Categories: Base Metals / Energy
Topics: General Base Metals / General Energy

Fertilizer Industry Consolidation Frenzy Good for Potash One

July 20, 2009

 

The idea of investing profitably in fertilizer companies – especially those involved in potash – came roaring back to the forefront of popular discourse last week when Vale S.A. (NYSE:RIO) disclosed the possibility of bidding for Mosaic Co., (NYSE:MOS). That first volley across the bows of investors around the world triggered rises in many smaller potash company share prices as the entire industry from top to bottom was suddenly galvanized into action by the implications of a newly ignited bull market in potash.

Mosaic shares rose 12 % on the news.

Saskatchewan-based Athabasca Potash (TSX:API) seized the opportunity of Vale’s announcement to trumpet the possibility of its own sale to undisclosed interests. Its shares increased by 42 percent on that news.

But the investor hysteria directed at these two companies should be tempered by the fact that a Vale takeover bid of such magnitude would take months in not over a year to complete, whereas Athabasca Potash is capitalizing on the interest generated by the Vale announcement to attract a financial partner.

Athabasca Potash, who controls the Burr project in Saskatchewan has admitted that the $2.5 billion price tag for completion of that project is likely more than it can aspire to realistically on its own.

And that admission demonstrates that of all the exploration-level companies out there with demonstrated potash resources that could be put into production in a relatively short timespan, only one stands out as being able to raise that kind of money.

That company is Potash One (TSX:KCL), based in Toronto. With a resource finance powerhouse board of directors led by Robert Friedland and serial takeover vendor Paul Matysek, a development price tag of $2.5 billion is no daunting task. Especially considering the demand profile for potash going forward indicates the key crop nutrient will continue to see robust consumption growth.

Global food production needs to more than double by 2049 if we hope to feed our growing world population. Yet, right now, farm productivity in the least developed countries is only 10 percent of what it is in the developed world, while development support for farmers has plummeted relative to total global spending.

Only 12 countries produce potash, but it is essential wherever crops are grown. Four fifths of the world’s potash is traded across borders. Canada, Russia and Belarus account for approximately 80 percent of the world’s reserves and are the largest producers, while Asia, the US and Latin America are the largest consuming regions.

In addition to supplying their home markets, producers in North America, Russia, Belarus and the Middle East supply markets where there is little or no indigenous production – primarily Latin America and Asia.

Friedland’s Ivanhoe Capital and its affiliated companies have raised several billion dollars in international capital markets since 1993 to support a variety of natural resources, energy and technology companies.

Matysek was the CEO and President of Energy Metals Corporation, a uranium company traded on New York Stock Exchange and Toronto Stock Exchange that was sold for $1.8 billion to a larger uranium producer in 2007. He has been involved in raising over $200 million for various exploration and development projects since 1999.

That capital-raising ability has arguably been overlooked by the market, and so an excess of focus on Athabasca may be an opportunity for investors seeking a strategic leveraged investment in potash.

Potash One’s Legacy Potash Project is located approximately 80 kilometers northwest of Regina and is immediately adjacent to Mosaic's Belle Plaine potash solution mine, the largest potash solution mine in the world. The project consists of 97,240 acres of Crown mineral lands.

Potash One announced a significant increase to the Legacy Project's resource estimate1 in May 2009, adding 29 million tonnes of Measured potash resource, 157 million tonnes of Indicated potash resource (a 242% increase) and 230 million tonnes of Inferred potash resource (a 37% increase) to the January 24, 2008, estimate.

"The updated Measured and Indicated resource estimate provides a sufficient potash resource foundation for a pre-feasibility study based on a projected production rate of 2.5 million tonnes per year. Subject to financing and a successful feasibility study, the Legacy Project could enter the potash marketplace as early as late 2013 and be the world's first greenfield potash mine since 1987," stated Paul Matysek, President and CEO of Potash One.

Visit the company’s web site at http://www.potashone.com to learn more.