Potash Ridge Aims to Capitalize on Underserved SOP Market

Potash Investing News (PIN) sat down with Potash Ridge‘s (TSX:PRK) president and CEO, Guy Bentinck, to get a better understanding of both SOP and the company’s Blawn Mountain project in Utah, which hosts a unique geology containing both potash and bauxite.

PIN: Your Blawn Mountain project in Utah is in the prefeasibility stage. How does your project compare in terms of size to some of the other potash projects being developed in the US?

Guy Bentinck: We’re producing SOP, which is different from the MOP that you’ll see getting produced in Saskatchewan. There are a few projects in the Holbrook Basin as well, and they are all producing or plan to produce MOP as opposed to SOP. When you look at the other SOP projects in the United States, there are essentially two other projects. One is IC Potash (TSX:ICP) and the other is EPM Mining Ventures (TSXV:EPK). Both of those are smaller projects than ours and they’re extracting the potash from a different source than we are and are applying to produce at smaller volumes.

PIN: Your potash project is unique in that you’re producing not only SOP, but also bauxite. How does that affect the economics of the project?

GB: That’s right, it’s a very interesting ore that we’re mining. You essentially have three constituent parts. One is the SOP, which is by far the primary product. We’re also producing a bauxite-type material as we vent SO2, and we can convert that either into elemental sulfur or sulfuric acid. The sulfur will likely be sold into local markets.

The US is currently an underserved market for SOP. It is importing about 100,000 to 150,000 tonnes. The market potential in the US is quite a bit larger than what it currently is, around 300-plus thousand tonnes. Particularly California, Florida and some of the other southern states, where there is a big growth of high-volume crops like almonds and fruits and vegetables and grapes and so forth.

The bauxite is a very interesting angle for us. In China, there is a very big demand for bauxite right now. They’re building about 30 bauxite-processing plants. About 70 percent of the bauxite that they’re using today is coming from Indonesia. Indonesia has indicated recently that it intends to shut off exports of its bauxite material because it wants it processed on island. China is quite desperately looking for new sources of bauxite to offset that Indonesian supply as well as to generally diversify its source of bauxite.

In West Africa, places like Guinea, Mali, they have their own challenges in terms of infrastructure, political issues, as well as the logistics of shipping from West Africa to China. We’re in a much better jurisdiction where we don’t have the infrastructure-related issues to any great extent, and the shipping distance from the West Coast of the US to China is at least half of what it is from West Africa to China, so we have a shipping advantage as well.

We’re quite confident that the bauxite, while not a necessary part of our economics, will be an important contributor. The preliminary economic assessment that we published late last year did not assume any revenue with regards to the bauxite, so by the time we publish our prefeas study, we do anticipate having those economics included in the numbers.

PIN: Let’s talk a little more about SOP. How is it different from MOP?

GB: They key difference between MOP and SOP is that MOP contains chloride. For certain crops, particularly high-volume crops like fruits, vegetable, teas, tobaccos, nuts, any kind of leafy lettuce, alfalfa, the chloride ion is detrimental for a number of reasons. You can reduce the yield quite significantly, but also things like taste and shelf life can be impacted when MOP is applied to these crop types. The difference can be quite significant.

On the other hand, SOP actually contains two nutrients. It contains potassium, but it also contains sulfur. Sulfur is a key nutrient in the growth of crops, so you’re essentially getting two nutrients as opposed to one nutrient and one detrimental item. Because of that, SOP has traditionally traded at a fairly significant premium over MOP. It varies a little bit by geography and has varied a little bit over the years, but typically it’s averaging around a 50-percent price premium in North America over MOP.

The market for MOP today is about 55 million tonnes. For SOP, it’s around 6 million tonnes. It’s about a 90-10 split. Most of the production of SOP today is in China and Europe, and most of the consumption of SOP is in China and Europe. There is a huge untapped potential in the US for producing SOP for export. Brazil is the largest grower of citrus fruit in the world. China has a consumption of 2 million tonnes of SOP per year. Brazil is consuming something like 40,000 tonnes per year. India is another great example. They’re the second-largest tea-growing nation in the world, a big grower of tobacco; their population is about the same as China and their consumption of SOP is not too much different than Brazil’s because they can’t get it. There is a huge underserved market. If there was more SOP available, people would buy it. Particularly when they understand the yield benefits over MOP for these crops that I was referring to.

PIN: Compared to other mined commodities, do you think potash is a good space for investors to be in right now?

GB: There may be some short-term weaknesses in potash prices, but I still think the long-term fundamentals of potash are very sound, and I think SOP in particular is an underappreciated potash story. Over time, as people better understand the differences between SOP and MOP, they will appreciate that the benefits of SOP over MOP are there and will see the growth and demand potential of SOP. The fact that this is an organic fertilizer is another thing that people will see as an advantage.

PIN: By organic do you mean it doesn’t have the run-off effects that phosphate, for example, does?

GB: Yes. With MOP, potassium chloride is not organic because you’re adding chloride into the soil. SOP is organic because everything that is in the SOP gets absorbed by the plant.

PIN: In marketing your company and this product, do you feel that investors understand the difference between SOP and MOP? 

GB: Some do, some don’t. It depends on who you’re talking to. Quite frankly, I think there may be a bit of market weariness on another MOP story because when potash prices spiked a few years back it created a new pipeline of potash development stories; the market is kind of weary of all these MOP development stories. Our story is different because it’s a different product and it has some unique characteristics. It’s the selling of high-grade potash, but we’re producing bauxite at the same time. It’s almost as though this is more of an industrial minerals-type business as opposed to a pure potash play.

PIN: That definitely makes it unique. What are your company’s upcoming milestones for this year?

GB: We’re undergoing our second phase of test work right now and the results of that will be included in the prefeas study. Our next major milestone will be towards beginning of May — we’re going to start some pilot plant test work and that will run throughout the balance of this year. The biggest milestone of this year will be the publication of of our prefeasibility study, which we are anticipating will happen by the end of this quarter.

We are doing some water drilling right now, confirmation drilling because obviously we need some water for the project. We have applied for the water rights already and based upon historical drilling, we do know that there is sufficient water nearby. We’re planning to file our large mine permit by the end of this year as well, which will start the clock on getting our permit approved. Those, I think are the major milestones.

PIN: Sounds like you have a lot on your plate. Thanks for speaking with me today.

GB: Thank you.

Securities Disclosure: I, Andrew Topf, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Potash Ridge is a client of the Investing News Network. This article is not paid-for content.

Interviews conducted by the Investing News Network are edited for clarity. The opinions expressed in these interviews do not reflect the opinions of INN and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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