Potash Minerals has what it takes to make it in the post-BPC era

paradox basinThe fall in prices in 2013 for many commodities has made business more difficult for many mining companies, especially in the potash sector. Potash has become one of the most important agricultural fertilizers. Modern food production would not be sustainable without the use of mineral derived potassium, given the quantities that are needed. Potash helps the soil retain water, while making crops more flavorful and resistant to disease.  It is estimated that more than a third of the world’s current food production would not be possible; as the world population expands, therefore, potash will become even more important in order to match food production with demand. Economic growth in China and India and a resulting change in the diet toward more meat (meaning more animal feed) and carbohydrates have led to a sharp increase in potash. However, Uralkali’s sudden decision to abandon the BPC cartel has effectively changed the rules of the potash game. Certainly, the end of cartel pricing power means that price floors can no longer be guaranteed. Even if Uralkali goes against its own interest and sells more potash at lower prices, with inevitable ramifications on potash stocks (mostly the seniors such as PotashCorp and some juniors); the new potash market regime will be more amenable to market rules. This means that demand will have an even greater impact on prices. It also means that costs of production, CAPEX and OPEX have become all the more important.

Potash Minerals (‘Potmin’, ASX: POK) operating in Utah’s Paradox Basin has a number of advantages that will enable it to thrive in the new, post BPC, potash market environment. The first advantage comes from the fact that its ‘Hatch Point’ project is strategically situated to rail and road routes to one of the most intense agricultural areas in North America. Exploratory drilling in Utah state land yielded very encouraging results while its property on federal land, for which it received permission to drill from the Bureau of Land Management at the end of last April, is where the main resource is expected to be found. Potmin’s project covers a 146 square mile area and it sits on major deposits of sylvinite. Potmin projects a production of some two million tons/year of high grade potash for a period ranging from 25 to 50 years. While many analysts have expressed concerns about a potash over-capacity, Potmin notes that more than three quarters of the total potash used in the United States is imported from Canada, which means that its planned 2.0 million tons/year production would still only partially address US demand.

What exactly is sylvinite? The key element in potash that makes it so valuable for agriculture is the presence of potassium (K). Potassium does not occur by itself in nature as it reacts with water and air.  The two most common minerals producing potash are sylvinite and carnalite. Carnalite is the main mineral used to process potash from the Dead Sea salts in Israel and Jordan. The carnalite is separated through the solar evaporation of the Dead Sea waters, producing KCl. However, sylvinite is the one that miners and investors want. Sylvinite is easier to process, it will ensure the delivery of a higher quality potash that ultimately helps to offset costs often associated with other potash deposits, which require more processing to achieve anywhere near the desired potash quality.

The world’s principal potash producers in North America rely on large quantities of sylvinite ores and while many emerging potash plays are focusing on Africa, the main sources of sylvinite are in North America. Potash, from sylvinite, was discovered in Saskatchewan in 1943 and in the 1950’s, in the wake of intense oil exploration in the southwestern United States, potash was also discovered in Utah and New Mexico in the Paradox Basin. Intrepid Potash (NYSE: IPI) is the largest potash producer in the United States, operating three mines between Utah and New Mexico. Potmin has already identified key source of sylvinite and it expects to find the most significant sylvinite bearing zones (between 23.7 and 25.3%) in the Federal Land. In May, Potmin has issued an updated and JORC-complaint maiden resource of 902 million tons of potash at 20% potassium chloride (KCl). The estimate was determined based on resources located within an area of the property covering less than 20% of the total and includes peaks of 24.4% and 30% KCL sylvinite. The size and scope of the area and the results obtained from just a small section suggest that further drilling will only enhance the size and quality of the resource.

As for project economics, Potmin’s advantage is that its property is ideal for solution mining, whereby hot water is pumped in the ground to push up brine containing potash and NaCl (table salt), which is then separated through a process of heating, centrifuging and crystallizing, which also removes the water and recycles it with salt that is pushed back in the hole. Potmin has already identified the necessary water source with the additional benefit that it is on-site and non-potable, easing environmental and community concerns. In addition, Potmin has the advantage of being based in North America, which takes away a lot of the risk. The plant will use clean burning, natural gas available from nearby gas fields. Electricity will be purchased from local utility companies and according to plans unveiled at the White House, energy may soon be provided by solar panels thanks to a new push for renewable sources focused on Utah, Colorado and other southwestern states. Solution mining does not place personnel underground and thus does not have the risks, or costs, inherent to underground mining.

The Paradox basin and Utah are among the best mining destinations in the United States, marked by a very pro-business regulatory environment. Intrepid has run a large potash operation in the Paradox Basin for decades, offering an important source of experience and knowledge from which companies like Potmin can draw to help it develop the project more efficiently – including the availability of a labor force experienced in solution mining infrastructure and processing as well as the geography and climate.




Magna’s 30% rally lifts potash plays in Utah’s Paradox Basin

paradox basinPotash and Phosphate Week in Review: InvestorIntel’s Potash & Phosphate members rose 5.8% for the week ending on July 19. The gains were spread throughout the sector; however, there was a clear rebound of potash companies operating in Utah’s Paradox Basin, including EPM Ventures (TSXV: EPK | OTCQX: EPKMF), Potash Minerals Ltd. (‘POK’, ASX: POK) and Magna Resources (‘Magna’, CNSX: MNA). Magna itself jumped 30% and, in fact, it was Magna, which accounted for the rise after a series of lackluster weeks. In fact, Magna announced that the US Bureau of Land Management (BLM) environmental assessment – examining all environmental issues associated with the exploration plan – for its Green River Potash Project in Utah has ended on July 8.

The BLM can now review concerns and advise magna of changes – if any – that need to be made before the exploration phase of the project can continue. However, what is more significant is that the BLM submission marks the end of Magna’s process for the application of all relevant prospecting permits ending in a decision of “Finding of No Significant Impact” (FONSI) for Magna’s plans such that the Company can expect to be granted the relevant BLM Federal prospecting permits promptly. POK, which showed a 6.67% increase, has already received the BLM permits last April while EPM (+13.33% in TSX trading) Ventures also announced that the BLM confirmed its finding of “No Significant Impact on the Sevier Playa Potash Exploratory Testing Proposal and Environmental Assessment”, which should also lead to the prompt granting of exploration permits.

The potash market overall proved especially resilient last week. While prices for agricultural commodities fell close to their annual lows, the potash juniors did not suffer, despite ongoing fears of a potash overcapacity. Andrew Mackenzie, the chief executive of mining giant BHP Billiton, continued to fuel speculation over whether or not the massive Jansen mine would proceed. Last week, he noted that the project would have to meet “certain profitability criteria”, given that it is expected to cost around USD$ 10 billion. The CANPOTEX cartel, comprising of such major players as Potash Corp and Mosaic, has been adding pressure by maintaining prices at about USD 400/ton. This is enough to ensure profits for current producers while being too low to attract new major players.

Mosaic CEO Jim Prokopanko warned that prices would continue to decline because of weaker demand prospects in India – a major potash market – owing to the depreciation of the Indian rupee and the decline in government subsidies for the next year. If the price of potash should drop for India; China will also demand discounts and the CANPOTEX players will likely oblige as this price drop would probably send the death blow to BHP’s Jansen, which has to make its decision for Jansen in the next few months. Nevertheless, if in the short term will be characterized by ‘price games’, the fact that wheat has experienced a surprisingly high export demand is indicative of potash’s potential.

China has been importing large quantities of grain, since it expects its own harvest to be lower by ten million tons. Wheat production requires large quantities of potash and ultimately the demand prospects for this mineral are very favorable. As for phosphates, since the start of 2013, prices of phosphates are down;, average per ton process fell from USD $ 185 at the end of 2012 to USD$ 164 last June. The market fears the entry of a new high volume player, Saudi Arabia’s Ma’aden Resources. Few will be able to compete with Saudi Arabia’s low energy costs ; however, production has been postponed. Saudi production may prove competitive, given that its main target market is India, closer to it geographically than the major phosphate supplier of Morocco. The speculation has led to lower world prices for phosphates in the short term. In the long term, considerations of world population increases will help phosphate prices bounce back. Mineral fertilizers offer the best solution to the problem of growing population, higher food demand and more productive uses for agricultural land.

potash week july 22




Potash Minerals: Resignation of Joint Company Secretary

June 26, 2013 (Source: Potash Minerals) —

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Potash Minerals announces 902 million tons JORC compliant Potash update at its Hatch Point project

redhillsstitch-smallPotash Minerals (‘Potmin’, ASX: POK) is sitting on major deposits of sylvinite in Utah at its Hatch Point Project and it is one of the major emerging players in the potash sector. The Company has already drilled many exploratory wells on State land but believes that the best potash is located on federal land property, for which it received permission to drill from the Bureau of Land Management at the end of last April. Overall, Potmin’s project covers a 146 square mile area and it has the potential to be a major player thanks to the fact that the full extent of this huge property has now been opened for development. In May, Potmin has issued an updated and  JORC-complaint maiden resource of 902 million tons of potash at 20% potassium chloride (KCl). The estimate was determined based on resources located within an area of the property covering less than 20% of the total and includes peaks of 24.4% and 30% KCL sylvinite. The size and scope of the area and the results obtained from just a small section suggest that further drilling will only enhance the size and quality of the resource.

Potmin’s next drilling phase will concern a 30 square mile (45 sq. mile) block of federal land. Potmin plans to start the new program by drilling four exploration holes. Potmin projects a production of some two million tons/year of high grade potash for a period ranging from 25 to 50 years. Potmin expects to find high grades of sylvinite in this area and while, there are large potash producers in the United States, Potmin notes that more than three quarters of the total potash used in the United States is imported from Canada, which means that its planned 2.0 million tons/year production would still only partially address US demand. The Potmin property is ideal for solution mining, whereby hot water is pumped in the ground to push up brine containing potash and NaCl (table salt), which is then separated through a process of heating, centrifuging and crystallizing, which also removes the water and recycles it with salt that is pushed back in the hole.

Potmin says that this allows for a continuous process of ‘mine closure’, because the salt is recycled back the soil during the production phase itself, filling in the well. The results from the drilling campaign on state lands completed in 2012 were favorable with the presence of potassium chloride mineralization (KCl) of between 23.7% and 25.3 %, indicating a strong potential for the presence of extractable sylvinite. Because sylvinite is easier to process, it will ensure the delivery of a higher quality potash that ultimately helps to offset costs often associated with other potash deposits, which require more processing to achieve anywhere near the desired potash quality.

Potmin has already identified the crucial water source, which is at the heart of the solution mining technique; the fact that it is non-potable water, from an on-site source, should also ease environmental and community risks. In addition, Potmin has the advantage of being based on North America, which takes away a lot of the risk. The Paradox basin and Utah are among the best mining destinations in the United States, marked by a very pro-business regulatory environment. Intrepid has run a large potash operation in the Paradox Basin for decades, offering an important source of experience and knowledge from which or companies like Potmin can draw to help it develop the project more efficiently – including the availability of a highly potash labor force, experienced in solution mining infrastructure and processing as well as the geography and climate.

As for the potash market, PotMin shares have suffered the same malaise that has affected other juniors in the past few weeks. The market remains unpredictable; however, the potash market fundamentals have actually improved considerably in the past two weeks. Potash prices have increased thanks the long awaited materialization of the late start of the North American planting season last May, as the unusually long winter in the agricultural industry intense Midwest region resumed. Some fertilizer suppliers in North Dakota and Minnesota reported running out of potash and other mineral fertilizers due to a rush of demand in May, eroding the abundant stock supply that had put downward pressure on prices. Inventories of potash in North America have dropped, which should allow prices of the commodity to continue rising. The main concern on commodity prices (and potash in particular) remains the possibility that India may devalue its currency, dampening demand for imported resources.




Potash sector undervalued but a price Rebound is around the Corner

agriculturePotash and Phosphate Week in Review: The ProEdgeWire potash and phosphate index for the week ending on May 10 improved considerably in comparison to the past few weeks but still registered an average loss, albeit a minor one at -0.53%. There were no stellar performances or abysmal losses, but only one Company stood out for gains, Potash Minerals (‘Potmin’, ASX: POK), which continues to benefit from its late April announcement that the US Federal Bureau of Land Management (BLM) has granted it permission to drill in federal land at the Company’s Hatch Point property in Utah. Potmin believes that the best grades of sylvinite – the type of potash being pursued and to be developed using a proven solution mining process – reside under the federal held land. Potmin rose 11.43%.

Magna Resources (CNSX: MNA), which is also developing a potash project in Utah, is expecting to hear from the BLM by the end of next summer but it stayed flat for the week at 0.00% variation. Shares of Allana Potash (TSX: AAA | OTCQX: ALLRF)), meanwhile, started to move up again after weeks of lackluster share performance in spite of a series of favorable announcements ranging from its completion of Allana Potash has been proceeding toward production having filed the final mining application and feasibility with the Ministry of Mines for its Dallol potash project in Ethiopia. Allana expects to complete all regulatory requirements before the end of 2013 and is on track to reach production by early 2015. Allana’s shares are, by all logic, rather undervalued but current and  prospective investors have more reason to remain confident in view Germany’s announcement last week that it would support Ethiopia’s agricultural sector through “knowledge and technology transfer” according to the Federal Minister of Agriculture, llse Aigner.

The German government has funded a new agricultural research facility in the country aimed at training farmers. Ethiopia has been growing at an average annual rate of 7% and is aiming to become one of the main agricultural producers in all of Africa. Potash will be a significant ingredient of this growth. The fact that Germany’s president made it a point to visit Ethiopia last March is testament to the country’s growing importance. With an annual growth rate of nearly 7 percent, Ethiopia has attracted attention from international investors and the fertile soils of Ethiopia have great potential. Having made tremendous progress since the famine of the mid-1980’s there are clear signs of a growing middle class in Ethiopia and agriculture is perhaps the fastest growing sector. Allana is slated to come into production at an idea time and will find a willing domestic Ethiopian potash market as well as an export based one.

Potash prices have been under pressure for some time because major customers have held back orders and enforced discounts and there are still fears – as yet unfulfilled – of an excess supply of potash as new companies enter the market. Yet, some manufacturers have already scrapped their plans for expansion and there are still doubts over whether or not BHP Billiton will go ahead with plans to open the world’s biggest potash mine at the Jansen potash project in Saskatchewan. Europe’s largest potash producer K+S Kali GmbH said it has yet to decide whether or not it will go ahead with its own plans to open a new mine in Saskatchewan, even as it presented very positive first quarter results on May 14. Nevertheless, all potash producers agree that while there are questions about the short and mid-term, demand for potash and phosphate will rise in the long term, given the increasing world population.

The potash market last week also resented from Chinese growth statistics that while healthy fell below expectations, leading to fears of slower growth in the global economy and weaker demand for commodities. For the rest of the year, potash price prospects are actually bullish given the late start to the planting season caused by unfavorable weather conditions throughout the West. However, until a clearer picture of where the economy is headed in general, commodity performance will remain uneven. There are hints of a turnaround as some rating agencies have noted improving budget deficit and economic growth in Greece, one of the ‘roots’ of the current market slump as Fitch upgraded Greece’s rating on Tuesday. Industrial production in the Eurozone rose higher than expected in March at 1.0% while banks had predicted less than half of that at 0.4%. The more optimistic general economic should start to translate to higher commodity prices over the next months.




Cartel ‘games’ keep Potash Prices undervalued while Demand grows

Potash-Phosphate-Month-in-Review1-300x210Potash and Phosphate Month-in-Review: The ProEdgeWire potash index dropped an average 15.44% over the month of April 2013.

Allana Potash (TSXV: AAA | OTCQX: ALLRF) dropped 9.57% in Toronto and 10.70% at the OTCQX for the month; however, it was starting to rise last week thanks to a boost from a better than expected Potash Corp Q1 results. Allana Potash has been proceeding toward production having filed the final mining application and feasibility with the Ministry of Mines for its Dallol potash project. Allana expects to complete all regulatory requirements before the end of 2013 and is estimates that it will be able to start producing by 2015 at below USD$ 100/ton.

IC Potash (TSX: ICP | OTCQX: ICPTF), which is developing the Ochoa Project in New Mexico also saw its shares rise on the Potash Corp tide, but closed the month at -21.74% in Toronto and 20.95% at the OTCQX confirming the trend – which has little to do with actual demand. IC Potash is competing in a different space, as it is focusing on premium quality sulphate of potash (SOP) at its Ochoa facility, which is usually priced anywhere between 30-50% higher than lesser varieties of SOP. The total proven and estimated capacity at Ochoa is 400 million tons with production expected to start in 2015.

Potash Minerals (‘Potmin’, ASX: POK) is the big winner and the only gainer, rising 1.79%. That is rather a small rise, considering that in April – albeit at the very end – Potmin announced that the Federal Bureau of Land Management (BLM) approved its potash project in Utah at Hatch Point in what is a milestone, perhaps the most important since launching the K2O project. The permit is especially significant considering that it is the first one to be awarded in Utah in the past 25 years, receiving the designation of “Non-Known Potash Leasing Area” (Non-KPLA). Potmin will now be able to continue exploration in some of the areas considered to hold the best resource. Potmin also expects to be able to produce at very low cost. Potmin has already identified the crucial water source, which is at the heart of the solution mining technique; the fact that it is non-potable water, from an on-site source, should also ease environmental and community concerns. Potmin has a unique combination of a massive potash resource coupled with onsite water, gas, electric and transportation to nearby U.S. markets.

The BLM action from Potmin will surely transfer to Magna Resources (CNSX: MNA), which closed April flat at 0.0% difference. Magna Resources, operating the 51,000 acre Green River Potash Project in Paradox Basin, Utah said that it expects to obtain a decision from the BLM by next summer, concerning its request to drill eight holes, having already secured State approval.

Aguia Resources (ASX: AGR) is more engaged in the phosphate space and it announced having received approval to develop two additional phosphate tenements in Rio Grande do Sul, enabling it to expand its resource at the Tres Estradas Project. Brazil is the world’s third largest market for mineral fertilizer and demand is slated to increase. Brazil imports about half of its phosphate needs and the Aguia is strategically placed to take advantage of Brazil’s plans to reduce its reliance on phosphate imports. While Aguia closed the month at -36.67%, it should be noted that phosphate demand is increasing. Israel Chemicals, one of the world’s main phosphate players, recently announced that it has launched a major campaign to identify new phosphate sources worldwide.

Where is the pressure on potash valuations coming from?

While the drop in valuations is based only on the performance of ProEdgeWire sponsors, it reflects the wider and rather counter-intuitive trend in the potash sector. Simply stated potash prices are undervalued. At the end of last March, none other than Goldman Sachs (GS) itself, set buy ratings for Potash Corp (NYSE: POT) and Mosaic Inc (NYSE: MOS). The famous investment bank that has been extremely bearish on gold, frantically calling on gold holders to sell, has also given its blessing to BHP Billiton’s plan to build the Jansen mine, which would end up being the world’s largest potash project, in Saskatchewan. GS has gone further identifying potash as “the commodity for the next decade” for the same reasons that just about all common sense endowed observers have been reiterating, which is that pressure from growing food demand in the fast growing and developing countries in Asia, South America and Africa, where agriculture has suffered from nutrient deficient soils, will boost potash demand over the next decades.

GS is not even concerned that BHP’s proposed potash mine (still being evaluated by the BHP Board) might saturate the market depressing prices, because it sees potash as the new ‘iron ore’ – which rose 912% in the span of ten years from March 2003 to March 2013. While there is more than adequate potash supply now, more demand is expected later this spring as farmers in North America will start what is a late planting season due to an especially cool start to the spring. Moreover, for all the new mega-projects being planned, there has been an all but deliberate effort by the two potash cartels, CANPOTEX in North America and BPC in Russia and Belarus, to corner the market, raising the barriers to entry for any would be competitor. Rather than slowing down their production, the cartels were willing to accept lower pricing, giving into demands from Chinese and Indian buyers.

The new ceiling price is USD$ 400/ton – still much higher than the average potash price before the 2008 leap – but potash investors had become accustomed to averages of well over USD 500/ton in the past four years, creating a psychological barrier-psychological, because even at USD 400/ton, the margins are very much in favor of the producers. BPC was the first to accept a lower ‘bottom’ price and CANPOTEX followed suit. Now both consortia will be focusing on capacity utilization rates, even at the cost of lower prices (no pun intended). Indeed, they can afford it, because they produce at very low cost. So, what is their strategy? By keeping overall prices lower, the two potash cartels expect to discourage large new players from coming on stream. They are sending a not so kind message to BHP Billiton and Vale SA on one hand and to the medium players such as K+S Group on the other (which incidentally also plans to build a new mine in Saskatchewan).

This has the effect of forcing the big mining giants into a Hamlet-like spiral of second guessing their big potash plans. Vale SA already confirmed they will abandon their big Rio Horizonte potash project in Argentina last week, while BHP’s board is still pondering whether or not to approve the Jansen mine. The effect on juniors has been to make financing very difficult, delaying projects and complicating feasibility studies and the various stages needed to bring potash to production; and potash is well known for having one of the highest entry costs. The effect of all this ‘scheming’ is that greenfield projects will be kept to a minimum, putting pressure on juniors. Against this backdrop then, the few juniors still developing their projects have to been given credit for continuing to survive in spite of the difficulties. Those that make it to production will gain access to all the advantages currently held by the cartels, if they can get there by keeping their operational and CAPEX costs low. The market has not caught up with this reasoning but should start rewarding the juniors as well this year. Import demand is expected to rise in India and the ceiling price of USD $400/ton should rise accordingly. potash may numbers