Potash Demand Rises; China to Tax Phosphate Imports

By Leia Michele Toovey- Exclusive to Potash Investing News

Potash producers are dealing with new market fundamentals, as global markets recover from the recession. In the future, producers will have to meet an annual increase in demand of 5 percent. At the same time, grades in many of the older potash mines are poised to decline, and the availability of skilled workers to run the mines will shrink.  In the near-term, capped demand in China will keep a lid on prices; however, potash producers with foresight will need to strategize for the future.

K+S AG, Europe’s largest potash producer, is preparing for the new market conditions. The potash miner is on the lookout for takeovers, or partnerships, as production at existing mines approaches full capacity. Without access to new deposits, K+S will struggle to grow in line with the recovering potash market. According to Chief Executive Officer Norbert Steiner, “We are looking at possible new mines, including acquisitions. We’d also consider a project with a local partner.” The company initially planned to partner with EuroChem Mineral & Chemical Co. to develop a site in Russia, however, this plan did not come to be. K+S’s capacity for potash and magnesium is set to fall to about 7.5 million tonnes per year from 7.8 million tonnes.

Potash Corp. of Saskatchewan (NYSE:POT) announced on Monday that it will issue two offerings $1 billion U.S. in notes to help pay for the $2-billion U.S. share buyback program announced last week. The first offering, priced at $500 million U.S. aggregate principal amount of 3.25 percent notes due Dec. 1, 2012.  The second offering is priced at $500 million U.S. aggregate principal amount of 5.625 percent notes due Dec. 1, 2040.  Potash Corp intends to use the net proceeds from the offering for general corporate purposes — including the $2-billion share repurchase program. The offering is expected to close on Nov. 30. Equities research analysts at RBC Capital lowered their earnings per share estimates on Potash through 2012 while reiterating an “outperform” rating.

Agrium’s (TSX:AGU) shares are being hit by slower-than-expected increase in potash prices in China, and no longer reflect any takeover premium, now that BHP’s bid to acquire rival Potash Corp. of Saskatchewan has fallen through, according to TD Newcrest analyst Paul D’Amico.  Mr. D’Amico lowered his 2010 earnings per share estimate to $4.57 U.S. from $4.59. His revised his 2011 estimate to $6.25 from $6.34, and 2012 estimate to $5.89 from $5.82. “Our target price is lowered to $95 per share (from $105), but our ‘buy’ rating is unchanged as the potential upside still looks attractive to us,” he wrote.

Phosphate

China plans on restricting fertilizer exports by levying peak-season duties of 110 percent on urea and diammonium phosphate shipments starting Dec. 1. Urea exports will be charged the duty between Dec. 1, 2010 and June 30, 2011. The export duty will be lowered to 7 percent during the low season between July 1 and Oct. 31, 2011, before rising to 110 percent for November. The duty may be levied on diammonium phosphate exports from Dec. 1 to May 31, and will then be lowered to 7 percent from June 1 to Sept. 30. The 110 percent duty will be reinstated for November and December 2011.

Results from a scoping study for the Sandpiper/Meob Marine Phosphate Project in Nambia have shown that the project will be highly profitable. The study which was conducted by Namibian Marine Phosphate Pty Limited, a joint venture between Minemakers, Union Resources Limited and Namibian Tungeni Investments, also showed that the project has a lifespan of about 25 years. Start-up capital costs are estimated to be $144-million, and operating costs will be approximately $57.76 per tonne.  Once ramped-up, production will be approximately $3 million tonnes per annum.

The infrastructure construction for a new phosphate project in Ras Az Zawr, Saudi Arabia is complete, and the mine is on schedule to start production in Q3 2011. The project is a joint venture between Saudi Arabia Mining Co and Saudi Basic Industries. When completed, the $5.5 billion U.S. project will produce 3 million tonnes per year of diammonium phosphate.

Amazon Mining Holding Plc., this week received the initial results for its drilling campaign at the Apatita Phosphate project located adjacent to Amazon’s Cerrado Verde Potash project in Minas Gerais State, Brazil. The program consisted of 12 holes for a total of 1,022m.  The results showed promising phosphate prospects on two of the three tested. Drilling in the two prospects identified mineralized phosphate between 0.01 percent and 9.57 percent P2O5 with widths of between 1m and 22m. In order to delineate the resource, Amazon Mining Holding plans to conduct further drilling, targeting a 43-101 compliant resource estimate.