Month in Review: Shares drop but Potash Market Conditions improving
In 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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