While higher grain prices are a positive for potash producer shares, the overall near term outlook for the sector is bleak; at least according to Goldman Sachs.
By Leia Michele Toovey- Exclusive to Potash Investing News
Potash stocks have been slowly creeping upwards, in unison with big jumps in grain prices this summer, particularly for wheat. While higher grain prices are a positive for potash producer shares, the overall near term outlook for the sector is bleak; at least according to Goldman Sachs.
According to the investment and securities firm, the third quarter of 2010 will be the toughest times potash producers have faced in more than two years. Although some short term relief may be in store, it could take until 2013 until the sector witnesses any significant improvement.
In the next quarter, potash prices will hit a two year, however, followed by some temporary relief in the fall as an early spring planting season translates into an early fall harvest, leaving an opportunity for fertilizer application prior to the winter season. After a potentially positive fall season, it will take until 2013 for the sector to gain any significant momentum. Beyond 2013, prices will likely be capped off by new projects set to come on-line. Two significant potash projects, BHP’s (NYSE: BHP) Jansen Project in Canada, as well as a large project being developed in Saudi Arabia are currently in the developmental phase.
Goldman also shared their expected price targets for the crop nutrient through the next few years. In 2010, they have potash sitting at $369, in 2011 $364, and in 2012 $365. In the short term, potash prices should recover from an average of $358 per tonne for the July-to-September period, the lowest since the first quarter of 2008, to $362 per tonne.
Mesa Uranium Corp. (TSXV:MSA) has signed a non-binding letter of intent with Passport Potash (“PPI”) on the Holbrook Potash project. The project consists of Arizona State Land Department exploration leases covering 1,950 acres and is 100 percent wholly-owned by Mesa. Under the letter of intent, PPI will acquire a 75 percent interest in the leases by issuing to Mesa 500,000 shares of PPI. PPI will have the right to acquire the remaining 25 percent interest by paying Mesa $100,000 cash or PPI stock equivalent. Mesa will retain a 2 percent NSR royalty which PPI has the option to purchase for US $300,000. The Holbrook Basin is known to contain a 600 square mile potash bed in the Permian Supai Formation as documented by the Arizona Geological Survey (AGS). The potash bed was drilled and delineated in the 1960s and 1970s by Duvall Corporation and Arkla Exploration. Due to low potash prices in the 1970’s the Holbrook Basin potash bed was not developed after discovery. Mesa explores and develops lithium, uranium and potash properties in the western United States.
Mosaic Co (NYSE: MOS) announced late last week that it had completed its $385 million investment in a Peruvian phosphate rock mine. The project in Peru’s Bayovar region is a joint venture with subsidiaries of Vale S.A. and Mitsui & Co. Ltd. terms of the investment include a 35 percent economic interest in the venture, Mosaic said in a release Wednesday. The investment also gives Mosaic a commercial of take supply of up to 35 percent of the mine’s phosphate rock production .Mosaic provides phosphate and potash fertilizers for the agriculture industry. The company’s shares climbed $2.11, or 4.9 percent, to $44.85 in afternoon trading Thursday.
Mosaic will expand production at its Belle Plaine mine in Saskatchewan, in order to meet the increase in demand of white potash, Pegasus K62. In a press release, Mosaic announced that North American demand for white potash was significant enough to warrant the supply increase. Mosaic plans to increase plant capacity from 2.8 million tons per year to 3.5 million tons annually by 2014. Mosaic’s Belle Plaine facility is the world’s largest potash solution mine. Pegasus K62 has 62 percent K2O content, versus 60 percent content in red potash, which allows for more uniform blending and application, as well as lower shipping volume due to the two additional units (3.3 percent) K2O.
With help from Assistant Editor Vivien Diniz