The intense interest in potash in the last 24 months
is due to the increased yield requirement from the global food production
conglomerate of a increasingly crowded planet.
Combined with supply tightness and higher potash prices, there is strong
motivation to bring new potash mines on stream as quickly as possible.
As the world's population
continues to increase (to a forecasted 9 billion people by 2050), developing
countries are consuming more meat (which has a multiplier effect on grain
consumption), and with the amount of arable land decreasing globally, farmers
will need to produce higher yields from less land. The combination of these
factors requires increased fertilizer application to maximize yield,
supporting potash demand growth of 2%-3% per year (or 1.5 million tonnes-2.0
million tonnes per year).
Canada currently ranks
as the world’s number one source of potash, most of which is
concentrated in southern Saskatchewan.
At present, there are 10
potash mines located in Saskatchewan and two
additional mines located in the province
of New Brunswick.
Additional potash exploration initiatives have been undertaken by a variety
of new companies, which have focused their activity in Saskatchewan
and south-west Manitoba.
In a research report dated
August 25, 2008, CIBC World Markets identifies two of the most promising
companies as leading the race to production in Saskatchewan, where grades are highest and
infrastructure present.
These are Potash One Inc (KCLOF.PK) and Potash
North Resource Corporation (PTNHF.PK).
The reasons these two
companies lead the race is by virtue of the management teams and the financial
firepower they bring to bear on the future development prospect of actually
putting a mine into production, which costs in excess of $4 billion for a
solution mine and over $5 billion for a conventional mine.
In the case of Potash One,
company president Paul Matysek has demonstrated the ability to bring a company
from a junior to a billion dollar takeout target with the sale of Uranium One
to sxrUranium for over $1 billion in 2005. Potash
North is headed by serial mining entrepreneur Craig Angus who has overseen
the development of many grass roots projects into major producing
mines.
Potash One is developing
the the Legacy project, which contains economically
viable potash deposits in the PatienceLake and Belle Plaine members. The potash in these members is best
recovered through solution mining methods. The magnesium chloride levels of
both the beds under investigation are well below threshold values (1% of
magnesium content is acceptable) and, therefore, are still considered
suitable candidates for potash extraction. Potash One has found that the
indicated and inferred resource levels for the Patience Lake and Belle Plaine solution mines are 37 million tonnes of K20 and
360 million tonnes of K20, respectively.
Potash North acquired
interest in two potash exploration permits covering part of eastern Saskatchewan's Middle
Devonian age Prairie Evaporate Formation sequence. The Prairie Evaporite Formation sequence hosts the potash beds
currently mined at the nearby Rocanville, Mosaic
K-1 and K-2 mines.
Potash One has been the
subject of several research reports by major Canadian investment banks. GMP
Securities in Toronto
issued a buy recommendation to $8.80 a share on June 10 this year, and
Jennings Capital suggested its clients buy shares in Potash One with a target
over $10.00. But the National Bank, also in June, issued a buy recommendation
putting its target at a whopping $12.00 a share.
Potash North recently
closed a financing wherein it raised a total of $30,750,000 at $2.50 per unit
giving the company $30.4 million in the treasury. In July, Potash North
engaged Boyd| Petro Search of Calgary,
Alberta to conduct a 2D seismic
survey of the KP 416 and KP 417 permit areas.
BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RTP) have become intensely
active in potash this year, which BHP making an acquisition of a junior and
Rio Tinto publicly stating its intention to provide 10% of the global potash
market by 2012.
Considering the advanced
state and superior land positions of both Potash One and Potash North, it
would not be at all surprising to see one or both of these companies
bought.
Potash Demand
Going Forward
In 2007 consumption of
potash totaled 30 million nutrient tons, with China, the U.S.,
Brazil, India and Southeast Asia
consuming two-thirds of global potash fertilizer. Expectations are that
global potash demand over the next four to five years will grow at an
annualized rate of "3% driven by increased demand from Asia and South America. Over the next couple of years, though,
we could see demand below trend levels given that the world is short potash
and importing countries are on allocation.
China: While China has
been the largest importer of potash, and in 2007 saw demand increase
"20% year over year, over the next five years, demand is expected to
grow at a lower rate (roughly 2%) given the increase in domestic production.
For 2008, however,
expectations are that potash demand will decline given rising prices and
major suppliers placing China
on allocation.
India: Expectations
are that total nutrient demand will remain strong in India,
expected to grow 7% year over year in 2008/2009. The region's long-term objective
is to balance its fertilizer application with an increasing focus on
phosphate and potash versus nitrogen. In South Asia (India, Pakistan
and Bangladesh),
potash demand will be supported by grain self-sufficiency objectives by the
government and fertilizer subsidies.
South America:South America saw a surge in potash demand in 2007, up
16.3% year over year, and the outlook remains positive. Over the medium term,
expectations are that potash demand will continue to grow as the region
expands its soybean output (soybean requires potash and phosphate but very
little nitrogen).
North America: Fertilizer
consumption contracted in 2008 as U.S. farmers switched from corn
to soybean (which is less fertilizer intensive). With corn acres expected to
recover next year, regional fertilizer consumption is expected to increase,
with potash demand forecast to be up 3.6% year over year. Over the next five
years, potash demand growth is expected to increase 1.5%/annum driven by
strong agricultural pricing and growth in non-traditional grain demand (i.e.,
biofuel).
Information
contained herein is obtained from sources believed to be reliable, but its
accuracy cannot be guaranteed. It is not intended to constitute individual
investment advice and is not designed to meet your personal financial
situation. The opinions expressed herein are those of the author and are subject to change without notice.
The information herein may become outdated and there is no obligation to
update any such information. The author,
24hGold, entities in which they have an interest, family and associates may
from time to time have positions in the securities or commodities discussed.
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