million tons of potash annually, or about 3% of current global production. Because the site is along a rail line connected to the Port of Long Beach in California, producers could export supplies to Asia.
The size of the reserve and forecast for global demand is drawing strong interest in northeast Arizona, particularly from small junior mining companies. They dotted the basin with bore holes to assess the mining potential.
"It's staggering. It's a very aggressive research program out there. Every time we turn around there's another 10 or 15 permits showing up for this," said Lee Allison, the state's geologist.
Nearly half of the potash is within the national park's boundaries, which Congress expanded in 2004. However, a majority of that can still be mined. Congress never appropriated any money to purchase the new land, so an estimated 28% of the potash is in the expanded boundary area, under land that is still owned privately or by state trusts, Allison said.
Conservation groups have little recourse to stop mining, after unsuccessfully fighting a bill the Arizona legislature approved this year allowing mining on the state trust lands, said Sandy Bahr, director of the Sierra Club's state chapter.
Much of the land is in the hands of Canadian-based Passport Potash and a couple other companies. With potash prices at more than $400 a ton--down from record highs of $1,000 in 2008, but still well above historical norms--the basin could produce hundreds of billions of dollars in supplies, Allison said.
"Anywhere between $300 and $500 [a ton] is a very comfortable range for us," Passport Chief Executive Joshua Bleak said in an interview.
Other companies are making similar bets on global fertilizer demand.
Expansions planned by Potash, Agrium and Mosaic and others will add nearly 20 million tons of additional annual capacity, or about a third of current global production, over the next several years, said Charles Neivert, analyst with Dahlman-Rose.
That's before accounting for more speculative plans by mining giants such as Vale SA (VALE) and BHP Billiton Ltd. (BHP). The result of all the expansion could be close to 100 million tons of total, annual production, potentially more than the market can handle, Neivert said. "You're adding over 50% to a market they're saying is growing 3% a year," Neivert said. "And they're going to do this over the next 10 to 12 years.
" Still, producers in Arizona could be well-positioned because costs will likely be low, giving them an advantage, and the presence of new export supplies out of Arizona could cause headaches for what Neivert called "a very tight global oligopoly" that controls potash supplies.
Two companies in addition to Passport have significant holdings in the Holbrook region: HNZ Holding, a joint venture including Hunt Oil Co., and Prospect Global Resources. Neither company responded to requests for comment.
Prospect is chaired by Barry Munitz, former head of the J. Paul Getty Trust. It's run by Pat Avery, former president of Intrepid Potash Inc. (IPI), the largest U.S. producer of potash. Passport, meanwhile, has financial backing from Phillip Frost, a Florida billionaire and pharmaceutical entrepreneur who is its largest shareholder.
Ultimately, the companies vying to mine in the Arizona basin are likely to become acquisition targets, analysts said. "If they get closer to production, then I think the sharks will start circling," said Sean Brodrick, an analyst with Weiss Research.
Still, analysts note the project remains in the exploration phase, and the extent of the reserves, and how it could be extracted, aren't fully resolved.
(Ian Berry covers agribusiness for Dow Jones Newswires,
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