Competition Hits Potash Market

By Leia Michele Toovey-Exclusive to Potash Investing News

Potash miners are facing heightened competition as the potential for profits is attracting mining companies to find and develop potash reserves.  Historically, the potash industry has been dominated by a small group of companies whose sole focus has been potash. Now, as the global economy recovers from a recession mining conglomerates with ample cash reserves are looking to get their piece of the pie.

This is exactly what we witnessed with BHP Billiton’s (NYSE: BHP) purchase of the Jansen Project in Saskatchewan, and their hostile attempt to acquire Potash Corp. of Saskatchewan (NYSE:POT). Other diversified miners, including Vale, have been open about their intentions to enter the potash market.

The potash industry is poised to grow. Potash increases crop output, and with a growing population and shrinking amount of arable land, fertilization to increase output is necessary.  Over the next few years, potash demand is expected to increase in the range of 3 to 5 percent per annum.

This year, we have witnessed a microcosm of what can drive up potash prices. A Russian drought has crimped the wheat supply, and the United States witnessed lower than anticipated crop yields. These two major data points have combined to create a run-up in grain and oilseed prices. The price of corn has shot up to $6 a bushel. As grain prices climb, farmers have the cash and incentive to increase output.

Company News

Canadian fertilizer explorer Western Potash Corp. (TSXV: WPX) has entered preliminary talks with potential investors in China to fund development of its Milestone potash project in Saskatchewan. Western Potash is looking into strategic alternatives that will enable the company to fast-track the development of its Milestone potash project in southern Saskatchewan. Preliminary estimates suggest that the Milestone project contains about 170 million tonnes of potash, which would provide annual output of as much as 2.7 million tonnes. The mine will have a life of approximately 40 years. Western Potash Corp plans to raise about C$40 million. The company added that it would apply to list its common shares on the Toronto Stock Exchange within 30 days after the offering closes, which is expected around December 14. Mackie Research and Scotia Capital Markets will co-lead underwriters for the offering.

Allana Potash Corp. (TSXV: AAA) has a non-brokered private placement of 24,300,000 common shares at a price of $0.51 each. Total gross proceeds of the offering are CAD$12,393,000.  The financing has allowed Allana to raise equity capital that will fully finance the company’s Ethiopian potash project through the completion of the exploration program and bankable feasibility study.

K+S AG, Europe’s largest potash producer, agreed to buy Canada’s Potash One Inc. for C$434 million. Shareholders of Potash One will get C$4.50 a share in a “friendly” takeover accepted by the Canadian company’s board.  The deal gives K+S ownership of Potash One’s deposits including the Legacy Project, an advanced greenfield site that may yield as much as 2.7 million tonnes of potassium chloride annually. Potash One’s Legacy deposit — located in Saskatchewan, requires about $2.5 billion in investment and will begin production as early as 2015.  The company also has several potash exploration licenses in the Canadian province. K+S has recently been under pressure to secure new reserves, as the companies potash output declined in the face of increasing demand.

On November 11th, the company highlighted that its capacity, at 7.5 million tons per year, was lower than the 7.8 million tons previously estimated, as existing mines suffer declines in grades. It also announced it will stop selling some low-potash content products along with the closure of a site in France.

The development of a sinkhole near Uralkali’s main potash mine has caused the company’s shares to drop to a four month low, despite the negligible impact on potash output. The sinkhole has widened and deepened, complicating Uralkali’s efforts to repair the main rail link necessary to ship the soil nutrient. The size of the depression, which damaged the track and swallowed a rail car, has doubled since it was first discovered on November 25.  The company says it continues to ship potash via its railroad link from facilities in Berezniki after a sinkhole closed a separate line. The stock dropped 3 percent to 173.77 rubles, the most since August 3rd, by the 5 p.m. Moscow close.