Potash is like Real Estate: Location, Location, Location.

(Potash & Phosphate: Week-in-Review, by Alessandro Bruno) — Location is a very important aspect in deciding the strategic potential of a potash or phosphate mining assets. As mineral fertilizers, potash and phosphate are essential soil nutrients and they are needed to boost agricultural output. In periods of high food prices, exacerbated by higher fuel costs as is the current one, location becomes even more important. The possibility to avoid having to import essential soil nutrients such as phosphate or potash is a strategic advantage, given the high costs of shipment (exacerbated by the higher fuel costs). Rendering that concept in Brazil, mineral fertilizers have become essential to agriculture and economic growth, as the country has become one of the fastest growing producers of grains and staple crops in spite of its tropical climate – which is unsuitable for this kind of agriculture. The transformation began during the 1970’s, when Brazil’s military dictators focused on achieving self-reliance in agriculture and energy. As it happens, both require very productive soils; while wheat, seeds and cereals were needed for the food industry; sugar cane was converted into ethanol for use as fuel. To this day, about a third of Brazil’s cars run on ethanol fuels.

Brazil has 500 million acres of arable land and it represents the world’s third largest market for fertilizer as the country produces a number of crops, many of which like soya, maize and sugar cane (some 80% of total agricultural output), used for food and bio-fuel production, respond very well to phosphate based fertilizers. As an example, fertilizers could account for as much as 40% of the cost of producing soybeans. Brazilian soil, however, is poor in nutrients, which have to be substituted by fertilizers and some additives.

Thirty years after the start of Brazil’s agricultural revolution, having now become one of the fastest growing free market democracies, Brazil’s agricultural sectors must continue to grow; a growing population and the rise of a middle class are changing food consumption habits. Brazil’s soil, in turn, must become more productive, needing more and more mineral fertilizers. All of Brazil’s current production of potash and phosphates are unable to meet internal demand, making Brazil one of the main new targets for potash mining and potash imports. Brazil currently imports 90% of its potash and 60% of its phosphate supplies. The bullish prospects for mineral fertilizers in Brazil have been noted by some of the Potash majors, which noted continued push from South America but, generally, lower than expected results due to a more temperamental Asian market.  South American demand has remained consistently high, given high shipments to Brazil having been reported by all the Potash majors. Last week, Israel Chemicals Ltd. (TLV: ICL) announced its Q3 results, further demonstrating this trend, noting a slump in China and an increase of sales to Brazil.

Aguia Resources (ASX: AGR) is an emerging player in Brazil’s mineral fertilizer market and slated to take advantage from Brazilian projected growing demand for fertilizers. Last week, its share price remained steady at AUD$ 0.16.  The Company has been focusing on developing its phosphate property at the Tres Estradas Phosphate Project; Aguia sees opportunities in the fact that its phosphate projects are located in some of Brazil’s most important fertilizer consuming states/markets. Allana Potash, one of the most promising emerging plays in Africa with a project in Ethiopia was stable in Toronto trading, opening the week at CAD$ 0.45 and closing it at CAD$ 0.45. Allana’s shares trade in Frankfurt showed a slight loss for the week, reflecting continuing European market jitters. Nevertheless, Allana’s project in the Danakil Basin in northern Ethiopia, is proceeding steadily toward a projected production start in late 2014 for its 1.3 billion ton project. Potash Minerals Ltd. traded steadily throughout the week in expectation of receiving the permits to develop the project on federal land, where management expects to yield the best resource. IC Potash, which is also developing a solution mining project in the Southwestern United States traded steadily as US markets showed some gains last week, buoyed by high retail expectations from the ‘Black Friday’ sales , while U3O8 remained rather stable in North America. IC Potash and U3O8, meanwhile, saw their biggest losses in Frankfurt; this is not surprising given the continuing fears in European markets. Overall, the potash market for the juniors, as reflected by our sponsors, remains stable, while the larger players influence the general sentiment on potash, which is suffering from indecision among two of the most important markets: India and China. Poor weather in France and England,, and related poor agricultural conditions, may have also influenced the slightly less optimistic potash values in Europe.

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Alessandro Bruno

About Alessandro Bruno

Alessandro Bruno holds a BA, MA. He has worked for the United Nations in Libya and specialized in Middle Eastern, African, and South American affairs. Alessandro has worked as an industry analyst, lived and worked abroad extensively and is fluent in English, Italian, Spanish and French with a working knowledge of Portuguese, Arabic and German.

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