EDITOR: | December 20th, 2013 | 2 Comments

Kazakhstan poised to throw a wrench in the potash works

| December 20, 2013 | 2 Comments

Nursultan Nazarbayev and Vladimir Putin

A potential new complication has emerged in the Belarus-Russia potash political mess — and, indeed, in the international potash “balance of power”. That complication is the possible emergence of Kazakhstan as potash producer of consequence (and backed with Chinese money).

This comes at a time when Vladimir Putin is clearly seeking to re-establish the old Soviet Union (under another guise, of course). For at least two years he has been talking about a Eurasian Union which would include his Russia and several of the Central Asian republics. But he also seems to yearn to pull Ukraine back under Moscow’s influence: this week he agreed to buy $US15 billion in Ukraine government bonds and to slash a third off the price of gas supplied to the country from Russian pipelines.

An interesting sidelight is that Putin has enlisted both Belarus and Kazakhstan in his effort to put pressure on Ukraine to stop its consideration of plans to join the European Union. Earlier this month, protesters took to the streets of Kiev and toppled a statute of Lenin as a demonstration of their anger at the Ukraine government cutting off trade pact negotiations with the EU on the grounds that would endanger trade with Russia.

So it’s a murky old world in the former Soviet Union, and Kazakhstan is a key prize with its vast natural resources (being the world’s leading uranium producer, for example, apart from all that oil and gas).

How this all plays out with potash will be worth watching. This development involves an Australian-listed company Kazakhstan Potash Corp (ASX:KPC). But forget about the Australian connection: that happened only because it has become a convenient vehicle for Chinese money looking to secure more potash supplies which don’t involve haggling with either the Belarusian-Russian alliance (severed for the moment, but looking on the way to repair) or Canpotex.

KPC is listed in Australia only because it is the transformed Fortis Mining, which acquired the potash deposits in Kazakhstan and then had trouble raising the necessary capital. Now it is run by Hong Kong businesswoman Fraeda Kwan Cheung, who is being backed by the Sino-Agri Mining Investment Group, a subsidiary of the China National Agricultural Means of Production Group Corp. It makes no secret of the fact that it is aiming to take advantage of “lower operating costs, an abundance of power, water and human resources and proximity to major potash markets such as China and India, which will result in lower transport costs”.

A memorandum of understanding has already been signed with Sino-Agri which Cheung describes as having “a robust distribution network in China for fertilizer products”. Sino-Agri also operates a potash mine in Laos. (As Investor Intel reported in May, there has been competition between China and Belarus to get a foothold in the Laotian potash industry. Most of the mines there are small, some financed by Chinese interests. It is expected that Laos could be producing 5 million tonnes a year of muriate of potash by 2018.)

So it’s quite a potash web, isn’t it? And one that Canpotex will no doubt be watching with concern.

Kazakhstan Potash is at present going to the market to raise up to A$54 million to progress its existing projects, Zhilyanskoye and Chelkar, and to bed down a new acquisition, Satimola. The company’s shares listed on the Australian Securities Exchange have been suspended since November 2011.

Both the Zhilyanskoye and Chelkar projects were identified during the 1950s and 1960s by Soviet geologists and have been subject to extensive drilling at depths down to 850 metres (although geological surveys began in the 1930s and there was some wildcat drilling in the 1940s). But little work was done from the early 1960s until 2008 at which time a Kazakh company was granted the leases. The deposit is close to the main railway between Moscow and Almaty (the country’s largest city and, until 1997, the capital).

Zhilyanskoye has a JORC resource in excess of one billion tonnes, comprising both polyhalite and sylvinite. It is located in the northwest of the country, about 10km from the city of Akdobe.

About 486 holes have been drilled at Chelkar to a depth of 1,200 metres but, reading between the lines of the prospectus, the vertical nature of the holes (rather than angled) and uneven spacing suggests that full reliance cannot be placed on the results.

The Satimola project has been the subject of an estimate using JORC standards which indicate a resource of 8.5 billion tonnes, sufficient to sustain what the company considers a world-class mining operation. The resource lies between 400 and 1,250 metres.

So there is potential here for three viable new potash mines, and right on China’s doorstep, financed by Chinese money and the product being clearly destined for Chinese farms.

How Moscow, Canpotex and Belarus take all this has yet to be seen.


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