Month in Review: Shares drop but Potash Market Conditions improving

Potash-Phosphate-Month-in-Review1-300x210In February the share prices for ProEdgeWire Potash and Phosphate sponsors dropped by a total of 8.63%, reflecting a decline in the share price for some of the major producers. Allana Potash (TSX: AAA | OTCQX: ALLRF) lost the most ground, closing the month at -17.24%. Magna Resources (CNSX: MNA), meanwhile, gained 7.69% in February. Potash Minerals (ASX: POK), which is also developing a resource in Utah, gained 7.04%. The similar results and similar jurisdiction suggest the reason for investors’ optimism is related to rumors that the Bureau of Land Management, which controls federal territory has been edging closer to the granting of drilling rights, which would open up the area for additional and significant exploration.

Others like IC Potash (TSX: ICP | OTCQX: ICPTF) and Aguia Resources (ASX: AGR) were essentially flat losing about 3% while U3O8 Corp (TSX: UWE | OTCQX: UWEFF), which is working on a uranium and phosphate project in Colombia, lost in the order of 17%. It is not easy to read investor sentiment in the most favorable or stable of markets; however, today, the most stable quality that markets possess is their ability to change sharply and, often, for reasons that defy logic. In Allana’s case, the company may have suffered from what can be described as ‘Eritrean’ contagion as the Australian potash miner ‘South Boulder Mines’ has dropped more than 60% in the past six months, reflecting an ever harder regulatory environment in the country. In early February, in fact, South Boulder’s CEO resigned, and while he offered no public statements explaining the decision, the fact that this step came after rumors of an attempted coup against Eritrean dictator Isaias Afwerki and growing reputation risks stemming from the Eritrean government apparent encouragement of companies to use of labor patterns reminiscent of ‘slave labor’ possibly contributed to a loss of enthusiasm. Moreover, the Eritrean government has been rumored to offer harsher terms for the project, which forced South Boulder to drop out of the S&P/ASX 200 index in Australia.

Allana has caught a minor cold from the Eritrean ‘flu’ in that its resource is geologically related to South Boulder’s, given that both countries’ potash is based in the shared Danakil Depression, identified as one of the most prolific and accessible potash producing areas in the world. A general slump in commodity prices, continued instability in the European markets – the latest trigger for a slump being the Italian election – also played their part. In this mixed framework, the news from the potash majors was rather on the favorable side. The mineral fertilizer sector, in the latter half of 2012, was especially concerned with issues of future demand and international agreements as well as the failure of farmers to renew orders in India and a ‘low’ sale price last December to China at USD$ 400/ton for the 2013 contract. Nevertheless, the USD$ 400/ton price also established a new floor, proven by the fact that India ended up signing the 2013 supply contract at USD$ 427/ton, highlighting the increasingly global nature of this business both in sourcing and market reach.

This overall favorable prospect was then forced to contend with some speculation about the long term prospects for two new giant-size potash projects from BHP Billiton – which saw a change at the helm – and Vale SA. BHP has still not confirmed whether or not it will complete the USD$ 14 billion Jansen mine project in Saskatchewan, while Vale SA has been playing a ‘sitting on the fence’ game with respect to its Rio Horizonte project in Argentina in an attempt, perhaps, to either find a partner with which to share the additional foreign exchange burden now plaguing the Argentinean economy or wait for a reversal of some of the Argentinean government’s recent economic policies, which seem squarely aimed at repelling foreign investment. Nonetheless, for the potash sector in general, as the Chinese and Indian contracts have been fully settled, the markets should soon start to recognize an upside as demand is likely to grow, keeping prices steady or pushing them higher.

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  1. Alessandro, your report on Eritrea’s mining sector is contrary to your reports in many cases. I have no idea how your assumptions are formed. But you proved, once again, to be less intelligent (intentionally or not), at least, on the economic affairs of the Horn of Africa. Your conclusions on the investment climate in Eritrea are contrary to the facts on the ground. A good example is, the Canadian Gold miner, Nevsun (NSU.TO). This company continues to generate cash and make more money, unbridled. The company projects more copper and more cash in the coming years. In investment terms, this is aligned to positive investment climate.
    As for the resignation of South Boulder Mines’ executive and its current state, blame it on the location of the potash resource. Allana Potash is not going to escape from such kind of scenario, not because of the political situation inside Eritrea, but because of the facts on the Ethiopian side. Both of these companies sit in a mutually shared resource base. They have the same probability of success, from the political analysis point of view. You are giving Eritrea a lot of credit for Allana’s ‘flu’ and ills. Sometimes, you sound like some of the ardent supporters of the minority regime in Ethiopia who tend to blame every ‘flu’ in Ethiopia on the regime ruling Eritrea. I am not sure how being biased helps your career or wallet. But you need to understand that Ethiopia has enough ‘flu’ of her own bigger than the ‘flu’ that you perceive to be the roadblock for Western companies’ financial successes. Just attend a ‘Friday prayer’ and talk to the majority of Ethiopians who are languishing under the tyranny of a minority regime that represents 6% of the Ethiopian public. Then you will have a better magnifying glass that can help you assess the situation better than your current state … unless your reports are intentionally carved to blackmail the majority and twist the realities on the ground for some ulterior motives.
    Good luck on your next twist ..

    • I must stand up for Alessandro. He is flying back tonight from being on a U.S. military base in Italy for the last week having been flown in to provide expertise on — Africa. With 9 languages under his belt, ‘less than intelligent’ is not usually used when describing him…PS. I would like you to refrain from utilizing the nickname of a public company to whom you do not represent in your commentary unless authorized to do so. Allana will have Alessandro on their property in a couple of weeks and he can comment first hand on Ethiopia.

    • There is no twist needed. The huge number of people escaping from Eritrea, risking their lives to reach the Israeli/Egyptian border or other seashores on the Mediterranean or the Red Sea, heading for Yemen, offer plenty of proof that Eritrea is a human rights disaster. The Canadian gold company Nevsun is riksing major fallout from investors increasingly concerned by human rights risks (you don’t have to be a humanitarian to appreciate the financial risks this can cause nowadays that ‘sustainability’ is a household term). I may even mention the fact that South Boulder’s CEO quit after it became increasingly evident of what kind of game Afwerki’s regime is playing. I would suggest you follow Eritrea very very closely if you have investments in any company involved there.

      • Remember to visit the wretched and the forgotten poor in Afar when you get there. Not all journalists in Ethiopia have your kind of freedom to report on the misery inflicted by the minority regime in Ethiopia. Remember to be fair and balanced.

  2. I and the commentator above have no doubt Alessandro is a smart man. But the commentator is looking for an answer to an interional twisting of facts in the opinions depicted by the author on the Horn of Africa. Regardless of the number of languages the author masters, the commentator looks like he speaks the language of the Horn natively and may be aware of the facts on the ground more than any outsider … regardless of the number of stays done by expats. You don’t have to go an extra-mile to discaurage others from posting their comments. Bring facts and convince us in a civl manner. If not we have the option of reading other websites without any pressure.

  3. Issayas Afewerki’s barking dogs are known to make one sick.
    They carry and spread the Eritrean ‘flu’. And they are loaded with illicit money gained from trafficing human beings and slave labor practices in Eritrea. Beware.

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